Contract risk assessment quantifies a company’s exposure to uncertainty and adverse outcomes. In a competitive and often litigious business environment, modern corporations implement sound risk mitigation processes to ensure companies do not assume unnecessary liability or adopt positions that could harm their future well-being. Careful review with a contract risk scoring process enables contract negotiators to set terms effectively and maintain preferred negotiation positions in business relationships.

Every contract holds potential risks that can affect the company’s bottom line. Creating a risk scoring plan begins with establishing which aspects of the contract require examination. Provisions that may require assessment could include breach of contract, warranty, automatic rollover clauses, intellectual property concerns, termination clauses, price fluctuations, confidentiality, non-compete clauses, and many others specific to a business or industry. 

In a contract risk scoring assessment, each section or clause receives a point value. A low score represents little to no risk, while a high score signifies substantial risk. Contracts with the highest risk scores will require an escalation managed by a senior-level attorney or corporate contract negotiator. Less risky contracts may be handled by less experienced legal staff. While contract risk scoring can help companies mitigate risk, it can also be cumbersome and time-consuming for teams to implement.

How Can Artificial Intelligence Streamline Contract Risk Scoring?

Artificial Intelligence (AI) offers an innovative solution that can save legal teams time, money, and hassle, without compromising quality assessment. For instance, LexCheck’s AI-powered contract platform performs automated contract risk analysis that mirrors the work of an experienced attorney. Companies employing an automated solution can complete comprehensive reviews at scale while reducing their escalations from 80 to 10 percent of contracts processed. 

Artificial Intelligence Extracts Relevant Terms

Natural Language Processing (NLP) enables contract risk management platforms to extract clauses, renewal dates, and penalty provisions to develop an accurate measure of business risk. Errors and omissions are easily identified and flagged for review. 

Artificial Intelligence Assesses Risk

As soon as legal staff uploads a contract to the platform, the AI compares the agreement to a dozen or more past contracts—along with a database of standard agreements—to determine a color-coded risk analysis score based on historically challenging sections, past markups, and adherence to the company’s AI Digital Playbook. 

Artificial Intelligence Reviews Terms

The most innovative AI solutions can suggest intelligent, context-based revisions where the contract language is ambiguous or unfavorable. Doing so enables legal teams to alleviate confusion between reviewers or parties regarding why a particular clause or term was flagged. Not only are countless back-and-forth emails unnecessary, but junior-level associates can review contracts with confidence that they are adhering to company standards.

Artificial Intelligence Assures Playbook Compliance

LexCheck also works with a company playbook to assure portfolio compliance to a set standard:

• Are the changes benign?
• Are the changes acceptable with some modification?
• Are the changes entirely out of bounds?

Teams no longer have to worry about new employee learning curves, multi-level approval processes, or costly deviance from company standards. All the “must-have” provisions will be included in every contract. All the “must-not-haves” will be eliminated. 

Artificial Intelligence Saves Time and Resources

Automating contract risk scoring, review, and negotiation with AI enables legal teams to accelerate their agreement assessment and review processes. Contract review and negotiation that required hours, days or even weeks can be completed in a matter of minutes by leveraging the power of AI. Attorneys and managers can shift their time and resources to higher value or higher risk tasks while empowering junior staff to make approved changes according to playbook strategies.  

LexCheck Provides Value-Rich Contract Risk Scoring with AI

The Association of Corporate Counsel (ACC) recently selected LexCheck as its “Value Champion for 2021,” a distinction awarded to IT solutions that foster innovation, cost savings, and better outcomes for legal professionals. LexCheck’s AI-powered contract negotiation platform impressed the ACC with its ability to automate routine agreement review processes of the high tech company NetApp, while ensuring alignment with the company’s preferred negotiation positions.