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

AI Needs Structured and Connected Contract Data. Here’s How to Get It

Insights from the WorldCC “2024 AI in Contracting” report.

June 10, 2024 By Bernadette Bulacan

Organizations implementing AI grew by 25%

Between June 2023 and January 2024, the number of organizations implementing AI in their contracting processes jumped an amazing 25%, according to World Commerce & Contracting’s recent “2024 AI in Contracting” report, sponsored by Icertis.

This jump reflects Icertis’ own experience and those of leading analysts that the excitement around AI and contracting is at levels never before seen.

However, the same report, which surveyed legal and procurement leaders across 513 large organizations, also revealed that contracting professionals continue to face barriers when looking to introduce this game-changing technology into their contracting processes.

Concerns over accuracy 

A major barrier that has emerged for these would-be AI pioneers is widespread distrust in the outputs AI provides.

Indeed, after “data security,” the second and third most common barriers to AI adoption cited were “data output quality” and “general lack of trust.”

Contracts are critical for commercial performance

To a degree, these concerns are valid: Contracts are critical for commercial performance and risk management, meaning that an incorrect reading or interpretation of a contract or clause could be highly damaging to a business. 

Yet, as the authors of the WorldCC report note, concerns about accuracy must be weighed against the potential benefits that AI can deliver to contracting: “There are two possible reactions [to data accuracy concerns]. One is to reject AI completely; the other is to recognize its frailties and work within them.

“Given the remarkable boost it can offer to our productivity and output, the latter is surely the more logical response.”

The importance of structured data for contracts 

Indeed, AI has the potential to accelerate contract risk review by 40%, among many other benefits. It cannot be ignored.

So what does working “within” the constraints of AI look like?

Data quality a major factor

A major factor is the quality of contract data a company has to begin with. Similar to how a bad prompt will yield substandard outputs in ChatGPT, asking AI to deliver insights across a contract portfolio when the contract data is scattered across many systems can be a non-starter.

As the report authors put it: “The heightened awareness of data quality issues suggests a need for organizations to improve data management practices ….”

In other words, until you have that structured contract data, you will be unable to yield the benefits of AI. Otherwise,  it is the classic situation of, "Junk in, junk out."

How Microsoft has driven better business outcomes with structured data plus AI 

The good news is that, for companies that have a structured database of contract data, the outputs and benefits of AI are very much real.

Tom Orrison, Sr. Director of Legal Operations at Microsoft, delved into this point in a recent conversation with Icertis.

“Everybody wants the silver bullet or the magic wand. Unfortunately, I'm here to say that that's not the case. There's no such thing,” he noted.

Thankfully, he says, his organization was in a strong position to reap the benefits of AI due to the work it had already done deploying an enterprise-wide contracting platform.

Importance of structured data output on business performance

“The areas where we found the most success with artificial intelligence, both the last generation and the new kind of generative models, is where we’ve seen real digital transformation occur—where we have standardized processes that yield standard structured data outputs,” he says.

In taking this approach, Orrison’s team has “significantly advanced our ability to perform contract analytics that drive the business forward.”

In sum, contract AI can’t be deployed as a one-off, point solution. Rather, it needs to be deployed as part of a larger digital transformation of how your company manages its commercial agreements with customers, suppliers, and partners.

Interested in learning more about how your peers are approaching AI and contracts? Access the full WorldCC report here.

World Commerce & Contracting

The 2024 AI in Contracting Report

See how over 500 organizations are approaching generative AI for contracting and get an edge in your own contracting strategy.

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