Enabling the Living Contract: A Q&A with Icertis’ Co-Founder, CTO Monish Darda

As businesses increasingly digitize their contracts, they are faced with challenges and opportunities. Digital transformation of the contract management lifecycle changes the foundation of the business, simplifying business processes while also creating new governance and technology adoption hurdles. But how successful these efforts ultimately will be may come down to another factor entirely: ambition.

Will procurement settle for merely a digital upgrade to contract management, or will it seize the opportunity to reimagine what contracts can be altogether?

As we framed it in our previous article in this series, the question comes down to a distinction between “smart” contracts and “live” contracts. To help organizations see the possibilities, we sat down with enterprise CLM provider Icertis’ co-founder and CTO, Monish Darda, for a Q&A exploring the live contracting concept, along with active use cases and a projection of what the future holds for contract management technology.

Spend Matters: How does Icertis define the concept of live contracting?

Darda: The concept is that the contract moves from being a static document to one that can interact with systems, with people and even, at some point in the future, take action autonomously based on predefined parameters.

The way you get to that state is that you have to start with the simplest thing, which is to digitize the contract. Not just converting to text but bringing structure to the content. Pull it apart into its components and build data structures to house those components, and then build workflow rules that govern how those different components interact and what they are and then link that system up with other systems. Making the contract “aware” of its environment and eventually making it capable of interacting with it is what makes it “live.”

SM: What are the benefits of the live contracting approach, generally and relative to the old approach?

Darda: A contract has traditionally been negotiated hard, and then locked up in a closet till a problem occurs. No value accrued from the contract, and the cost of encountering a problem that made you dig up the contract has increased exponentially today — you might go to jail, or have a million-dollar penalty. Or you might lose revenue that you never knew existed, like missed discounts. The biggest benefit is that by digitizing the contract, you’re able to sort this information out of that contract and then apply computer science to that information, because you essentially turned unstructured data, that was maybe in paper form or, if you’re lucky, a PDF file housed on a shared drive, and you’re able to turn unstructured data into structured data. This is the expiry date, this is the indemnification clause, and this is the contract amount, here is your termination clause and your obligation to comply with the GDPR.

Once it becomes structured data, then you can apply computer science to that to do any number of things. You can utilize AI to look back and make recommendations on, say, which clauses will get approved quicker or you can link it up with other systems, financial systems, to understand the impact of having a net-30 versus a net-60 payment term. So by digitizing data and making it available for organizations, you really create a number of speed advantages, risk reductions and the ability to optimize your commercial relationships.

SM: What are the biggest barriers to enabling the live contracts concept at businesses today, and how can those challenges be overcome?

Darda: There are a couple of factors. Obviously, if you don’t have your contract portfolio digitized, it’s very difficult to rule out potential issues, but then when you start looking within the organization, a lot of systems are really focused on only a very limited business process, whether it’s the buy-side process or the sell-side process. Similarly, their contract management systems are only set up within the confines of that single-business process, and that starts to make it difficult to achieve the conditions of that contract, because they are only designed to interact within the framework of that business process.

Another one could be termed the process problem. Business processes have to change with the technology — customers who make those process changes as they adopt a modern contract management platform reap the most benefits. The technology can do so many things, but if you don’t have, say, an approval process, the technology is not going to solve that for you. Also, live contracts need access to other systems, so integration is another barrier. You need to play the long game, think more broadly to leverage the technology well and bring systems together.

SM: How is Icertis enabling the live contracts concept today with clients? What are some specific use cases?

Darda: Daimler is one that comes to mind. They make their contracts come alive by connecting them to their sourcing process. You can imagine how that speeds things up, to be able to negotiate the contract with your supplier at the same time you’re running the RFP. Now, instead of losing six months because you sourced with a supplier and then it took a couple of weeks to negotiate the contract, you eventually realize you couldn’t come to an agreement on the contract terms, now you’re back to square one and have to choose another supplier or give away an advantage. You’re doing that simultaneously. Also, any change in the sourcing automatically flows back in the contract. That requires you to have an interlinked system, where your sourcing system and your contracting system are tied together and can interact well.

SM: Is this concept of live contracting the be all, end all? Or is there a state beyond that, one that enables Icertis to achieve something else entirely?

Darda: There are some interesting things we’re doing that have really longer-term horizons. Think about how this technology intersects with something like blockchain — it becomes really interesting. We’re doing a proof of concept with a customer right now, where they’re able to look down their supply chain and understand whether they are meeting ethical and sustainable sourcing requirements with their tier-1 supplier, whether those contractual terms will be passed down the chain to n-tier suppliers.

Because they can see that on a blockchain, the client could also potentially see the compliance work that’s been done. The audits that have been done. Now that information can be added to the blockchain, as well. Now you’ve got a record to see that. In the food industry, you can much more quickly respond to food quality issues. You can track the actual invoices and track all the way down the supply chain where those materials are coming from, so you can much more quickly respond. The supply chain is thus tied to the contract and vice versa, enabling contracts to prove compliance, to execute actions and even automate payments.

The state beyond live contracts in our mind is the concept of an “internet of contracts” — contracts tied to each other, where an M&A event can automatically and safely update existing contracts, or a supplier can automatically update a contract with a manufacturer when Brexit happens. It is an exciting prospect, where commerce can happen autonomously once the guard rails have been set.