NEW REPORT: The State of CLM and AI-Powered Contract Intelligence

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Contract AI Explained: Your Partner in Contract Lifecycle Management in 2024

Contracts are the foundation commerce. The nonprofit research firm World Commerce & Contracting estimates that 29% of a company’s business functions are involved with contracts. But managing them has traditionally been a time-consuming, risk-prone endeavor. Enter contract AI (artificial intelligence) – your secret weapon for streamlining and mitigating risks throughout the entire contract lifecycle.

What Is Contract AI?

Contract AI refers to the application of artificial intelligence technologies, particularly machine learning and natural language processing, to automate and enhance the contract management process. This technology can assist in various stages of the contract lifecycle, including drafting, reviewing, negotiating, approving, executing, and managing contracts. Some contract AI providers offer monitoring and reporting capabilities post-signature. In short, it is a contract software platform that leverages machine learning to tackle repetitive tasks, identify patterns, and empower smarter decision-making throughout the contract lifecycle. 

The Role of Generative AI in Contract Management 

Leading contract AI platforms are increasingly incorporating generative AI, a transformative technology that creates human-quality content. This goes beyond simple automation, offering a creative partner to navigate the complexities of each contract lifecycle stage. Imagine a friendly AI copilot built into your software. You can engage it in chat conversations to help you find critical information within your documents. Or generate instant summaries of lengthy contracts before a contract review, even those hundreds of pages long. This empowers contract managers with a powerful tool that saves time and gain efficiencies in contract lifecycle management.

AI in Contract Creation

Contract AI can give contract professionals a jumpstart on contract creation. Analyzing existing agreements can identify commonly used clauses and patterns, forming the foundation for a comprehensive clause library.  They can be added to your company playbook. With these building blocks, AI can automatically generate various legal templates based on contract type and particular business or regulation requirements. This streamlines the initial preparation stage, giving legal teams instant access to standardized and compliant legal language.

Generate Initial Drafts

Analyze past contracts and industry standards to create first drafts with relevant clauses. Generative AI excels at creating initial contract drafts, especially when defining the scope of work. They can tap into a massive database of past contracts, using their powerful natural language processing abilities to understand the context of the agreement and quickly generate drafts. This not only speeds up the entire process but also improves the accuracy and relevance of the contract, leading to smoother and swifter negotiations.

Identify Risks & Gaps:

Highlight potential risks and missing clauses to reduce the risks of a non-compliant contract. Some contract AI platforms offer an easy-to-use dashboard that looks at risk holistically. It automatically surfaces clauses that might be noncompliant and generate an overall risk score of the agreement.

Standardize Clauses

Suggest clauses based on the type of agreement, your clause library, and the deal's business or regulatory requirements.

AI in Contract Negotiation

During the review and negotiation stage, contract AI can analyze contract terms and conditions and compare them against a database of accepted norms and previous agreements. This helps identify outliers or unfavorable conditions. More than automation, AI can become your strategic partner in this critical phase of the contract lifecycle.

Suggest Clauses That Optimize Outcomes

Generate terms based on best practices from similar contracts or past deals to strengthen your position with a given counterparty. In leading contract AI platforms, the AI learns from a company's rich database of historical contracts and prevents it from repeating terms that have produced suboptimal outcomes. This enables an organization to negotiate the best possible terms and outcomes more consistently.

Reduce Manual Reviews

AI reduces administrative time and operational costs a company spends manually authoring and reviewing lengthy contracts by offering speedy summaries and intelligently surfacing only the clauses that require human intervention.

Ensuring Compliance

AI ensures compliance with all required terms and clauses, even for third-party contracts.

AI in Contract Reviews and Approvals

AI can function as co-pilots for legal teams during contract review. They can analyze and understand complex legalese, summarize complex agreements in seconds, compare new versions to originals, and highlight critical differences. Their ability to summarize changes and translate contracts into various languages fosters clear communication and speeds up the review process. This allows legal departments to conduct more thorough reviews in a shorter time.

Risk Management

AI brings predictive power to contract risk assessment. It can identify patterns and predict potential contractual risks hidden within the legalese by analyzing vast amounts of historical data, including past disputes. This allows organizations to pinpoint clauses that might lead to future disputes. It helps contract professionals proactively address them before the agreement is finalized and approved.

Generate Dynamic Approval Workflows:

Tailor approval workflows based on contract type and value. Imagine the sales team self-servicing NDAs by using contract AI. AI can automatically generate a streamlined approval process for high-volume but low-risk contracts, such as NDAs.

Summarize Key Points:

AI can automatically generate concise summaries of key terms and changes, facilitating faster approvals.

AI in Contract Execution Post-Signature

To get full value from contracts, companies need to think beyond the signature, meaning that even after contracts are signed, contract AI remains a valuable teammate. It can monitor existing agreements for compliance with changing regulations and propose necessary updates. Furthermore, while traditional enterprise resource planning (ERP) systems rely on basic invoice matching rules, AI can play a more comprehensive role by ensuring invoices align with the specific commercial terms negotiated in the contract, leading to more accurate and efficient invoice processing.

Auto-generate Follow-up Documents

Generate routine documents like NDAs, purchase orders, or service level agreements (SLAs) based on finalized contract details.

Automated Reminders

Contract managers can automatically receive reminders with critical deadlines and reminders based on specific clauses in the contract.

AI in Monitoring and Reporting

Once a contract is executed, management is critical. Contract AI continuously monitors contract performance against obligations, triggers alerts for renewals, and suggests clause optimizations based on data. This proactive approach helps companies avoid breaches and enables informed decisions about renewals or terminations.

Advanced contract lifecycle management (CLM) platforms may offer AI that unlocks valuable insights hidden within contract data. AI reveals patterns, trends, and risks that would otherwise take hundreds of person-hours to unearth. It intelligently guides users toward informed decisions and proactive strategies. Knowledge becomes centralized, giving everyone in the organization a clear and holistic view of contracts. Thanks to faster turnaround times, stakeholder experiences improve.

Integrations with Other Systems of Record

In today's digital landscape, seamless integration is essential for any contract lifecycle management (CLM) system. An ideal CLM system should not just offer out-of-the-box connections with common business tools like sales automation or procurement. A system powered by AI can offer native experiences that go beyond simply exchanging data. It can orchestrate a smooth flow of operations across the entire business, such as native integrations with the Microsoft ecosystem.  By facilitating a connected experience, a CLM system can significantly enhance productivity and compliance throughout the contract lifecycle.

The Role of Data Security and Privacy in the Age of AI

As organizations increasingly embrace contract lifecycle management (CLM) systems to store, manage, and get maximum value from their many contracts, it’s vital that these systems be highly secure. Contracts store essential and highly sensitive business information that needs to be safeguarded. 

With the advent of AI, data security concerns become even more heightened. Decision makers are increasingly concerned about the possibility of sensitive company contract data being used to train AI models such as ChatGPT. According to a recent World Commerce & Contracting Report in a survey of 500 companies, 57% of them say data privacy and security is their top concern when it comes to AI. They are correct to be concerned. Stories of copyright disputes have made it abundantly clear that consumer-grade generative AI tools do not provide adequate protection for sensitive corporate information.

If the CLM systems your organization is considering offer generative AI services, ensure they are built on services like Azure Open AI that offer enterprise-grade data security. That includes security features such as encryption, single sign-on, and ISO certifications. This also means that the data used in the generative AI context remains in its subscription. On such a platform, Microsoft guarantees that data does not leave Azure and is never used for training any underlying foundation models.

The Icertis Platform

As contract professionals increasingly look to AI solutions to address their needs in contract lifecycle management, the role of trusted partners in ensuring the security and effectiveness of these technologies becomes crucial.

Today, more than a third of the Fortune 100 companies trust the Icertis Contract Intelligence platform to transform the contract management lifecycle at their organizations. From automated contract analysis to risk assessment, Icertis uses AI to empower you to extract valuable insights from your contracts, reduce errors, and ensure compliance. The Icertis platform keeps your data secure on Microsoft Azure OpenAI, and it never goes out of your subscription. Your data is also never used to train its underlying AI models such as ChatGPT.

To learn more how your organization can benefit from this secure, AI-powered contract lifecycle management platform, request a demo today.

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