Part 1 - What is meant by the term, contract analytics and why is it a game changer?
This Part 1 reveals how contract analytics can reshape conventional contract management and spark smarter, faster and more compliant business operations.
Part 2 will explain how to deploy contract analytics at a deeper level, such as identifying and eliminating pitfalls and other borderline issues of contract management. Read Part Two
Contract repositories often exist as static archives—a graveyard of unlinked files, unmonitored agreements and details of past transactions. Such repositories can be bursting at the seams with unrecognized insights. But corporate legal and business teams armed with contract analytics can transform such archives into strategic resources driving stronger business outcomes.
Contract analytics, by definition, is a strategic imperative -- a decision to invest in uncovering previously inaccessible intelligence and discovering new ways to produce measurable financial, operational and compliance impacts throughout an organization.
Before diving into the power of contract analytics, it’s important to clarify a key difference between contract analysis and contract analytics, which are often used interchangeably but are fundamentally different in nature, scope and impact.
Contract analysis refers to the process of extracting specific information or ensuring compliance with certain terms in individual contracts. For example, effective contract analysis includes:
- reviewing a nondisclosure agreement to confirm the presence of a mutual confidentiality clause;
- examining a supply agreement to ensure that it contains specific force majeure provisions or
- checking a master services agreement to verify compliance with evolving data privacy regulations such as the General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA).
These are obviously important steps to take in the contracting process and represent key data points needed by the business, legal stakeholders and compliance stakeholders alike.
By contrast, Contract analytics aggregates and evaluates data points and information across a portfolio of contracts to reveal broader risks, trends and even unseen business opportunities. For example, a look-back on an existing contract or process using analytics could alert leadership that:
- reveals a large percentage of a company’s Master Service Agreements (MSAs) include liability limitations that are inconsistent with preferred positions or even inconsistent with regulatory obligations, especially in financial services and other risk-intensive industries); or
- uncovers the fact that exclusivity clauses aren’t being used in a sizable subset of licensing agreements critical to the competitive stance of a drug manufacturer. More proactively, analytics can also alert the right people when these noncompliant terms are put into place -- even before such terms are executed.
Although contract analysis does answer discrete questions about individual agreements, contract analytics uses a transformative approach to managing contract data -- providing actionable insights that fuel more informed negotiations to alleviate risks, discover hidden revenues and seize new commercial prospects.
Analytics can be seen as optimizations, knowledge and even potential next steps being “pushed” to decision-makers directly from the data itself, rather than from individual data points being (often manually) “pulled” from the data when contract analysis is being performed.
Potential benefits of contract analytics and examples of how they can impact organizations.
1. Improve negotiation strategy and speed
Contract analytics enables data-backed preparations for finalizing agreements. Rather than using guesswork, negotiators can bring knowledge -- such as pricing trends and frequently negotiated clauses parsed from potentially thousands of agreements -- to focus on what’s important. Then, they can take their evidence-based positions to the negotiators at the table. This puts organizations in a better position to shorten the path to agreement and lock in the most favorable terms which, in turn, could lead to a condensed deal cycle time or the ability to more quickly realize revenue.1
Organizations investing in advanced contract management capabilities are reporting “up to an 80% reduction in average cycle time from bid to signed agreement.”2
2. Anticipate and proactively manage risks
Contract portfolios can sometimes shroud potential recurring disputes or hide a host of nonstandard clauses and other compliance red flags. Analytics can identify these issues within large data populations and quantify the risk of each issue by using a scorecard for specific types of agreements and criteria of the terms agreed upon by the business, legal, compliance and other interested parties. This can prioritize remedial action or, alternatively, help organizations avoid overcompensating and taking unnecessary action.
Centralizing contracts and their component clauses into a single repository with a clause library and applying analytics across the contract portfolio allow organizations to systematically track, not only the basic performance obligations and renewal windows, but also reveal specific relationship health indicators defined by the business, performance metrics and potentially noncompliant clauses.3
For example, data analytics can help flag incomplete or unclear repayment terms in a commercial loan agreement, which could lead to disputes if such repayment terms are not detected early in the lending process. Uncovering these hidden threats early and often - preferably using an automated system - can drastically improve risk management capabilities.
Average contract value erosion due to poor contract management hovers around 9%, despite massive gains in technology and outsourcing options to better manage contract populations over the last several years.4
3. Find hidden revenue streams and operational improvements
Beyond risk mitigation, arguably the most impactful use of contract analytics tools and techniques is assisting with the detection of new or unseen sources of revenue and operational gains. By systematically analyzing an organization’s contract portfolio, teams can unearth missed opportunities on both the buy side (overlapping vendor agreements) and the sell side (unbilled services, chances to upsell) to name a few examples.
In the case of software licensing, if a monitoring capability is not in place to track user consumption limits, software companies can miss out on automatic upgrades or other valuable revenue-generating triggers. Another way to extract maximum value from routine, but potentially high-stakes agreements is to ensure that volume discounts (sometimes buried in Master Service Agreements (MSAs)) are known by relevant internal stakeholders and consistently recognized by counterparties when such volume discounts are achieved.5
Seizing business opportunities
Much of our focus in contract analytics surrounds avoiding cost and managing risks, but we should not overlook the ability of analytics to spur strategic actions. By getting information into the hands of decision makers and reducing negotiation cycle times, organizations can pivot more quickly to higher-level strategies. For example, unused licensing clauses or distribution rights buried in a contract repository may expedite entry into new markets.6
Similarly, analytics could reveal that pursuing an expanded collaboration with a specific supplier would be ideal due to favorable pricing terms or superior performance. Analytics could also flag recent changes in geographic restrictions that need only minor changes to give the business access to new locations. Early renewal strategies can likewise be applied to high-margin contracts, enabling businesses to capitalize on established, advantageous relationships sooner rather than later.
In today’s world, contract analytics involves more than just aggregating data—it also uses tools like dashboards, automated alerts and risk-scoring systems to surface business intelligence. Then, by leveraging the insights you gain to streamline negotiations, you can standardize processes and push better information into the hands of decision makers.
Apart from the tools, however, success lies in knowing how to use a combination of the right people, processes and controls to effectively extract high-quality, reliable information from contract repositories, avoid common pitfalls and ensure that results are measurable and sustainable.
Part 2 explores how you can deploy contract analytics to help identify and eliminate pitfalls and other borderline contract management issues. Read here.
END NOTES
- Contract Analytics: Making Your Business Better, Icertis (https://www.icertis.com/contracting-basics/contract-analytics-making-your-business-better).
- World Commerce & Contracting Benchmark Report 2021, World Commerce & Contracting, Cummins, T. and Guyer, S., 2021 (https://www.worldcc.com/Portals/IACCM/Resources/WorldCC-Benchmark-report-2021.pdf?ver=NPQMEljK4Q-meXZLABtd2w%3D%3D).
- The benefits of contract management in numbers, GatekeeperHQ, Bryce, I., July 24, 2019 (https://www.gatekeeperhq.com/blog/the-benefits-of-contract-management-in-numbers).
- The ROI of Contracting Excellence, World Commerce & Contracting and Deloitte, Cummins, T., Conte, C., and Ross, M., June 2023 (https://www.worldcc.com/Portals/IACCM/11560_0_ROI-of-contracting-excellence.pdf?ver=VafosW5bbs4HgsWyMsqybw%3d%3d).
- How to Increase Renewals Using Contract Data, Ironclad (https://ironcladapp.com/journal/contract-process/increase-renewals-using-contract-data/).
- How Small Businesses Can Use Contract Analytics To Drive Growth, ContractSafe, Button, K., July 16, 2024 (https://www.contractsafe.com/blog/small-business-contract-analytics).
ABOUT THE AUTHORS
Brian Corbin is Vice President, Legal Solutions and Operational Excellence at QuisLex. He has 20 years of experience in the legal industry, and before joining QuisLex, Corbin most recently served as Executive Director and Assistant General Counsel with JPMorgan Chase. There he managed teams spread across four continents and oversaw a global partnership between lawyers, technologists, data analysts, law firms and ALSPs to deliver legal process improvements, enterprise-class software and impactful legal automation solutions to the firm.
Sailaja Meesaraganda is Vice President, Client Solutions at QuisLex, where she designs and builds workflows and project plans for clients and is responsible for project delivery that meets client requirements. She actively manages projects in contracts negotiation, contracts review and analysis, M&A due diligence, post-merger integration and compliance and legal operations support, working with clients from various industries. Before joining QuisLex, Meesaraganda worked with a law firm handling IP-related matters and practiced in the Delhi High Court. She received her LL.B. degree from Amity Law School, Delhi, where she graduated first in her class.
ABOUT QuisLex
QuisLex is an award-winning leader in the legal services industry, delivering the benefits of operational excellence, process rigor, and expertise for complex legal work. With their patented approach to quality, they specialize in contract management, litigation and data breach document review, privacy and compliance support, legal spend management, M&A services, and legal operations consulting. Since 2004, their teams have supported global clients, across 16 time zones and various jurisdictions, from industries such as Financial Services, Insurance, Technology, Pharmaceuticals, and Retail.
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