By Kumud Bika, VP of Global Customer Success, ContractPodAi
There is little or no question about it: today’s legal professionals are fairly antiquated in the ways that they operate.
Some lawyers may feel they have too few contracts and related documents to be concerned about automation at present. Others may believe no system could ever make contract management simpler - “the lawyer just has to do it.” However, the COVID-19 (coronavirus) pandemic laid bare the persistent, endemic issues with contract generation, management, and analysis.
Since March 2020, nearly 80 percent of all businesses have reported a moderate to severe impact on their contracting, according to World Commerce & Contracting’s (World CC) report, “Managing Contracts Under COVID-19.” And the scale of impact on contract performance is only expected to grow further. “The greatest difficulties,” World CC says, “have been encountered in finding and reviewing force majeure clauses, undertaking the analysis of key performance terms, and responding to management questions and requests for general information.”
ContractPodAi’s 2020 research report, “Contract Management Usages and Practices,” offers similar insights into how contract management is handled by companies today. Of the North American lawyers surveyed, more than 35 percent said they still create and manage contracts, themselves. Twenty-eight percent said they create contracts but had legal staff members manage them. Nearly 20 percent said legal operations - think contract managers and paralegals - maintain agreements. And about 10 percent said they leave this work to junior lawyers. In just a couple of reported cases, “lawyers create the contracts; business people maintain them.”
As such, more than two thirds of respondents revealed they spend 40 percent of their time creating and managing existing contracts. And another third of respondents said they spend even more time on these particular tasks. More specifically, the majority of lawyers surveyed - nearly 75 percent - estimated they spend at least 20 percent of their time on entirely new contracts.
Lacking legal automation
The less-than-stellar marks lawyers give their own contract management capabilities is partly explained by the fact that more than 80 percent of legal professionals simply do not use automation. In fact, less than 10 percent have fully digitized contract management systems (CMS). So, even though the majority of legal departments have digitized their individual contracts, there is plenty of room for improvement in their overall contracting processes and methodologies.
The good news is the majority of the legal sector - about 90 percent - is open to automation. In fact, nearly half of the lawyers who participated in ContractPodAi’s study said they are interested in investigating, adopting, and implementing an AI-based contract management solution, in particular. Many lawyers acknowledge that AI and automation, at minimum, would allow legal teams to know exactly when contracts are about to expire or when there is a termination window. This implies the need for a shift - however fundamental - in their contracting activities.
Nevertheless, many general counsels (GCs) and legal teams have yet to place such solutions on their actionable lists. Only larger companies - those with more than $500 million in annual revenue - are more likely to purchase such a system in the next year or so. Simply put, it means legal teams in companies are still missing opportunities to turn their ‘cost center’ into an absolute ‘value center.’
Thinking about a technological change
As a matter of consequence, today’s legal departments experience some serious pains. Some of the largest contracting challenges are related to workflow, approval, retrieval, and template control, as well as volume and resources. Processing agreements in a timely fashion is difficult, too - think priority management, signature processes, and time scheduling (e.g. due dates and renewals.). Also, contract rate changes, whether or not they are caused by COVID-19 restrictions; communication with purchasing departments; and the predictability of future business environments are worthwhile concerns. For instance, a company may want to enter a two-year lease but may not know if the lessee will be able to make the lease payment.
But these days, the biggest concern of deadline-conscious, detail-oriented lawyers is missing opportunities to get out of automatic renewals. These missed deadlines can have unpleasant - and even devastating - consequences: insurance policies or letters of credit can far too easily lapse.
Benefiting from AI-based contract management solutions
In more than half of all companies today, senior leadership teams approve the budgets for system acquisitions within legal departments, including AI software for contract management. They would fully support CMS acquisitions if only they were made aware of the increasing benefits of the technology. Interestingly, 55 percent of lawyers surveyed by ContractPodAi said a good business return on investment (ROI) is the strongest benefit, while nearly a quarter of them cite the acceleration of the contracting process.
AI-based contract management software yields a host of individual benefits, too, according to 85 percent of lawyers. They range from providing consistency from lawyer to lawyer to finding terms that were used during the creation of contracts. Even more specifically, a typical CMS:
*Frees up legal staff to complete other important work
*Automatically alerts lawyers to the deadlines and timelines associated with contracts
*Allows lawyers to work on contracts seamlessly from home or any out-of-office location
*Significantly reduces the number of errors in contracts
*Greatly improves the quality of contracts that are generated and maintained
*Saves money for the legal department in the long run
But the most beneficial contract management solutions allow for more collaboration and research within legal departments. They also ensure consistency and control over entire contracting processes.
Looking ahead to AI and automation in legal
Quite naturally, there may be some legal professionals who feel the COVID-19 pandemic has not hindered their function. Some may even believe it will be years - or even decades - before a similar crisis arises. But it would be foolhardy to dismiss a course correction - in the form of AI and automation - in legal.
As stated above, the nature of legal work is quickly evolving along with contract management platforms. Today’s AI-infused solutions simplify the complexities of everyday contract management. They ensure continuous contract flow and provide much-needed data and insights. They help legal professionals to do far more with fewer resources, while fueling critical thinking and facilitating that higher-level, strategic work.
So, GCs and legal teams ought to take the first steps in their digital transformation journey. They should move toward a common, intuitive platform that makes their contracting more efficient and effective. And they should consider adopting and implementing an AI-powered contract management tool to achieve this end.
Kumud Bika is the VP of Global Customer Success at ContractPodAi. She leads ContractPodAi’s Customer Success team and partners with customers to grow and drive value throughout the customer lifecycle. Read her executive bio here.