GC Focus: Contract Analytics – What Can They Do for You?

Organizations are looking to improve their contract management, both with respect to existing agreements and contract creation for new agreements and templates. Many organizations’ contracts are not centralized and largely unmanaged, leading to unmonitored risks or missed revenue opportunities. Specific provisions across all agreements are difficult to find and assess, especially when the information is critical to time sensitive corporate activities such as acquisitions, reorganizations or compliance reviews. Finding this information manually can be time-consuming and expensive, and failing to find it can result in more lost opportunities and risks.

Organizations want to take control of their contracts going forward: legal, compliance, procurement, and other departments are searching for ways to generate and manage contracts in a uniform, efficient manner, providing business units with tools that can improve their speed to market. It therefore makes sense that standardizing the process and contract content to the extent possible will increase speed to market by giving business units more autonomy in executing lower risk/lower value agreements, freeing the law department to focus on high risk/high value agreements. But where to start?

Fortunately, technology is available that can provide information to help guide the management of both legacy and new contracts. There is now contract analytics technology (similar in concept to that which is becoming established in electronic discovery and is beginning to take hold in law department management and information governance) specifically tailored to contracts. The technology is able to identify patterns and trends found in the contracts and their metadata using a variety of text analysis techniques.

Contract analytics technology can review an organization’s contracts to identify and extract pertinent information such as pricing and payment terms; expiration or renewal dates; governing law; confidentiality provisions, indemnities, and other clauses; and a range of other information including customizable fields. There are obvious ways this information can help improve contracts management. It can be used to triage existing contracts to identify known risks such as deviations from standards, such as contracts that are missing language required for internal or regulatory compliance purposes. The technology can identify pricing differences, lapsed contracts, evergreen provisions and similar issues. With this information, organizations can monitor and, if necessary, seek to amend existing contracts and begin to better manage their contracts going forward. They can integrate the data with their contract management systems for better obligations management. They can develop more robust reporting and analytics capabilities for ongoing contracts management.

But contract analytics can do even more. The technology can also help categorize contracts by type and identify trends in different categories of information, essential information to support an organization’s template standardization efforts. Beyond this, the technology can perform more sophisticated analysis of the contractual language, such as identifying the most common language for a particular type of clause, how commonly it is used, and the frequency of other clauses and their degree of deviation from the most common clause. This more sophisticated information about the state of the current contract database can help guide decisions about the contracting process going forward. An understanding of the most common language for critical clauses, fallback language, and how they are used can help inform the process of developing templates. With strong, well-developed templates that include standard fallback provisions, more contracts can be pushed out to the business to handle with little involvement of the law department, freeing lawyers to focus on the most complicated transactions.

So, what can contract analytics do for you? Well, that is pretty much up to you. When used to support a strategic, comprehensive contracts management program, contract analytics can inform a range of decisions and guide multiple improvements that will enhance revenue, reduce costs, and improve speed to market.