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Stop Reading Contracts, Part 2: Knowing Everything About Your Contracts With AI

May 1, 2024

Knowledge is power, but too many legal and contracting professionals don’t own that power when it comes to their contract corpus. How can they get it?

Contracts underpin every business relationship in an organization. They define partnerships, establish terms of service, and outline financial agreements. But how can you manage them properly if your business accumulates a contract corpus consisting of thousands or even tens of thousands of agreements in silos throughout the business? Who would want to? 

Wrangling this ever-mounting horde of documents can become mind-numbing and budget-busting. But left unmanaged and unmonitored, it can be a source of mystery and danger, and not in a melodramatically entertaining way. Who knows what hidden clause or term might prove to be a risk vector – or lost opportunity – for the organization?

Fortunately, technology offers hope for transforming how we view, understand, and leverage the wealth of information locked within our contracts.

A wealth of insights: Capitalizing on your contract corpus

A well-organized contract corpus holds huge value. With the right processes and tools, it can be mined for a wealth of information and insights about your company's relationships, commitments, and rights. Unlocking it all can deliver major benefits:

  • Proactive risk mitigation: It’s crucial to identify and address potential risks before they become problematic. One effective way to achieve this is by analyzing your contracts to detect any clauses that may expose your company to unforeseen liabilities. For instance, an AI-powered system can efficiently scan for phrases related to intellectual property ownership or indemnity obligations, which can help you proactively manage risk.
  • Sounder strategic decision-making: Informed decisions demand a clear understanding of your contract ecosystem and individual agreements. Your contract corpus holds the key details about your rights and obligations with various entities. Imagine facing a critical business decision regarding whether to terminate a supplier contract: With a comprehensive grasp of your agreement with that supplier (e.g., service level agreements, payment terms), you can make that strategic decision with confidence. And with quick access to similar insights about all of your supplier agreements, you have even more relevant information to inform your decision.
  • Contractual consistency: Maintaining consistency across contracts mitigates risk and streamlines operations.  An AI-native contract intelligence platform can analyze your corpus to identify inconsistencies in clauses or terms between different agreements. Addressing these inconsistencies ensures all your contracts are aligned with your company's overall legal and business objectives.
  • Greater negotiation leverage: If knowledge is power, that’s especially true during negotiations. By understanding your negotiation history with specific counterparties, you enter negotiations from a position of strength. AI can help you maintain consistent positions and analyze past contract terms reached with similar vendors or partners, providing valuable insights into negotiation points and potential concessions to secure better deals in the future.
  • Surfaced opportunities and reduced costs: Contracts aren't simply about liabilities; they can also hold hidden opportunities for cost reduction and revenue generation. AI-powered analysis can uncover contractual terms that offer potential revenue streams with partners or customers (e.g., current entitlements for upsell opportunities) or surface ways to reduce vendor costs (e.g., renewal price locks). This newfound knowledge empowers you to renegotiate or restructure contracts to optimize your financial position.

Challenges in managing the contract corpus

While the potential benefits are undeniable, managing a large contract corpus isn't without challenges:

  • Volume: Modern businesses accumulate a vast number of contracts over time. Sifting through this sheer volume of documents manually can be a daunting and time-consuming task – especially if they’re not stored in a central repository.
  • Complex language: Contracts are often riddled with legalese, making them difficult for non-legal professionals to understand. This lack of comprehension can hinder the ability to effectively utilize the information within the contracts and often translates to legal queries that drain resources.
  • Version control and related document management: Contracts are rarely static documents. Amendments, renewals, and new agreements can constantly alter your contract landscape. Keeping track of these changes manually can be challenging and lead to outdated or inaccurate information.
  • Cost: Traditional methods of contract management, often relying on manual review or basic document management systems, lack what’s necessary to effectively extract insights from a large contract corpus. This can result in inefficient resource allocation and missed opportunities.

Budget pressures persist: Forty-two percent of legal departments were mandated to cut costs and 58% experienced major rate hikes by outside law firms; 59% of CLOs say their workload increased over the last year.

How technology unlocks your contract corpus

Luckily, there are answers to every one of these challenges. Here are ways technology and training can evolve how you can interact with your contract corpus:

  • Conventional contract lifecycle management (CLM) systems: Bare-bones CLM platforms offer a centralized repository for contract storage and basic workflow management. This can help with basic organization and collaboration around contracts. However, CLM systems often struggle with the complex language and dynamic nature of contracts, limiting the ability to extract deeper insights.
  • AI-native contract intelligence platforms: These cutting-edge platforms offer a significant leap forward in contract management. Leveraging advanced AI technology, including natural language processing (NLP), retrieval-augmented generation (RAG), and generative AI, they can analyze large volumes of contracts, automatically extract key clauses and terms, and identify potential risks within the corpus. They supply powerful search and analytics functionalities, allowing users to easily find relevant information and gain valuable insights from their contracts. Features like AI-assisted drafting and custom AI model creation for term tracking can significantly improve efficiency and decision-making.
  • Training and education: Technology is an enabler, but its full potential is only realized when paired with human expertise. Training your legal and contracting staffers on how to utilize these new tools and interpret the insights they generate is crucial. Understanding how AI can augment legal processes and work in tandem with people’s professional talents can be game-changing. If you want to make the best use of contract technology and drive high levels of adoption, be sure to ask your would-be vendors targeted questions about their customer education offerings – and lean on customer reviews regarding training, support, and education. 

Find out more: What are the 6 Questions Only Customizable Contract AI Can (Easily!) Answer?

The benefits to your bottom line – and otherwise

There are other benefits from using AI to manage and monitor your contract corpus. They include:

  • Enhanced efficiency and streamlined workflows:  AI automates repetitive tasks such as contract ingestion, classification, and clause identification. This frees legal teams from what can be repetitive and frustrating work so they can concentrate on higher-value tasks like negotiation, risk assessment, and strategic analysis.
  • Improved accuracy and reduced errors:   AI-powered analysis can eliminate manual data entry errors that are all-too-common with traditional contract management methods. Moreover, AI can consistently apply pre-defined rules for clause identification, which also minimizes human error and ensures consistency in analysis.
  • Reduced costs and increased ROI: By automating tasks, minimizing errors, and providing actionable insights, AI can significantly reduce the time and resources needed to manage contracts. This nets out in cost savings and a higher return on investment (ROI) for your legal department.

Examples of all this in action? 

  • Software giant NetApp used AI to quickly search 24,000 contracts to identify 90 different variations of specific provisions.
  • Healthcare provider Five Rivers slashed the time needed to prepare for rigorous HRSA site visits because it could search for specific terms relevant to the audits and easily make updates.

Conclusion: Know thy contracts, know success! 

Being able to know what’s in your contract corpus can give you a powerful business advantage over competitors by allowing you to proactively mitigate risk, take advantage of hidden opportunities, and liberate your legal and contracting staff from the onerous burdens of contract searches and reviews. 

The right technology can help you make that happen.

In the next post in this series, we’ll explore how customizability is a cornerstone strength of a good contract AI system that can deliver on all the benefits we’ve just outlined.

Find out how

Evisort

can help your team

Test Evisort on your own contracts to see how you can save time, reduce risk, and accelerate deals.

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Find out how

Evisort

can help your team

Test Evisort on your own contracts to see how you can save time, reduce risk, and accelerate deals.