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Analyst Eye on the growing trend in contract analytics

06/27/2023 By and

contract analysis
Image by aymane jdidi from Pixabay

Each week our analysts turn their eye to the procurement tech trends they are observing in the marketplace. This week, we discuss a growing need for, and evolution of, contract analytics and ‘actionable insights.’

The trend for greater contract analytics in contract management solutions is seen most widely in the offerings of the newer providers that go beyond the expected features to give ‘actionable insights.’

Contract management and contract analytics can be described as extensions of contract lifecycle management (CLM). As our dedicated analyst Nikhil Gaur puts it: “The traditional goal of contract management solutions is basically to track contracts, have a unified place to keep and retrieve them and to get renewals done. But Procurement has access to all sorts of data within that repository of contracts. This data (statistics, graphs, financial terms, etc.) allows you to be more proactive and identify areas where you could find opportunities, save money or add extra value — and this is what we mean by contract analytics. Unlike CLM, with contract analytics solutions you aren’t creating contracts or negotiating clauses, at least in most cases, what you are doing is tracking the analytical aspects of them.”

Demand for functionality like contract analytics is driven by customers that want more than the traditional use cases of contract management. “We’ve noticed a growth in the number of new vendors popping up that are trying to add something extra that spurs action,” he notes. “Instead of offering a solution aimed at alerting you to certain changes to thresholds when a renewal date is coming up, for example, these solutions are tying in a lot more financial information by integrating with a P2P or ERP system to give greater insights. So, you can upload your invoices to the contract solution and that gives insights from a financial lens rather than just a contract lens. That allows you to take more of an objective and numerical approach to contract management. Users are starting to be able to see just how much monetary value is at risk if they don’t renew on time, or how much money they could save if they renegotiated part of the contract for example.”

Clearly, we might wonder why we don’t just use spend analytics. “A dedicated SA solution is obviously more robust,” says Nikhil. “But contract analytics is taking some of the benefits of spend analytics and bringing them to a more contract-centric space. Spend analytics will always have its place, we can think of this as an extension to contract management where users can realize a lot more value that is locked in those contracts.”

“So, for these solutions, while the financial dashboard is not the primary focus, what you’re getting is customer-specific AI, in many cases to extract every data point from your contract and then compare it to your overall learning model to extract value. It will notice that you’ve negotiated a certain clause and that leads to a certain obligation which is agreed upon at a certain price. Then, when comparing that to a previous contract, for example, you can see the difference in price and obligation – so there’s an opportunity to renegotiate and save money.”

Providers of note that have come under Spend Matters radar include:

  • Terzo — designed to provide financial insights from contracts that more standard contract lifecycle management and contract analytics tools neglect.
  • Glean AI — more an AP solution but use the same idea of bringing spend principles into other areas, Glean AI combines AP automation with spend analytics.
  • DSilo — a new contract and invoicing analytics solution provider with an emphasis on AI.

If we look at other examples of what might be coming contracts’ way, there’s the onslaught of Generative AI, which some vendors are already using in terms of ChatGPT plugins, for example, for clause writing. “But the more interesting uses,” says Nikhil, “will be companies that have their own proprietary Gen AI that’s not based on ChatGPT, which will have their own and legally specific intelligence that frankly will be a lot more effective at analyzing clauses rather than just recycling from a general knowledge base.”

There’s also the use case of redlining – which according to our analyst is going one of two ways. “There are solutions that are 100% based around automatically redlining for you; they might use AI but they’re not necessarily generative AI. Then there are solutions that use generative AI to markup contracts as soon as they’ve been uploaded to the solution. Literally upon upload, they are red-lined against your company playbook by a generative AI engine. The technology is not quite there yet, but there are vendors that are having a pretty good go, like AI contract review solution BlackBoiler or contract acceleration and intelligence platform LexCheck.”

(Look out for Spend Matters upcoming mini-series covering Generative AI use cases.)

Contract analytics and generative AI is an area that is experiencing steady growth, and new providers are getting a lot of funding attention.

“It’s not necessarily something smaller firms will take advantage of yet, but it definitely is useful for medium to larger companies that have enough contracts for it to become relevant,” says Nikhil. “This is a very advanced use case and while it’s not something that’s going to disrupt the market, it’s certainly worth watching.”

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Analyst Eye