Large companies deal in thousands of contracts every year. This means drafting, reviewing, and negotiating the contracts until they are finally ready to be approved and signed. And the work isn’t over when the contracts are signed off.
With growing changes in regulations, stricter policies governing various sectors, and greater financial baggage attached to contracts, they need to be constantly monitored post-sign-off to ensure they are well within compliance at all times.
All these requirements, along with new technologies, risks, and globalization, have made manual handling of contracts nearly impossible. And handling contracts through rudimentary processes often lead to overlooked timelines, manual errors and omissions, missed obligations, increased risk of non-compliance, no view of all contracts in a single dashboard, and no real way to analyze contract performance.
These difficulties have necessitated the implementation of integrated, technologically advanced contract management systems. Let’s take a closer look at how mature, artificial intelligence (AI) powered contract lifecycle management solutions can help address.
5 significant contracting challenges facing industries today:
1. Slow and risk-prone contract authoring
The contract authoring and drafting stage presents one of the first challenges organizations face in a contract lifecycle. Manually drafting contracts is a time-consuming process and can lead to errors and overlooked clauses/obligations. A single misspelled word or an omitted sentence could lead to non-compliance and can trigger serious regulatory enforcement causing monetary and reputational harm.
It becomes even more of a challenge for legal teams when contracts are shared in third-party formats and the only way to deal with them is to read through the lengthy documents and identify clauses, sections, and disparities. This again is time-consuming, complex, and cumbersome considering contracts can extend to over 100 pages in length.
With AI-powered CLM solutions, a pre-approved template and clause library can guide legal teams in drafting contracts accurately and ensuring no important clauses are left out. For third-party parsing, Natural Language Processing (NLP) helps search for clauses and templates, extract them and put them forward in an easy-to-understand format, and then compare them with your internal templates to identify the language differences. This saves you from having to read through the entire document. CLM sends the contract documents for review to the right stakeholders in case there are large differences in contract language and it needs to be reassessed.
2. Long review and negotiation cycles
With multiple disparate contract templates across the organization and no pre-approved clause library, reviewers must spend extra time and effort to ensure contracts are within compliance. The reviews become even more time-consuming when third-party papers, with language and structure that differ from in-house templates, come into the picture.
Post review, negotiation is another stage that can hold up contract sign-offs. From no visibility into where contracts are stuck in the workflow to missed emails and no historical data to aid faster decision-making, this stage is a significant bottleneck that needs to be addressed.
Contract management solutions make contract reviewing and negotiating an organized, seamless, and hassle-free process. Pre-approved templates and smart clause libraries make reviewing contracts faster and more efficient. Automated workflows are driven by Robotic Process Automation to ensure contracts are routed to the right stakeholders for review/negotiation (and those stakeholders are in turn alerted of the same).
NLP parses third-party papers and organizes and reviews them instantly to look for any inconsistencies. If the clauses differ greatly, they are automatically routed to the legal team for review. Additionally, historical data analysis gives insights into which negotiations take time and what outcomes are best accepted by both parties. Thus, saving time from multiple rounds of negotiations.
3. No tracking of contract costs and performance/obligations
Manual contracting means contracts are stored in multiple locations, either in physical file cabinets, computer folders, or hard drives. There is no centralized location where all of the organization’s contracts can be stored and viewed. With the contracts stored across diverse locations, there is no way to monitor contract performance and track whether they are financially benefiting the company or not.
With no visibility into contracts, there is often a risk of missed obligations and deadlines, substandard delivery of products/services, and unwanted contract renewals. Moreover, with no single view of contracts, there is a lack of visibility among departments, which can result in multiple departments working with the same vendor without awareness and hence paying different fees or losing bargaining power for the same services.
With the implementation of contract management, a single centralized repository accessible from any place and device makes all of the company’s contracts visible at a single unified location. With configurable milestones and metrics, contracts can be tracked post-sign-off. Any discrepancies in compliance or performance can be easily tracked, identified, and quickly resolved owing to triggers and alerts attached to all metrics.
Contract costs can be compared against estimated costs; and in the case of overshooting of costs, contract paths can be altered to remain on track. With comprehensive dashboards giving a unified view of all upcoming deadlines, renewals, and important statistics, companies can have sufficient time to renegotiate contracts and stay on top of obligations. Comprehensive, user-friendly reporting tools can generate reports across multiple parameters and keep the management updated with contract costs, performance, and efficiency throughout their lifecycles.
4. Untapped revenue / unclaimed penalties
Advanced contract management solutions powered by artificial intelligence can identify all terms and entitlement clauses and follow up closely to ensure contracts are delivering the value they are supposed to. These platforms empower contract managers to extract full value from their contracts and exercise the financial entitlements more efficiently. Often, due to the lack of visibility into contracts post-sign-off, there is no following up on contract obligations or monitoring of whether contracts are performing optimally.
This lack of oversight has frequently led to companies being completely unaware of penalties other parties owe them due to non-compliance or inability to deliver certain terms, thus causing them to lose out on additional revenue. With real-time tracking made possible by advanced contract management solutions, companies get ample time to negotiate renewals, an opportunity to bargain for a better deal, and a chance to find new revenue streams. They can also immediately identify and penalize vendors for breach of terms or missed obligations and can gain financial advantage by claiming penalties and entitlements.
5. No control over the entire contract lifecycle
When companies adopt basic document management systems and integrations, life gets easier, but only to a certain point. Simple nuts-and-bolts contracting systems or document management software can centrally store all your contract data and ease workflow management, but that’s where it ends. On the other hand, contract management is not limited to drafting, reviewing, and approving contracts. It extends beyond those activities to post-award contract management. And this is the stage where tracking, monitoring, and analyzing contracts is of utmost importance.
Value and profits generated by contracts primarily depend on how well contracts are managed, utilized, and implemented during the post-award contract management stage. Basic contract management solutions can’t help organizations here. With no robust tracking system in place, there is no control over the entire contract lifecycle.
An AI-powered solution with advanced analytics and pre-configured metrics/milestones with triggers and alerts can change the contracting game altogether. Predictive AI can forecast contract outcomes using vast historical contract data and help companies make better and more informed decisions. With applied AI powering each stage, contract management teams can manage and control contracts in real-time and help companies gain maximum value from them.
In the above post, we have covered five of the biggest challenges facing contract management today and how to overcome them thanks to advanced CLM solutions. These are only a few of the many challenges facing this sector today; and, with rapidly changing requirement and technological landscapes, contract management challenges are only bound to grow both in number and complexity.
Therefore, looking at how robust, state-of-the-art contract management solutions are helping organizations tackle contracting challenges and gain maximum returns, we can conclude that the smartest way forward is to embrace legal technology and implement advanced contract management solutions.