The Rise and Proliferation of Contract Analytics- A Guide

Large-scale enterprise contract management as a business function has evolved in the last decade. What was legacy has now metamorphosed into a business process function, led by specialized contract management professionals, and supported by software engineers, cloud computing professionals, and data scientists. Giving way to loosely drafted, inconsistent contract clauses leading to lost revenue, compliance risks, and trust issues with the suppliers or clients, contract management has progressed from person-centric to process-centric enterprise activity.

It all started as document management activity on a share-point when organizations began to realize that contracts could be a source of unlocking hidden value and, if left untouched, could result in massive compliance and business risk. Contract administration picked up speed with the increased sophistication of share-point. However, the most significant shift came with the realization of contract management as a cycle and the application of artificial intelligence on contracts to cut down on manual efforts and steps in contract management.

Over the last decade, contract analysis has been of much deliberation, however, with mixed results and outcomes. We are currently amidst an ever-increasing data challenge, where doing it manually is a tedious and labour-intensive process. About 90% of the data in our possession has been produced in recent years, and its growth is accelerating every day. A vivid example is the world of contracts, where a company must manage thousands of valid contracts at any given time.

What is Contract Analytics?

Contract analytics is the systematic software-based analysis of legal documents, which may include contracts (executed or drafts) to discover relevant information using Artificial Intelligence (AI). It enables end users to get performance insights in response to a specific scenario, business question, or regulatory change. It runs on underlying technologies, including AI, Machine Learning (ML), Natural Language Processing (NLP), rules-based logic, and Optical Character Recognition (OCR). With the built-in capabilities of contract analysis solutions, common document types can be analyzed faster and more systematically than with alternative methods. In addition, the same models are applied to the extracted and filtered data to power analytics. Combining contract analytics with financial data can track actual performance against agreed-upon terms.

The most effective analytics solutions can sift through even the most extended, most complex contracts to identify and orchestrate the specific information there, such as expiry and renewal dates, auto-renewals, payment terms and schedules, alternate dispute resolution clauses, force majeure clauses, irregularities, and non-standard language, and outdated sections which can be retrieved on demand and used in decision-making throughout the contract management cycle.

Contract Analysis and Analytics

Analysis and analytics are frequently used interchangeably in relation to contract management; however, they are fundamentally different and have different importance. Contract data analysis involves collecting and examining data from executed contracts to get a deep insight into contractual and commercial information. It helps design a strong business plan for businesses, using historical data that discusses what worked, what did not, and what was expected from a product or service.

Building upon the contract analysis, contract analytics enables firms to take advantage of historical data's potential and discover fresh prospects that will assist in planning future strategies. It promotes corporate growth by lowering expenses and risks and making wise judgments for future contracting.

AI-enhanced contract analytics tools can speed up the document development and negotiation process by aiding professionals to grasp what is in their contracts. For instance, an AI-enabled contract solution can enable them to renegotiate rates more efficiently and provide them with the historical information lying with the executed contracts with a click of a button.

Contract analytics enhances day-to-day contracting workflows. It automates tedious chores to free up legal resources, contracts, and network managers to focus on strategic work. It helps uncover risks and opportunities to return value to the business while providing a better understanding of historic negotiation flows to negotiate better contracts. At the same time, leverage the data in existing agreements—AI assists in mitigating risks with increased control. While improving the organization's efficiency, AI helps maintain compliance and stay updated with government regulations.

Contract analytics capabilities help in strategic planning and decision-making for senior procurement and financial executives. It aids in improving spend management by providing actionable insights that compare multiple suppliers and base their profile, pricing, performance, and turnaround time using a visual dashboard. It can handle volume-based bulk review, analysis, and revision of hundreds of suppliers while handling contracts during unforeseen calamities or compliance and audit preparation. Additionally, contract analytics can assist in faster review and analysis of contracts to streamline the M&A process and ensure better outcomes with faster and accurate due diligence and total transparency into factors affecting valuation.

We suggest our clients gain a competitive advantage with productivity-driven contract management services. We work with our clients in ideation and planning, discovery, testing, implementation, and setting up contract management services. We assist them in setting up a contract repository, standardizing the contract creation process, automating the legal review process, and establishing contract management KPIs by deploying the best-fit contract lifecycle management system with a well-trained and continuously updated AI model. We emphasize on collaboration and ethical conduct that drives us to serve our clients with integrity while delivering high-quality, innovative results and assisting them in relocating resources in strategic work powered with automation for achieving maximum efficiency.

Authored By: Kartik Nagarajan, Managing Director - Business Consulting& Global Business Services, Nexdigm