In the last few years, contracts have started coming out of drawers and filing cabinets to start interacting with their environments. Sales contracts are actively referred to at each milestone and procurement contracts are married to service level agreements.
Increasingly, contracts are becoming integral components of the long-term, dynamic collaboration and cooperation between organizations–an essential part of delivering lasting benefits and satisfaction for all parties.
As enterprises realize that every dollar in and out of the enterprise is linked to a contract, they increasingly view contracts as the repository of rules on which the enterprise runs. And as commerce goes more global, the interconnection and inter-dependencies between the enterprise and its customers, suppliers, employees and governing agencies have substantially increased.
As a result, contracts are getting more connected – driving a fundamental shift that is changing the world of business. It is not uncommon to see a master or frame agreement drive all relationships with a supplier worldwide or terms from a customer agreement to see their way into an upstream supplier contract.
Rise of the Internet of Contracts
Today, this interconnection between contracts and the outside world is poised to go “live,” where contracts can be connected, interact with each other, and exchange data – creating what we call “the Internet of Contracts.”
The Internet of Contracts (IoC) promises to revolutionize business by providing new ways to create, manage and execute contracts between different parties, offering a vision for global commerce that enables free, fair and frictionless trade and mutual satisfaction and growth in lieu of the often-antagonistic activity that stunts development.
When we look at the way the internet has grown from the interconnection of once-siloed data sets inside individual computers to the network of information that forms the foundation of many aspects of modern life, we can see the parallels between that and the emerging IoC.
By taking contracts that were once isolated into clusters and groups and interconnecting them with a loose, evolving network, we arrive at a framework that can form the foundation of modern business.
As contract management software evolves into a system of record for the enterprise, bringing traditional silos together and enshrining the rules of business, this network of contracts can play a massive role in delivering transformational benefits including autonomy, efficiency, reduced risk and increased compliance.
The Internet of Contracts and Blockchain
With contracts connected and talking to each other, the rise of smart, autonomous contracts is not far off.
We believe the confluence of AI and blockchain can make the Internet of Contracts come alive – enabling the rules of the enterprise to evolve with the environment, and guiding transactions to run autonomously within a complex network of people and organizations across the globe.
Blockchains that use distributed ledger technology allow for contracts that are self-verifying, self-executing and autonomous. In other words, the contract doesn’t just flag an action. It addresses the action automatically – for example adjusting and releasing payment when an exchange rate fluctuates. This is the framework for “smart contracts.”
Smart contracts render transactions traceable, transparent, verifiable and irreversible by allowing trusted agreements to be entered by distinct, potentially anonymous parties. They will have a significant impact on the way companies conduct business with partners, suppliers, customers, and employees.
For example, blockchain could be used to manage currency fluctuation in a contract between two companies. Say a contract stipulates terms if a currency fluctuates by more than 5 percent. In this scenario, an enterprise would use a contract management application to place the contract in a consortium blockchain, and the application would then check with an external blockchain oracle (which serves as a trusted source of information) for currency rates. When the triggering currency rate is hit, the blockchain app will create a contract addendum, which would be considered executed by both parties against which future payments could be processed.
A New Era for Business
When we connect these codified, autonomous, smart contracts with each other on the Internet of Contracts, the business models that can fall out of this transformation can be such as the world has never seen before.
A taxation change in a country could automatically update all contracts globally that are affected by it; the recall of a specific car model could automatically morph supplier contracts across the world; an event like Brexit could automatically change relevant contracts globally; a merger of two companies could rewrite customer contracts in a week while complying with monopoly regulation; an employment contract could be potentially rewritten every day.
Businesses could respond to changes in conditions in days, not decades!
To learn more about Icertis’ approach to AI, blockchain and the Internet of Contracts, read our eBook: “The Internet of Contracts: Connecting the World of Commerce.”
Sunu Engineer serves as Principal Architect, R&D, for Icertis.