Businesses need to be responsive when faced with a new development that affects them at their operational core. That has never been more apparent than today, as countless organizations deal with the impact and fallout of the COVID-19 pandemic.
Even in the absence of something as monumental as the current situation, there’s no substitute for transparency into contracts if operational efficiency and strategic decision-making are priorities. Yet any company that relies on manual workflows for contract review is operating with one hand tied behind its back — a severe limitation in high-pressure situations.
When time and manpower come at a premium, businesses still need a way to ensure efficient effective, and accurate contract review that can meet deadlines. Projects that take a year to complete and still don’t get everything right can cost profits and productivity, creating even greater risk.
The costs of manual review and outsourcing
Manual contract review often requires enormous resources of time and labor, whether undertaken by in-house staff or outsourced to a legal service provider. Regardless, both the indirect and direct costs of either arrangement accumulate quickly.
The cost of in-house manual review is apparent: Employees who must tackle a mountain of paper are drawn away from other more important and vital tasks, sinking productivity. According to the Association Of Corporate Counsel (ACC), in 2018, in-house legal departments reviewed an average of 173 contracts per legal employee. Even companies that have sufficient manpower to work through contract analysis, however, face the issue of a high margin for error inherent in manual workflows.
For organizations that decide to outsource, the dollar cost can be a major drag on profitability. According to the same ACC benchmarks, legal departments spent an average of more than $730,000 on outside legal service providers in 2018.
What’s the alternative? An AI-assisted solution that can deliver insights on an accelerated timeline and at a fraction of the cost of manual contract review and legal outsourcing.
Examples of AI-assisted contract review in action
1. Regulatory change
The pace of regulatory change is fast these days and may only become quicker in the future as the world learns to adapt to new realities on the fly. Companies that are less agile in their contract review process will feel the pressure as compliance deadlines come and pass.
Recent examples of expansive regulation are the EU’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). These Regulations have significantly expanded citizens’ privacy and data rights, as well as global organizations’ obligations, even if they are headquartered outside those jurisdictions.
Such privacy legislation is increasingly common, introduces a new element to contract review and risk management. Initially, businesses must determine which contracts fall under the purview of regulation. This is a massive undertaking in and of itself. Once a company has updated its contracts, however, it is faced with determining whether addenda are robust and prudent enough to comply with the regulatory mandates.
The costs of manual review are compounded by the potential costs of lawsuits, data breaches, and financial penalties should even one error or oversight be made.
With an AI-powered contract analysis solution, however, businesses can rapidly surface contracts with outdated provision language to identify liabilities and correct their contracts in light of new regulations, markedly reducing the amount of time and effort it would take to achieve compliance.
2. Risk management
The reality is, over time, companies lose sight of the information contained in their contracts. The lag is often due to the competing priorities and obligations and the sheer number of contracts generated over time, which is compounded by employee turnover and employees changing departments and duties. This is particularly pertinent when legacy contracts based on templates become outdated as the years go by. Parties sign new statements of work or renew many of these master contracts via amendments due to time constraints, knowing that the templates need to be overhauled, but simply lack the time and resources to do so.
Additionally, legal teams, contracts managers, and business units are tied down with day to day negotiations of current contracts.
The above circumstances naturally result in risky provisions being hidden in legacy contracts — and often these businesses have no way of knowing. Contract and legal teams simply don’t have the time to comb through these contracts to find the highly negotiated legal terms that may cause issues should a problem arise under one of the contracts. This may lead to missed opportunities for revenue or blind spots.
When disruption occurs, these risks can become amplified, even activated. No one expects a crisis, whether a natural disaster, disease outbreak, geopolitical upheaval. At such stages, time is of the essence — yet manual contract review is in no way timely.
An AI contract management solution would be able to drive a rapid response, allowing users to manage contracts, as well as discover potential opportunities to recover or pursue revenue that could buttress operations amid headwinds. These tools could also help identify contracts that would need force majeure clauses written or updated after COVID-19.
3. M&A activity
Due diligence must be thorough, or it isn’t really due diligence, is it? The problem is often that these expansive trawls of companywide historical records are condensed into tight timeframes with immoveable deadlines.
Under such conditions, manual contact review quality is nearly assured to deteriorate, as far too many hurdles to access and accuracy exist.
Even as the pressure of the clock is winding down, there’s no difference in how an AI-powered solution performs for teams when the 11th hour draws near. There is no need to choose between delivering answers quickly or delivering answers confidently. And there are notably fewer costs to AI contract review than outsourced legal help. Considering the scope and scale of most M&A due diligence efforts, the costs can grow prohibitive.
Automation equals advantages
With manual contract review, the question is what to sacrifice: time or money? In-house teams can get the job done, but at what expense to internal productivity? In the same vein, outsourced legal service providers can complete the work, but at what cost?
The downsides of manual contract review only continue to grow more severe — and magnified by COVID-19. At the same time, these factors illuminate the benefits of contract discovery software.
Without a solution for automating aspects of contract review, companies may continue to miss opportunities, overlook risks, and strain to keep up with compliance.
ThoughtTrace provides the access and automation needed to ensure employees leverage actionable insights and businesses reduce operational costs. To learn more, download this whitepaper: How AI is Changing the Game and Saving Millions or request a demonstration.
Contact us today for more information or a demonstration.