As organizations increase the number of contracts they process each year, they are becoming increasingly engulfed in large volumes of varied contractual language which creates potential for major contracting inefficiencies. Beverly Rich, J.D. from the University of Southern California Marshall School of Business, published an excellent article in Harvard Business Review about how contract teams across industries can utilize artificial intelligence (AI) to reduce inefficiencies in contracting and gain competitive advantages. Rich says, “It has been estimated that inefficient contracting causes firms to lose between 5% to 40% of the value on a given deal, depending on circumstances.” These three key takeaways from the article highlight how artificial intelligence will decrease the strain on contract management professionals while increasing their value to the organization.
Organizations can now proactively identify potential landmines within their contracts
As contracts become more complex, many of the landmines that cost organizations millions of dollars exist in the unstructured language inside each contract. As a result, these landmines are not able to be tracked by contract management systems that simply store and organize contracts. Using AI to read and analyze contracts gives organizations the ability to track specific provisions and data elements to eliminate potential landmines before they explode. For example, Rich says:
“…a large tech company…with a huge volume of procurement contracts that all have varying renewal dates and renegotiation terms…would require hundreds of hours and a team of contract managers to review and track of all this information to ensure that no renewal or opportunity is missed.”
Rich goes on to explain how AI software can quickly and accurately extract and analyze large amounts of contract data – such as renewal dates and renegotiation terms – allowing companies to avoid potential landmines.
Contract management professionals will be more valuable to their organizations
Currently, lawyers, procurement professionals, and contract managers spend more time reading and analyzing contracts than on more advanced tasks such as renegotiation strategies and risk management. Since AI software applications surface more accurate and detailed information than was ever possible before, contract teams will be able to hone in on the most significant risks. This makes contract management professionals more valuable to their organizations and accelerates both personal and organizational growth. Rich says:
“Current AI software can also read contracts accurately… provide analytics about the data extracted from the contracts, and extract contract data much faster than would be possible with a team of lawyers. This may sound like bad news for lawyers, but… having additional contract data could allow firms to update their contracts more regularly, and lawyers could focus more on their role as counsel instead of contract reviewer.”
Contract teams have already seen measurable results
Companies that have high-volume, high-risk or highly negotiated contracts have the most to gain from utilizing artificial intelligence to read and analyze their contracts. Organizations using AI contracting technology have seen their due diligence time reduced by 80% while maintaining 97% data accuracy. These types of results reduce risk and lower costs to help gain competitive advantage. Rich says,
“AI contracting software can quickly assess risk in contracts (performing the risk analysis much faster than a team of lawyers) by identifying terms and clauses that are suboptimal.”
In 2017, ThoughtTrace launched the first industry-specific Document Intelligence and Contract Analytics platform that provides value on day one with minimal training and setup. Leveraging AI/ML as a complement to human expertise, the ThoughtTrace platform identifies critical obligations in contracts exponentially faster and with greater accuracy than traditional methods. ThoughtTrace reads, organizes, and surfaces data that gives users operational agility, actionable insights, and decision-making superpowers.