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What is Contract Intelligence and Why it Matters to You

, , | February 3, 2021 | By | 2 min read

Contract lifecycle management has come a long way from the old days of drafting up a paper document, redlining in ink, and passing through endless review cycles.

Now, some CLM platforms leverage electronic signatures and digital storage to execute contracts faster — yet, they’re still unable to help you make data-driven decisions based on your contract data.

But this is where CLM platforms that offer contract intelligence shine.

Contract intelligence uses the power of AI to turn static contracts and agreements into valuable business assets. Instead of letting contracts collect dust, it gives you unlimited visibility into your contracts so you can avoid contract breaches, drive down costs, and boost productivity.

In this blog, we’ll explain why your organization needs contract intelligence, and how it works:

Why Your Organization Needs Contract Intelligence

To make the case for contract intelligence, let’s explore why traditional CLM platforms often fall short.

For starters, here are three common challenges associated with outdated contract management platforms:

  • Lack of a centralized repository
  • Volume of contracts too large to accurately track
  • Inconsistencies with contract language, terms, and clauses

Why are these challenges problematic? Because they result in inefficient contracting processes, which can cause firms to lose between 5% and 40% of value on a given deal according to Harvard Business Review.

And that’s not all — according to a survey by Deloitte, other risks associated with outdated contract management processes include:

  • Unwanted termination or rollover of contracts
  • Legal action and/or breach of contract as a result of unrealized obligations
  • Missing important dates and deadlines
  • Regulatory fines
  • Unclear roles and responsibilities

Of course, contracts will always have some inherent risk — but much of it’s preventable if you use contract intelligence to your advantage.

But how exactly does contract intelligence make easy work of mitigating risk and accelerating contract processes?

How It Works

AI. Machine learning. What does it all mean, and how does it make contract intelligence work?

Let’s start with an important distinction: AI is the umbrella term for creating intelligent machines, whereas machine learning is a subset of AI that enables systems to automatically learn and improve from experience, without being programmed to do so.

It’s the machine learning component that allows you to extract key data from your contracts, and in return, review contracts faster, streamline negotiations, and gain visibility into your contractual obligations.

Here’s an example of how AI works in our own contract lifecycle management software, IntelAgree:

  1. First, you upload your contracts and mark them up to help IntelAgree learn what terms and clauses you care most about. For example: If you’re most concerned about payment terms, you might mark up a term such as “30 days.”
  2. The machine learns this term, and after enough examples, it begins to recognize patterns. Then, it can start making predictions when it’s presented with new data — like flagging unfavorable payment terms of 60 or 90 days, when your limit is 30 days.

While the first step is tedious, it’s necessary: This is what will allow you to conduct granular, Google-like searches across your contracts, cut your review time in half, and unearth opportunities for negotiation.

Common Questions about Contract Intelligence

Since contract intelligence is a relatively new concept, there’s still a lot of uncertainty surrounding it.

Here are some of the most common questions we get asked:

Do AI-based CLM platforms read my contracts?

Not exactly. Since machine learning makes predictions based on data patterns, machine learning converts your contractual text into numerical data — in other words, the machine’s language. So, while machine learning is extracting your data, it’s not exactly reading and comprehending it – it’s converting it into numerical data, analyzing its patterns, then making predictions based on those patterns.

What can contract management AI find?

AI can find all different types of data: numbers, words, dates, or even entire clauses. Essentially, it will help you quickly find all the key metadata that would normally take hours of sifting through 100-page documents.

Is it accurate?

For common terms present in most contracts, the machine learning accuracy is typically high. For less common clauses, like those unique to a specific industry or to your organization, it requires some initial training — just like hiring a new team member.

Contract Intelligence is Here to Stay

Contract intelligence isn’t just a buzzword or a short-lived trend; it’s here to stay and make contract management easier in the process. To recap, AI-powered contract management software allows you to:

  • Assess and reduce contract risk quickly
  • Optimize contract creation and review
  • Keep clauses and terms consistent across contracts
  • Analyze terms and clauses across contracts with a single search

Curious how contract intelligence can reduce your risk and increase your team’s productivity? Schedule a demo with us today.