The 5 Stages of the Contract Approval Process
The contract approval process can present a significant time sink for corporate legal departments. As attorneys and legal staff progress through the stages of assignment, negotiations, drafting, agreements, and renewals, they must cooperate with multiple disparate parties and engage with complex and extensive information. Efforts to streamline these tasks often rely on technology.
Artificial intelligence (AI) powered contract review solutions have become an increasingly popular option for enhancing legal operations. These solutions can expedite agreement review and approvals, allowing companies to focus on critical agreement areas to ensure better business outcomes.
The 5 Stages of The Contract Approval Process
While every corporate legal department has its contract approval process, most approval processes follow five general stages.
- Assignment: The earliest stage of the contract approval process involves the assignment of roles. Aside from establishing the involved parties, companies will also need agents to act on their behalf. These individuals require the authority to make decisions and negotiate terms in line with company policies.
- Negotiation: This step centers on playbook adherence. Corporate legal departments should provide a guidebook for associates to ensure all contracts apply the appropriate clauses and language. The playbook should also help associates determine areas to target and those to avoid when negotiating deals.
- Drafting: Drafting falls into the administrative aspect of the contract. The attorney or legal assistant will include all the necessary provisions and review the documents for clarity. Contracts may go back and forth between the negotiation and drafting stages before the parties reach a final agreement.
- Agreement: After several drafting and negotiation stages, an agreement will be reached. At this point, the contract is signed by all involved parties. In the past, this was a manual process. However, modern legal departments have taken advantage of electronic signature options to speed completion.
- Renewal: When the contract expires, the party may choose to extend or update it. In most cases, the renewal portion moves much faster than the original contract implementation. While the same contract approval steps will be required, those steps can be expedited because the parties already understand the basic terms and requirements.
The cycle of the contract approval process may appear streamlined, but it is not unusual for legal departments to return to various stages of the contract approval process during negotiations. As a result, it may take months to reach an agreement that is acceptable to all parties. Corporate legal departments can accelerate the approval process by employing AI contract analysis technology.
Using AI to Accelerate Contract Approval
AI contract review solutions can enable legal departments and procurement teams to streamline the approval process. These technologies work by evaluating contracts based on company criteria and favorable negotiating positions. An effective AI-powered platform offers four key benefits:
- Speed: Using technology to assess contracts accelerates all stages of the contract approval process and can reduce time to completion by as much as 80 percent.
- Resource allocation: Associates are busy and often cannot dedicate the time to perform a detailed contract review. AI solutions can assist legal staff by determining specific aspects of the agreement that may need attention while alleviating the need for attorneys to perform a wholesale review.
- Risk scoring: Risk scoring allows departments to perform an objective risk assessment to ascertain the company’s level of exposure based on the current terms of the contract. A high-risk designation indicates that a clause or provision requires attention.
- Playbook adherence: Playbooks are helpful to corporate legal departments, but they can be unwieldy. It could take years for an associate to become familiar enough with the playbook. Digitizing the playbook and using it as a data source in an AI-powered negotiation platform can automate and enforce playbook adherence.
With innovative technology, legal departments can accelerate the stages of the contract approval process. Some fully automated options can even perform a complete review in less than a business day—and sometimes in less than five minutes. AI is the technology that corporate legal departments turn to when they demand the best outcomes from their agreements.
Gary Sangha | Founder & CEO
Gary Sangha is the Founder and CEO LexCheck. He's a serial entrepreneur and an academic. Gary previously founded Intelligize, a legal technology company that was acquired by LexisNexis. He's affiliated with the University of Pennsylvania and Stanford University and started his career as an attorney at Shearman & Sterling and White & Case.