Contracts are important enterprise documents carrying valuable information about an agreement between two or partners. Review of contracts is essential to prevent leakage of any business opportunity, but the intricacy of the workflow involved makes the task cumbersome and time intensive. Today, contract review automation is no longer a privilege of a handful. Instead, it has become the need of the hour for many good reasons. Automated contract review involves AI and ML-enabled software solutions to streamline processes, assess contract patterns and apply the same to similar types of agreements, highlight essential assessment aspects, and identify improvement opportunities.
Reviewing agreements is a painstaking endeavor, and legal teams couldn’t agree more. But experts believe that 23% of lawyers’ tasks could be easily automated because of legal technological advancements. This sounds promising, especially for legal experts, who spend approximately a few hours to over a month reviewing a single business contract. And when you throw multiple contracts in the loop, the time can be hard to estimate. Therefore, AI contract review software solutions are highly regarded as a blessing in disguise.
Manual vs. Automated contract review – Evaluating the difference
In all senses and purposes, an automated contract review is the best bet for legal professionals and contractual partners. One of the primary reasons behind this would be the time factor. Today, business partners can no longer afford to delay the execution of their contractual terms simply because the lawyers need more time to review the agreements. Therefore, the alternate, tech-enabled version of manual contracting is deemed the go-to solution to speed up the execution of the terms.
But nullifying the legacy human-centric contracting would be wrong without exploring the downside of the method. However, manual work is considered less effective for its time, cost, and labor-intensive factors.
Human contract review, popularly known as manual contracting, follows a structured process involving legal professionals reviewing a draft agreement multiple times to ensure the agreed terms align with the organization’s policies. The continuous loop of reading and writing is exceptionally time-taking and exhausting for lawyers. The latter must create flowcharts or checklists defining areas in the contract that require checking, highlighting the changes, and adding comments wherever needed. That’s not all. The clause language describing standard terms varies significantly from contract to contract. The negotiation phase, where concessions between two parties are narrowed, ideally takes five to ten days. And each sitting comprises a thorough review coupled with the actual negotiation. No wonder manual contract review is time-intensive, thereby driving up review costs. The contract review and negotiation process move at a snail’s pace, leaving behind a trail of human errors and negatively impacting the deal’s speed and overall sales. Inconsistencies and missed deadlines are rampant in manual contracting and review.
Contrarily, legal contract review using the power of automation and AI offers a more streamlined approach, where contractual patterns are assessed and applied automatically to every category of agreements. AI-enabled tools take less than a minute to review a contract, compared to approximately an hour of manual effort. In addition, the software system can quickly put together standard practices seen in earlier agreements and apply the same to the one about to be reviewed.
However, human expertise is still needed in AI contract review software solutions. But courtesy of advances in technology today, lawyers will soon have more self-reliant AI models at their disposal to break down and simplify the contracting lifecycle.
Benefits of automated contract review
Contracts are critical to an organization’s success. They are physical evidence of agreements made between two parties. The business processes subsequent to accepting the contractual terms heavily depend on the latter’s timely acceptance. Here, any delay in the review process would eventually slow down the execution of the terms, leading to lost opportunities. Therefore, automating the legal contract review is imperative for several reasons.
Streamlined contract review: An automation software solution streamlines the tedious, time-consuming, and expensive process of manual contract review. This helps organizations to optimize their time and budget more productively.
Electronic contracting process: Automated contract review has effectively replaced the long-haul, paper-based process with an electronic one. The transition has successfully prevented agreements or their clauses from being compromised, misplaced, or lost, also arresting unnecessary delays.
Contract tracking capabilities: Automation and AI simplify the review process, enabling lawyers to track multiple versions to eliminate duplicated work. The intelligent software system ensures that all contract versions are better maintained and controlled.
Contract repository: A centralized repository is created to allow contract review automation, ensuring the final copy is securely stored along with their revision history for future reference. This repository eliminates every chance of inadvertent changes in the contractual terms once the partners have duly signed the agreement. Furthermore, the storage enables lawyers and companies to create and store preferred clauses and language that can be leveraged during later contract reviews.
Automated contract review drives better contract performance by mitigating contractual risks through proper analysis and supporting legal and contracting teams in pursuing higher-value, strategic work.
For example, a 100-year-old Tokyo-based conglomerate prevented subjective interpretations and human errors in contract risk analysis and saved 25% of the procurement staff’s time on contract review by switching to automated software solutions.
For more information download the case study: https://www.edgeverve.com/xtractedge-contract-analysis/conglomerate-contract-management-achieved/
Primary objectives of automated contract review
The purpose of a contract review is to ensure that legal agreements and the terms contained within them are robust and that legal and financial risk is reduced as far as possible to protect the interests of your business. With the help of automation solutions, the effectiveness and accuracy of the entire process are guaranteed, enabling partners to put into action the contractual terms as soon as possible.
Therefore, the core objectives of an automated contract review would be:
Improving accuracy and consistency
Automated contract review is considered a practical approach that improves the accuracy and consistency of contract analysis. By leveraging its extended capabilities of artificial intelligence and machine learning algorithms, the software system can scale up analyzation of legal documents in large volumes while quickly picking up potential issues and inconsistencies, regardless of how minor they are. Further, the risk of human errors is significantly reduced, as already stated. The software solution identifies potential issues that escape a human reviewer’s eyes. On the other hand, using a standardized set of rules and criteria ensures that all contracts are reviewed the same way, no matter who is reviewing the contract.
Enhanced visibility and management
AI contract review software tools have the power of machine learning algorithms and natural language processing (NLP) techniques to quickly analyze and extract critical information from legal documents. This improves granular visibility into contractual terms and assists with adequate management of all contracts. Furthermore, the platform provides compliance assurance to meet legal and regulatory requirements while identifying potential risks and opportunities for improvement. Simply put, an automated contract solution helps organizations quickly and efficiently manage their contracts and drives the positive transformation to the overall contract management process.
Lower costs and increased efficiency
Automated contract review platforms can significantly reduce contractual costs while boosting organizations’ efficiency. Machine learning algorithms and natural language processing techniques streamline contract negotiation cycles and reduce the overall review time. It can also analyze past contracts and suggest alternative clauses to move the negotiation cycle forward.
Irrespective of the benefits mentioned above and the objectives, it is essential to note that an automated system still requires human review and oversight. However, with humans in the loop, these automated software systems’ proper and adequate functioning is assured and guaranteed.
Automated contract review – Best implementation practices
Now, it is evident that an automated contract review is a powerful tool for organizations to streamline and accelerate their contract management processes while reducing reviewing time and related costs. However, automated platforms often face challenges and fail after the pilot phase. To override the same crisis, enterprises, and legal teams can follow some of the following best practices to ensure the implementation success.
Automated contract review tools are tasked to improve and speed up the contract management and negotiation cycle. By respecting the best practices, enterprises can genuinely scale the benefits of an intelligent solution, unlock potential opportunities, and reduce costs involved with contracting.