Contracting forms one of the core competencies of any firm or organisation, but surprisingly given its significance, it rarely gets the importance due to it. As a result, at conservative estimates, firms often lose up to 40% of value on certain deals due to inefficient and ineffectual contracting procedures. A silver lining to this issue now is the advent of AI (Artificial Intelligence) that has helped businesses get over many of the hurdles to contracting, taking it to an altogether new level.
What is the key challenge that firms face when it comes to contracting?
It is the sheer numbers of contracts generated which have to be kept track of from conception to the end of their life cycle. Hence it is a very hard task to manage, organise and update contracts which are made more difficult by the fact that there are no standard benchmarks on which contracts are based.
Every contract is unique in its own way and hence a lot of trained manpower is needed to oversee the contracting process meticulously as well as draft and execute them. For example, a firm might have a clutch of vendor contracts with varying terms and clauses. Monitoring each individually to make sure that no opportunities of renegotiation or renewal are missed out is no mean task.
All these issues that adversely affect the contracting process have been taking care of by AI software, the latest and most advanced tool in any contract process. Regardless of the number of contracts or their complexities or their uniqueness, the software can help companies review contracts, serialise renewal and renegotiate dates and in general keep a tab on all vital parameters of contracts.
This, in turn, reduces the possibility of contractual disputes and increases the volume of contracts that can be optimally handled by any organisation.
Three Ways AI-based contracting Software Changes Contracts
1. Providing advanced tools for contract management
Legal document review software has been around for quite some time but their scope is limited primarily to organising and storing contracts. AI contract software is a huge improvement on this and has opened up new avenues on what can be accomplished with the advanced tools and technologies embedded in the software. It can distinguish between contract types even in multiple languages based on recognition of pattern on how they were drafted. It can also extract data of primary variables such as clauses, parties to the contracts and dates, thereby enabling organisations to manage their contract portfolio more effectively and productively.
All this suggest that much of the work of lawyers and the human touch in contracting become redundant. In reality, it is not so. Contract management services can continue to maximise processing of contracts and monitoring them through AI contract software while lawyers can move over to more of a role of counsel instead of a contract reviewer.
2. Standardizing contract content
AI contracting software helps to standardise contract content across all divisions or sections of an organisation. A clause in a contract of one department has to have the same meaning and sense when inserted in a contract about another department. This uniformity ensures that all divisions work in sync and any change in definition or requirements are quickly incorporated into the contracts at all levels.
AI software enables firms to track variables in contracts irrespective of their sheer numbers and volumes. The software can identify and extract key data related to various variables such as termination provisions and default clauses which are generally not the same across contract formats. This aspect has also increased efficiency levels of contract review services as they can quickly record and identify any non-compliance and submit a report to the organisation they are contracted to. Hence, risk assessment in contracts is speeded up and corrective action can be initiated quicker than the touch of the human hand.
3. New tools, new processes and new skills
With the change of contracting tools and transition to AI contracting software, the process of contracting has undergone a sea change. Traditionally, contracting skills was the ability to successfully draft and negotiate contracts as well as manage and review them. Lawyers and attorneys poured over contracts analysing minutely every clause as a part of due diligence. Professional contract drafting services were expected to devise ingenious ways to draw up contracts that favoured their clients.
Now with AI contracting software, the resources required to produce the same high volumes of contracts has changed. Lawyers spend more time on what they have been trained in “ assessing risk and providing counsel rather than document review which most firms, in any case, prefer to outsource to contract management services. The core team of lawyers performing due diligence before a crucial deal is generally now reduced to more of an advisory role.
Final Words
Concluding, the three together will make the contracting system faster and more streamlined. However, AI contracting software is just that, software that has to be backed by the human hand and it is not an automated process.
It also has to be understood that AI contracting software is a complex entity, one handled best by agencies that have the required expertise and manpower required for contract review services. In the course of time, it is certain that AI contracting technology will reach unprecedented heights and will need the services of specialists in this field. At present, the beneficiaries of AI contracting software are those that have to keep track of large volumes of contracts without having templates to draw them up.
