Why AI Is Critical in Contract Management Solutions

July 27, 2021
July 27, 2021
Gary Sangha | Founder & CEO

Contract management can be a complex undertaking. While some legal departments have succeeded in updating from manual to digital contract processes, for most there remains room for improvement. Forrester’s State of Contract Management 2020 report found that a third of contracts require over 30 hours to negotiate, and 52 percent of companies examine three or four versions of a contract before finalizing a deal.

Artificial intelligence is necessary for a long-term contract management solution

Unacknowledged risks and opportunities reside in these agreements and underscore the need for a smart contract management solution. Contract negotiation artificial intelligence (AI) plays a critical role in the modern lifecycle management of an agreement by identifying contract risk factors and offering revisions that adhere to a company’s custom AI Digital Playbook while freeing in-house legal teams to focus on the most business critical tasks. 

How Companies Apply AI Contract Management Solutions

The applications of AI in contract management are wide-ranging:

  • Contract Types: AI can review and negotiate a myriad of contracts, including Non-Disclosure Agreements, Software License Agreements, and Master Service Agreements. After scanning the contract, the AI flags clauses that may benefit from further negotiation. Additionally, the AI can automatically revise the agreement language based on company guidelines. 
  • Contract Data Extraction: AI uses Natural Language Processing (NLP) to extract significant contract terms and clauses with unprecedented speed and accuracy. Contract terms can be standardized based on playbook rules to minimize negotiation time and boost productivity. 
  • Risk Analysis: Changes in business stability, legislation, and relationships can be overwhelming for a single person or team to consider. With an AI contract platform, dynamic clauses can be monitored, flagged, and scored based on risk. Suboptimal terms or clauses that fall out of alignment with the stated interests of the organization are automatically flagged to safeguard the company’s position.  
  • Reduced Approval Timeline: It can take weeks for a contract to reach approval. Multiple reviews involving many stakeholders can further lengthen this process. With an AI-powered platform, legal departments are able to reduce the review and negotiation time substantially. 
  • Flexible AI Playbook: The AI becomes smarter by collaborating with human reviewers. If a clause is incorrectly classified and the reviewer updates the digital playbook, the AI will recognize the new rule in future agreements. 

Why Is AI a Critical Contract Management Solution in 2021?

Agile companies are not investing in AI for technology’s sake; they are responding to a particular problem that AI is well-suited to address. In the last few years, leading-edge solutions that leverage AI have become more affordable and accessible to legal professionals. 

Consider some of the common contractual challenges that can be tackled using AI:

Problem: We need to track specific provisions, but it’s too time-consuming and costly. As a result, we often miss contract deadlines and end up locked into unfavorable contract terms. Sometimes we miss opportunities to save money.

Solution: AI can identify anomalies in key terms like indemnification or limitation of liability clauses. Legal departments train the AI in company standards by uploading a playbook, along with model agreements. The AI reviews and returns fully redlined agreements with suggested revisions that reflect company standards.  

Problem: We’ve had recent surprises related to limitations of liability with some of our suppliers.

Solution: The AI can examine agreements at scale. For instance, its analysis may conclude that 20 percent of in-progress contracts include contract liability clauses with language outside the company’s playbook guidelines. In addition to flagging these outlier clauses, the AI also provides contextual suggestions for revisions based on playbook standards. 

Problem: Our agreements contain errors or omissions due to personnel turnover and training lags.

Solution: In addition to eliminating contract errors and ensuring negotiations adhere to company guidelines, an AI contract review and negotiation platform can save legal departments money by automating routine contract review. Instead of relying on attorneys and legal staff to perform these reviews (and incurring the associated training costs), attorneys and legal staff can focus on higher-value, strategic goals.


LexCheck Is a Leading Legal Tech Solution Provider

CIO Review Magazine recently selected LexCheck as one of the “20 Most Promising Legal Tech Solution Providers of 2021.” By integrating LexCheck as a component of their overall contract management solution, companies like NetApp and RSM have leveraged the AI to perform automated contract risk analysis and reduce contract review time by over 50 percent. As the ecosystem for contract management solutions evolves, forward-thinking legal departments and procurement teams are turning to AI-powered review and negotiation as an integral component in their contract approval process.

LexCheck’s AI-powered contract negotiation platform provides next-generation technology to complement your legal department’s overall contract management solution. Request a demo to experience the technology first-hand, or reach out to us at sales@lexcheck.com to learn more.

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