The Role Of Legaltech In Improving Contract

Legal technology is witnessing dramatic growth led by a rapidly changing business and regulatory environment coupled with a high demand for data and information centralization. It has many subdomains – but two sub-sets of legal technology that together have a dominant share of this growth are Contract Lifecycle Management (CLM) and Matter Management (MMS). CLM, the most popular, is a solution designed to automate, store and streamline the tedious contract process and improve the turnaround times for vetting and signing contracts, while MMS enables a company to manage its disputes seamlessly.

Background

In recent times, many legal teams have undergone changes at multiple ends. A core support system for any business, legal is now becoming a business enabler - whereas the process of contracting is beginning to evolve from a revenue bottleneck into a revenue generator. Moreover, it has become expensive and ineffective to manage contracts manually in a still recovering yet rapidly changing hybrid business world, with the companies finding it difficult to bring about meaningful change as the process and needs of a business are highly specialized having strong dependency on the legal team.

Technology

Legal technology has played an important role in ensuring legal teams are able to effectively manage their workload and enforce business rules to contain risks while reducing human efforts and errors. By implementing a CLM, companies are able to churn and review more contracts in a shorter period of time while easing the entire negotiation process which is one of the primary reasons for contractual delays and operational bottlenecks that cost the business dearly. Similarly, MMS enables the smooth management of disputes; these two are key to a smooth business. Contracts define and enable the business operations, whereas the MMS can help in dispute management, and at times even resolution.

Improving Contract

From an organizational perspective, introducing technology for its contracts allows it to automate many elements of its contracting process. Taking a look at companies that have implemented a CLM, it is possible to categorize the various advantages into 2 classes – improvements in the contracts themselves, and improvements in business relationships.

From an organizational perspective, introducing technology for its contracts allows it to automate many elements of its contracting process. Taking a look at companies that have implemented a CLM, it is possible to categorize the various advantages into 2 classes – improvements in the contracts themselves, and improvements in business relationships.

“It has been observed that companies utilizing technologies for contracts tend to see a reduction in their legal requests and overall workload.”

It has been observed that companies utilizing technologies for contracts tend to see a reduction in their legal requests and overall workload. While systems assist in automation of contract generation, companies layer such systems with unique workflows to enforce the organization’s established SOPs, procedures & policies. Combined, these 2 factors may help companies increase output, reduce errors and avoid risks. Moreover, from an optical standpoint, automation also ensures uniformity of language and structure. In a few instances, technology has helped companies even identify gaps in their current processes which were optimized after introduction of relevant systems.

The potential of technology does not stop there, it may improve and enhance contracts in other ways too. One of the primary concerns many Legal teams have today is that they find it difficult to collaborate with other stakeholders. Most contracts go through multiple iterations and changes before getting finalized and legal teams are forced to store all versions manually and track progress on emails.

Therefore, many General Counsels try to equip their teams with systems which can undertake these manual activities and relieve the legal professionals, allowing them to focus on productive activities. Moreover, systems address another important concern of legal teams is Data Visibility. By creating a searchable centralised repository of contracts online, users get a wide visibility into their content, including key obligations. Depending on the companies’ needs, it is possible to integrate multiple systems to enable automated data sharing that not only reduces manual data entry, but also reduces the scope of errors and improves cross-functional collaboration. Additionally, business risks like missed contract deadlines, contract expiration, unfulfilled obligations, etc. are prevented.

Through integrated use of specialized technologies like artificial intelligence (AI/ML), online editors, electronic signatures, optical character recognition (OCR), etc., companies have exponentially increased the benefits they take away from digital contracting. All put together, technology has been successful in significantly reducing contract cycle times, onboarding third-parties (clients, suppliers, partners, employees, etc.), expediting transactions, reducing risks, increasing visibility and improving relationships.

Revenue Impact

This may happen in two ways – first is through the reduction of revenue losses due to prevention of penalties arising from compliance-related disputes, stop page of sales or production due to expired contracts, or standardisation of rates from vendors leading to optimised rates etc. It has been seen that this point – expired contracts & obligation management for operational contracts is one of the biggest pain points of organisations. The second way is faster & higher revenue generation – in its own way, a CLM helps in generation of revenue. This is achieved through faster onboarding of customers, speeding up of processes as well as streamlined vendor relations and more.

There is another fast-rising, very promising angle to this – the incorporation of AI/ML functionalities within legaltech solutions. Using these techniques, one can rapidly categorise contracts as per custom needs, create summaries capturing even the implied meaning [in advanced AI/ML implementations], reviewing documents etc. The impact of this is again twofold – lesser cycle times and faster discovery of options, higher volume handling capacities. Both can contribute to higher revenue.

But beyond all of this, the future holds much more promise – with the coming age of smart contracts. These are auto-executing contracts wherein the contract executes the payout / outcome basis set conditions, leaving humans free to work on performing the conditions and obligations. Once satisfactorily done – these lead to instant completion, saving time & cost as well as enhancing focus on the business rather than the papers of the business. As a result, we may see an impact on the revenue and or the profit margins.

Improving Business Relationships

Modern management considers relationships in business a key deliverable parameter; while a lot admittedly goes into building a successful enriching business relationship – there are two key aspects of this subject that fall into the purview of the CLM. Namely, transparency of processes with ease of operation, and secondly generation of tangible value from the said relationship. A CLM can simplify business processes, speed them up; this leads to less time and energy of the partners or employees being spent on low-value add tedious tasks.

On this bedrock are the higher value add features.One example of this is negotiation: a good top line CLM can enable two parties to discuss and negotiate a contract online, making changes and comments within the contract. Multiple layered approvals can be seamlessly and rapidly garnered without time or effort. This eliminates time spent in back-and-forth, but it also facilitates a conducive experience for the entire negotiation process itself – ensuring that the two parties are collaborating rather than competing in uncomfortable discussions. All of the above – including absence of expired contracts, timely renewals, centralised updates to all affected contracts without manual edit of each – as in case of rule or law change, etc – adds to transparency, process speed and business efficiency.

Another area of a business relationship is managing disputes – this is the scope of Matter & Case Management solutions, a sub-domain of legal technology. Any dispute that arises in a functioning business relationship can hamper both the business and the relationship itself. Using legal technology tools, it may be feasible to smoothen the process of handling disputes, as all documents, contracts, updates etc relating to any dispute are linked together and can be accessed – meaning faster processing, better collaboration and increased chances of early resolution.

Conclusion

The impact can be a reduction in manual effort, freeing up of resources for more productive use, smoother, more streamlined faster processes, and superior workload management, all of which goes to enhance the overall productivity of the organisation. This increased business productivity and efficiency in an atmosphere of transparency, online ready information flow, and automated paperless flow of processes creates an enhanced relationship based on trust and mutual confidence both internally and externally. This ultimately translates to a positive impact on revenues as well as profits arising from higher revenues at a lower cost.

The learning from all this is that the modern top line CLM solution is now close to reaching the potential to transcend from being a simple add-on solution to becoming a DSS, that is a Decision Support System. Early trend identification, transparency, highlighting upcoming risks etc go a long way in enabling the senior management in making the right decisions. Thus, for the modern VUCA world, the CLM is now a powerful tool in the portfolio of organisational systems that strengthens the bedrock of the organisation and lubricates its systems enabling them to perform with increased efficiency.