Digital contract management as an enabler

Conventionally, drafting, enforcing, and managing contracts to protect business interests required legal specialization. However, intelligent technologies are fast replacing human roles. Is this a problem?  Specifically:

• Can such technologies possibly substitute for the experience and skills that a general counsel brings to the job?
• Is machine intelligence tipping the balance against contract professionals?
• Is machine intelligence bringing in a new era of man-machine collaboration?

A quick glance back

Remember when we delegated and outsourced?  As companies grew into multinational corporations, contracting became exceptionally complex, involving several departments. It led to the rise of outsourcing practices allowing general counsels and other stakeholders -- including Chief Financial Officers (CFOs) and Chief Procurement Officers (CPOs) -- to delegate repetitive tasks and focus on core legal issues.

In fact, one recent research report found that 18% of corporations and 6% of law firms plan to use outsourced contract management in the next five years.¹

Over the years, outsourced contract management evolved into end-to-end contract lifecycle management using technology as a catalyst. Currently, Artificial Intelligence/Machine Learning (AI/ML)² and predictive analytics are increasingly used more crucially to build negotiation playbooks, clause suggestions, and improve the agility of the negotiated outcomes.

Another research report suggested that the need for assured regulatory compliance along with getting fast turnaround times for drafting, negotiating, and signing off is compelling businesses to prioritize technology over manual operations. The report concluded that organizations embracing intelligent technologies will improve the pace of contract negotiations and document completion processes by up to 30% by 2023.³

But does this mean that digitized contract management will cause general counsels and their teams who author contracts to become redundant? That’s unlikely at many levels.

We believe technology will never be a practical alternative to the creative faculties and perception that only legal professionals are qualified to bring into contract management. Instead, technology will assume tasks that the legal teams -- it can be argued -- should not be doing in the first place. Technology allows those skilled resources to focus on higher value issues and achieve more within limited business hours.

And speaking of limited hours – just to enforce this point -- a survey in 2021 reported that the pandemic-induced disruptions had taken a toll on corporate lawyers.  Over half (54%) were on the verge of exhaustion.⁴

The legal grind

It is -- and always will be -- a complex task to draft and manage comprehensive, compliant, and relevant contracts.  Authors must consider regulatory variations, and judicial precedents set by different authorities, including the apex courts, and diverse client requirements. General counsels and their teams who author contracts must have easy access to such documents, because digitizing content into centralized databases and real-time workflows connects stakeholders and simplifies collaborative development.

Don’t forget, thanks to technology, the required sections and summaries from past judgments and data points from previous negotiations can be extracted with just a few clicks. With the legwork being taken care of digitally, a contract management professional can spend more time authoring the best possible version of the legal documents.

Also, instead of authoring the drafts manually, technology can instantly generate Master Service Agreements, Buy-Side or Sell-Side Contracts, or Contracts Obligation Tracking.⁵  Technology can assist to plug in the latest version of the necessary clauses or systematically break them down with mathematical clarity.

Mitigating operational risks and building resilience

Technology can also help manage risks by providing oversight. For instance, timely renewal of contracts impacts business outcomes. By contrast, manual data entry can lead to errors, resulting in missed renewal dates and rollovers. Rigid approval workflows can also slow down the entire negotiation process.

Further lapses in data security can lead to unexpected results, especially when stringent data protection legislation applies, such as the General Data Protection Regulation (GDPR).⁶

Managing lapses in data security manually can lead to a highly bureaucratic and cost-intensive system. Alternatively, AI can help implement automatic data entry filters, build intelligent and adaptive workflows, and enforce rule-to-role-based⁷ access control to databases.

Technology can also equip general counsels to act as the trusted advisors of corporations and protect client interests under challenging scenarios. It includes seamless service delivery amidst disruptions, protecting client confidentiality, adhering to legal communication standards, and much more.

Unmasking the bigger picture

Technology affords a high degree of subjectivity, allowing general counsels and CFOs to read between the lines. For instance, in the case of multi-geography/multi-entity transactions,⁸ not every piece of information can be part of the contract.

Much of the due diligence happens concurrently beyond the negotiation table. Here, to predict the true worth of assets, AI can help investigate specific patterns of loss in multiple document types across jurisdictions and languages.

Even simple AI tools automatically flag upcoming contract negotiations, and applicable renewal dates contribute significantly to resource planning. As technology shapes data into decision-ready insights, stakeholders can confidently delve into the details of existing contracts, supplier relations, and purchasing practices.

Without legal expertise, technology’s impact on contract management weakens

Despite its speed and accuracy, the impact of intelligent technologies on contract management is incomplete without expert opinion from general counsels and other executives such as the CFOs and CPOs. AI is not yet at a juncture where it can imitate the cognitive capabilities of a top professional with years of experience interpreting legal discourses.

Furthermore, while AI and ML algorithms run on historical data, they cannot continuously forecast future uncertainties. Changing government regulations or the course of geopolitical discord and social unrest can only be foreseen with the sharpness of a human mind.

For that reason, man-machine synergy and the reliance on legal teams are expected to hold their sway into the foreseeable future. Simultaneously, the imperative to reduce cost per contract while increasing the output still stands. In response to this, routine contracting jobs will be increasingly automated to address all cost and scalability questions. So we will always need general counsels and their teams to step into more value-added roles.

Therefore, we can expect the demand for tech-savvy, highly skilled legal professionals to surge in the years ahead despite the increasing use of technology in contract management.

One final word…

Presently, there is a perceptual split between the role of man and machine. Corporations intend to engage general counsels in predominantly strategic roles while outsourcing and automating task-oriented contractual responsibilities. However, it is unlikely for technology to encroach upon areas that fundamentally call for legal aptitude. While digital is an enabler, general counsels will continue to bear significant responsibilities to keep the organization aligned with its strategic objectives. The complex and profound skillset that general counsels provide will continue to be critically important, especially in today's fluid business environment.

ABOUT THE AUTHORS

Kirk Samson is the Senior Director: Contract Management Services at Nexdigm (https://www.linkedin.com/company/nexdigm/). He plays a key role in nurturing client relationships, improving service delivery and business development in the US, as well as the transition, transformation, and automation of processes for Nexdigm. He has over two decades of overseas experience effectively negotiating and advocating with foreign governments, multinational companies, and international organizations. His expertise lies in varied areas such as project management, customer service, business strategy, to name a few.

Marc Lessem is the Senior Executive Director at Nexdigm (https://www.linkedin.com/company/nexdigm/ ). He  specializes in developing and executing market share growth strategies while cultivating high-performing teams. Marc is an accomplished business executive with more than three decades of experience. He has held senior management roles in General Management, Operations, Marketing, Sales, and Finance. His primary areas of expertise include project management, commercial strategy development, contract negotiation, and client relationship management. He is a “connector” and welcomes hearing from you at marc.lessem@nexdigm.com.

ABOUT NEXDIGM

Nexdigm is employee-owned, privately held, independent global organization providing Business Services and Professional Services, that help businesses navigate challenges across all stages of their life cycle. Through their direct operations in the USA, Poland, UAE, and India, they serve a diverse range of clients. Their global Contract Management team balances legal and commercial interests, working with client stakeholders to balance risk. Nexdigm is accredited by the Everest Group in its Global “PEAK Matrix® for Procurement Outsourcing 2022” report. They have been recognized for their end-to-end solutions through managed services, transformation projects, and resource augmentation.

END NOTES

1. Compare this with ALM | LAW.COM article titled With Outsourcing Needs Rising, Chief Legal Officers Favor Specialized Providers Over Law Firms
2. Refer also to Artificial intelligence (AI) vs. machine learning (ML) definition and comparison between two, article analysis
3. Global Banking and Finance article titled Why contract lifecycle management (CLM) should be a focus for finance organisations in 2022.2023. 
4. Gartner Survey Shows Corporate Lawyers Exhausted Since the Pandemic
5. Definitions:

• Master Service Agreement, a formal agreement between suppliers and buyers, defines terms such as deliverables, warranties, indemnification, payment terms, termination clauses, intellectual property rights, confidential information, and even dispute resolutions.
• Buy-Side or Sell-Side Contracts – buy side means buying and sell side means transacting sales with your customers.  Refer to the article titled Buy Side vs. Sell Side Contracts: Understanding the Differences in Contract Lifecycle Management
• Contracts Obligation Tracking, identifying the terms of an agreement to the most essential parts, making sure each contracting party fully understands and follows all legally enforceable commitments. This process is one of the most critical aspects of management.

6. The General Data Protection Regulation (GDPR) sets legal framework and guidelines for collecting and processing personal information from people living outside of the European Union (EU). GDPR became effective in 2018. See also the gotransferse article titled, The General Data Protection Regulation (GDPR) What is it and what does it mean for your company?
7. Reference Genea’s article titled Difference between rule-based access control and role-based access control by Mike Maxsenti

A multi-entity organization “has multiple locations, subsidiaries, or operations, with each entity having its own chart of accounts.” Quoting from Sage article titled Multi-entity Consolidation