Transforming contract management: From digital foundations to AI-powered efficiency and precision

09/05/2024 By Ward Karson, Raindrop COO

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This content does not express the views or opinions of Spend Matters.

In today’s fast-paced business environment, the need for agility and accuracy in contract management is more critical than ever. Contracts serve as the foundation for business relationships, outlining the terms, conditions and expectations between parties. However, managing these documents throughout their lifecycle — from creation to execution, and eventually to renewal or termination — can be a daunting task, fraught with complexity and potential for error.

To address these challenges, businesses are increasingly adopting Contract Lifecycle Management (CLM) systems for improved collaboration, timesaving, visibility, increased productivity and reduced compliance risks. While these systems have existed for well over a decade, advancements in emerging technologies like artificial intelligence (AI) have accelerated the demand and adoption for CLM platforms.

As a result, today, the CLM journey typically progresses through core stages: building a contract management foundation for search and collaboration, enhancing authoring efficiency and execution, and lastly accelerating digital capabilities by integrating advanced AI technologies like Generative AI and Natural Language Processing (NLP).

Stage 1: Repository, search and collaboration – “Building a digital foundation”

At the core of any effective CLM system lies the ability to efficiently manage and organize contracts. The first stage in this journey involves establishing a centralized repository where all contracts are stored and tagged digitally. Moving away from disparate paper files or scattered digital folders in SharePoint, organizations can achieve a comprehensive more secure view of their contracts, enabling easy user and organizational security-based access for searching and contract retrieval.

This foundational step allows businesses to gain better visibility into existing contract language and terms and conditions used across different contracts, helping identify patterns and inconsistencies.

Additionally, integrating contract workflow processes within this repository ensures that contracts can be easily searched, requested and tracked efficiently, streamlining the entire contract management process with improved collaboration internally.

Organizations that have adopted these basic digitization processes are well on their way to optimizing contract management by using analytics tools that provide insights into contract performance, key milestones, and potential risks and custom reporting for areas like contract statuses, renewals, expirations and obligation management to help in proactive decision-making.

By having a searchable repository, organizations can set the stage for more advanced authoring and management functionality.

Stage 2: Templates, clauses and signatures – “Enhancing authoring efficiency and execution”

Once a contract repository is well established, the next step involves enhancing contract creation, management and execution. This stage focuses on improving the speed and consistency of contract authoring by leveraging pre-approved contract templates and clauses.

Template library: A repository of ready-to-use contracts
One leading efficiency in contract management is maintaining a robust template library within the CLM system. A template library can offer pre-approved contract templates for various types of agreements, such as Master Services Agreements (MSA), Professional Services Agreements (PSA), SaaS Agreements, Service Level Agreements (SLA), and Non-Disclosure Agreements (NDA). These templates serve as the starting point for contract creation, ensuring that all necessary legal and compliance requirements are met from the outset.

By leveraging a template library, organizations can more quickly deploy contracts that have been vetted and approved by legal teams, minimizing the risk of omissions or inconsistencies. This not only accelerates the contracting process but also ensures that contracts adhere to the organization’s standards, providing a solid foundation for negotiations.

Clause modification: Flexibility at your fingertips
Contracts are rarely one-size-fits-all, and the ability to modify them to suit specific needs is essential. CLM platforms that provide the flexibility to add, swap out, or remove clauses, terms and conditions with ease reduce the headache of managing contracts. This capability allows users to tailor contracts without the need for extensive legal review each time a change is made.

For instance, if a supplier agreement requires a non-standard indemnity clause, users can easily integrate it into the contract. Conversely, if certain clauses are not applicable to a particular deal, they can be removed or replaced with more relevant terms. This flexibility ensures that contracts are always aligned with the specific requirements of the transaction, reducing the time spent on revisions and the potential for disputes down the line.

The digital audit trail: Digital signatures
Electronic signatures offer significant benefits in contract management by closing the contract execution process, streamlining the signing process and reducing the time and costs associated with traditional paper-based methods. They enhance efficiency by enabling contracts to be signed quickly and securely from anywhere, eliminating the need for physical meetings or postal services.

Additionally, electronic signatures provide robust tracking and audit trails, ensuring greater transparency and compliance with third parties. This digital approach improves overall workflow and contributes to environmental sustainability by reducing paper usage.

Stage 3: Generative AI and NLP – “Pioneering the future of contract management”

The third and most advanced stage of CLM adoption is characterized by integrating cutting-edge AI technologies such as Generative AI and Natural Language Processing (NLP). While this stage of technology is rapidly advancing, these emerging innovations are transforming contract management, making it faster, more accurate, and more intuitive.

Generative AI contract creation: The foundation of efficient contracting

One of the most significant advancements in CLM is the integration of Generative AI for contract creation. Traditional contract authoring can be a labor-intensive process, often requiring legal expertise and multiple rounds of revisions between parties. Even with a CLM solution, authoring a contract can still be a painstaking task if users, such as legal teams, are not on board with the technology. As a result, using AI through Generative AI simplifies authoring by creating contracts from scratch based on predefined parameters, such as contract type, scope of work, terms and conditions, and legal requirements.

By inputting these parameters, businesses can quickly generate a contract that more accurately meets their specific needs in a fraction of the time it would take to draft one manually. This speeds up the contract creation process, ensures consistency and reduces the risk of human error for legal teams to review.

Imagine generating a Master Services Agreement (MSA) tailored to your organization’s needs, complete with all necessary clauses and stipulations, within minutes. The time savings and increased accuracy are game changers in the contract management process.

Natural Language Processing: Ensuring clarity and compliance

Another powerful tool in AI-driven CLM is Natural Language Processing (NLP). NLP capabilities enable the system to analyze and interpret contract language, ensuring that contracts are written in clear, understandable terms. This is particularly important in legal documents, where ambiguity can lead to disputes or compliance issues.

NLP can also identify potential legal issues or ambiguities within a contract, flagging them for review before the contract is finalized. This proactive approach to contract drafting helps mitigate risks and ensures all parties understand the terms and conditions clearly. Additionally, NLP can assist in translating complex legal jargon into plain language, making contracts much more accessible to non-legal stakeholders.

The future of contract management is here

By progressing through the stages of building a robust repository, utilizing more effective authoring and execution, and embracing AI technologies like Generative AI and NLP, organizations can streamline their contract management processes, reduce risk and improve overall efficiency.

In this regard, Raindrop leverages advanced AI-powered tools to revolutionize efficiency and precision in contract management as part of its spend management platform. By adopting a progressive approach that spans from establishing a centralized contract repository with robust search capabilities to enhancing contract creation through template libraries and flexible clause management, embedding digital signatures such as RainSign, and adding advanced AI capabilities, Raindrop ensures a new level of streamlined CLM processes and improved compliance.

As AI continues to evolve, Raindrop remains at the forefront, empowering organizations to achieve greater agility and accuracy in their contract management and wider spend management practices, thereby driving sustainable business growth in today’s competitive landscape.