What is contract management?
Contract management (sometimes known as contract administration) is the process whereby contracts get:
- amended (if necessary), and
- renewed or terminated,
- obligations tracked, and
- intelligence from them gleaned.
Not every company does each (or any!) step systematically.
Many enterprises appear increasingly focused on contract management. While it is possible to manage contracts without purpose-built software, the Contract Lifecycle Management (CLM) software space is booming, with well over 100 vendors in it (including several unicorns). There are often multiple vendors focused on different subsegments of the contract lifecycle management market (e.g., for companies most concerned with sell-side or buy-side contracts; sector-specific (e.g., tech companies, oil & gas, or health care businesses)). It’s not uncommon for a large company to have several different contract lifecycle management systems (e.g., one for their sales team, another for their procurement team, another for their finance team, another maintained by legal, a custom one for a different division, another division using Sharepoint or Excel for some processes). While there are many off-the-shelf contract lifecycle management software offerings (some requiring heavy customization), system integrators also build custom CLM systems. Some companies do elements of contract management using general-purpose systems like Sharepoint, Excel, or their CRM to track and manage their contracts.
We could go on and on, but won’t. If you would like to learn more about CLM, there are lots of online options. You’re here to learn about Contracts AI in contract management. So we’ll move on to that.
How Contracts AI can help in contract management
AI can be useful in many stages of contract management. Specifically:
- In contract creation, Contracts AI can help suggest relevant precedent language.
- Contracts AI can enable faster contract negotiation. The contract negotiation software space is currently quite active, with (1) multiple vendors focused solely on building AI-enhanced contract negotiation software and (2) multiple CLM platform vendors including AI-enhanced contract negotiation modules. We’ll cover contract negotiation in greater detail in Contract Negotiation to avoid repetition.
- Contracts AI can help with contract approval and execution by automatically spotting risky contracts and directing them to appropriate reviewers, and also preparing summaries for reviewers.
- E.g.,Give reviewers the verbatim exclusivity or most favored customer clause in this agreement, so that they don’t have to review the whole document to find this text).
- Risky contracts are usually spotted through identifying clauses or other contract metadata and running those against predetermined scoresheets.
- E.g., Any contract with over 10 points needs sign-off by a manager-level member of the Office of General Counsel, 5 or more points requires review by a lawyer in the Office of General counsel, and under 5 points can be reviewed by an outsourced provider or paralegal; a non-compete or non-solicit clause is worth 10 points, governing law outside DE, NY, CA, UK is 5 points, and so on).
- Post-execution is a classic Contracts AI use case. Here, Contracts AI helps make it faster and more accurate to get at metadata from contracts where their details are not already in a database. While a number of contracts today get created using a system that auto-populates details to a database, lots of contracts do not get created this way. Even after implementing a contract creation system that auto-populates relevant metadata to a contract database, there are three categories of contracts where AI (or manual) help is needed to extract details:
- Legacy contracts dating from before the contract creation system was implemented There can be a LOT of these.
- Contracts written on third-party paper Many contracts get written on third-party paper—good luck getting a large company to agree to use your agreement template!
- Recurring fire drills to figure out what contracts say about data points that were not initially thought to be important, but have become so: Grexit, Brexit, LIBOR, force majeure, permitted use of data, change of control when in the midst of an M&A deal, inflation adjustment, whatever!
It can be super time-consuming to review contracts manually (so much so that contracts often go unreviewed, with their metadata just guessed at). Users of Contracts-AI-enhanced contract analysis software report that they are able to pull data from contracts as-or-more-accurately in 20–90% less time.