A lawyer’s key activity is to decide and advise and to ensure accurate decision making, they always seek information spread across contracts. It is required that legal operations team provide lawyers with access to timely data. To enable this, the right technology to manage contract lifecycle and legal documents is of prime importance. Contract management is cited by nearly 70% of legal departments as one of their key contribution to the strategic growth of businessii. However, according to IACCM, 9% of annual revenue erodes due to sub-optimal contract terms and conditions combined with a lack of effective contract managementiii.
AI in legal: The key to unlock the full potential of going digital
Today, the office of the legal general counsel is overwhelmed with transactions. While arriving at any opinion, the legal team is required to spend around 60-70% of its time on data gathering browsing through past references, standard positions in point in time, etc. This hinders tracking of sheer number of contracts and uniformity across contracts.
Moreover, manually dealing with the amendments, terminations and renewals of the contracts leads to rising legal spend. With digital transformation, even though companies have adopted contract management tools, they are still faced with challenges when legacy contracts need to be migrated to these tools.
However, the application of automation and Artificial Intelligence (AI) technologies promises to change the equation. The corporate legal landscape has enormous potential for improved efficiency and productivity, For instance, in any large technology company, procurement contracts are of prime importance. The volume is high and consists of varying renewal dates and renegotiation terms. To ensure that no renewal or discount opportunity is missed, hundreds of business working hours are required to track all the embedded information.
AI can easily handle the high volume of contracts and bring them to life. Technology can auto-discover the documents and classify them. It can also auto-label them to track all the changes, abstract all critical attributes like renewal dates, and terms and conditions so that companies don’t miss out on any opportunity. In addition, infusion of ethics in AI has now assured the lawyer fraternity of its genuine applicability.
Automated meta-data level abstraction and tracking can also help many CPG companies in optimizing their working capital, as net-payment standard terms live in the contracts itself. For instance, consider a case, where a credit term like 2/10Net30 is included. This term is applicable for every payment to the supplier. Company is eligible to get 2% discount if payment is made within 10 days and no discount in case it makes payment after that but before 30 days. If companies can extract and track this piece of information, they can decide either to make the payment on the 10th day to avail discount or on 30th day and not in between, for improved cash flow.
Similarly, in the contract review process, AI can facilitate lawyers to better negotiate and minimize potential conflicts. Consider a telecom company where tower lease operations are at the heart and can include both passive and active infrastructure leasing to one or multiple parties. As operations scale up, the company may renew or issue new leases up to 15K per month, with each lease undergoing four to five iterations before getting signed off. This results in the huge volume of 60-75K leases per month or nearly 1 million per year and manually managing such a high volume delays the complete contracting process.
Besides eating into lawyers’ valuable time, manual reviewing may also expose companies to the risk of losing out on potential revenue as days keep passing. Leveraging AI technologies, companies can expedite the whole process and AI models can also be trained to read legal language variations to ensure that contracts are drafted maintaining standard position and in a more optimized way, to better realize the value.
AI market for contract intelligence is evolving as awareness spreads
As with any new technology, AI also has innovators or early adopters and others who are laggards or who adopt the ‘wait-and-watch’ stance. But given AI’s enormous potential and the legal landscape, it makes sense to adopt it as early as possible. According to Thomson Reuters, 83% of the most aggressive adopters of AI have already achieved real benefits.iv
The legal tech market is expected to surpass USD 15 billion mark, just in US itself. In 2018, the actual investments grew greater than USD 1 billion, a massive 713% growth compared to 2017. v
Areas that have become early adopters of AI for contract intelligence, include procurement, where it is facilitating real-time insights from contracts, compliance to provisions of contracts, experience of uniform provisions across contracts and valuable insights for negotiation teams.
Future of AI in Legal Departments: Towards better, faster, and cost effective legal services
Artificial Intelligence is changing the legal landscape by enabling lawyers and legal operations teams to shift their focus from transactional activities to higher-level tasks, such as advising clients, negotiating deals, and performing risk assessment. The future will likely see legal professionals engage proactively in streamlining the process, and in developing and implementing better legal procedures and policies.
By uncovering hidden risks and enabling advanced analytics, AI will help to better integrate the associated legal risks with overall organizational risks. It will accelerate the legal function to move at the pace of business, establishing it as a strategic value-driving partner rather than just a reactive cost-center. This change will ensure that legal activities become faster, better, easier and cost-efficient – a win-win situation for legal professionals as well as their customers.
[ii] Huron Legal 2014 IMPACT Benchmarking Report, https://www.legalsupportnetwork.co.uk/sites/default/files/2014%20IMPACT%20benchmarking%20highlights.pdf
[iii] IACCM, Poor Contract Management Costs Companies 9% - Bottom Line, https://www.iaccm.com/resources/?id=6845
[iv] Thomson Reuters - https://legal.thomsonreuters.com/en/insights/infographics/early-adoption-is-an-investment-that-pays-dividends
[v] Forbes, 713% Growth: Legal Tech Set An Investment Record In 2018, https://www.forbes.com/sites/valentinpivovarov/2019/01/15/legaltechinvestment2018/#6e730bc77c2b