Part 2 - How do we perform contract analytics?
Part 2 of this series turns the “what” of contract analytics into the “how” of performing contract analytics – activating analytics to identify and eliminate potential pitfalls and other borderline issues that arise too often during manual contract management processes.
Part 1 explains what contract analytics means and how it has evolved to reshape conventional contract management. The result has produced smarter, faster and compliant business operations. Read Part One
We know too well how our business environment has been growing increasingly complex and how it is becoming more critical for survival when we try to extract smarter strategies from contract data. Increasingly this trend has forced us to pull away from less productive traditional “analysis,” and move into advanced contract “analytics.” The task demands that we shift from reactive to proactive so we can generate more value. At the same time, we must move both compliance and performance of contracts into faster, easier and smarter strategies.
Contract analytics involves using user-friendly tools, trained resources and a deeper knowledge of organizational data to extract and visualize reliable information, or provide real-time alerts, or put scoring mechanisms into place. But, first, we need to eliminate the risks.
identifying hidden risks - Tools and techniques
Visualizing data
Contract analytics can include dashboards that translate massive amounts of contract data into a compact view (or views) of data, ranging from expiration or renewal dates to usage frequency of nonstandard clauses. Pattern recognition can connect thousands of contract data points with other important data -- such as revenue figures to identify trends that might be hidden from manual review -- trends like recurring underpriced agreements.1Such on-demand business intelligence like this can pave the way for making educated decisions quickly to improve revenue and reduce risk.2
Intelligent risk scoring
Risk scoring, which ranks contracts and their component clauses by potential risk exposure, can be applied across many risk indicators like indemnity limits, nonconformance with preferred positions or data privacy terms. These analytics tools can help teams identify high-risk agreements and clauses in their order of strategic priority.
Alerts – don’t let obligations or deadlines slip past you!
Regardless of the effort you make to draft a contract, it can backfire if you overlook obligations and deadlines. Automated alerts, activated by specific milestones, events and other objective criteria, can prevent companies from missing payments due or accidentally falling into unfavorable renewals. So, to reduce the chance of service interruptions, lost revenue or other avoidable drawbacks, you should take proactive measures like simple renewal countdown notifications, compliance alerts for annual reporting requirements or notifications for upcoming due dates.
Analytics can improve playbooks
Although using playbooks is a well-established way to standardize approaches to contract drafting and recurring negotiations, playbooks can be improved considerably when you use analytics. Data-driven playbooks can automatically draw on standardized clauses, fallback positions and proven negotiation strategies. This helps legal teams reduce the risk of omitting critical details for the business or inadvertently introducing unfavorable terms.
For example, by assigning preference tiers to liability limitation clauses in clause libraries, negotiators can ensure that if their most favorable Tier 1 language is rejected by the counterparty, they can instantly switch to Tier 2 without derailing the deal. (Tier 1 is commonly understood text; Tier 2 usually requires explicit definition.)
One step further -- as Artificial Intelligence (AI) tools improve, predictive analytics and AI will play a greater role in automating negotiation, even on complex agreements.3
By applying each of these tools and techniques consistently, legal departments can link contract analytics to the broader goals of reducing risk and saving costs to seizing strategic opportunities and, critically, reducing contract cycle time.
Meaningful metrics and Key Performance Indicators (KPIs) for contract analytics programs
Organizations commonly invest in contract analytics to measure the results and health of their contract management functions. This is done to not only celebrate wins and quantity value (number or unit of measurement), but to track continuous improvement, align with overall business objectives and develop trust and accountability.
Which metrics are involved in contract analytics? What do they measure and why do they matter?
What follows are some metrics and KPIs that can help you accurately measure the impact of your contract analytics programs.
Speed and efficiency
Contract cycle time (CCT) measures the total time elapsed from initial contract request to signature.
Why it matters: a shorter contract cycle speeds up revenue recognition and accelerates business outcomes.4
Average time to resolution of disputes measures the amount of time between the discovery of a contractual disagreement and resolution or settlement.
Why it matters: Prolonged disputes threaten otherwise healthy partnerships and divert resources from core responsibilities. Reduced resolution time reflects effective contract language and strong negotiation playbooks.5
KPIs in the context of mergers and acquisitions
Due diligence speed measures the total time or cost spent analyzing legacy contracts (both pre- and post-deal) from both parties of a merger, acquisition or divestiture.
Why it matters: Slow diligence can increase regulatory risks, delay integration timelines and business goals and increase the chance of liabilities too late in the deal process.6
Post-merger clause consistency measures the alignment of important contract clauses (e.g., liability, indemnities, termination terms) across newly combined entities.
Why it matters: Inconsistent terms can create compliance gaps or stifle effective integration between entities. Tracking clause consistency ensures uniform standards and controls and contributes to preventing future disputes.7
Value
Renewal rate measures the percentage of contracts set to expire but are successfully renewed.
Why it matters: High renewal rates show stable recurring revenue and consistent customer or vendor satisfaction. Missed renewals can lead to lost business opportunities.
Contract value leakage measures the gap between projected contract revenue (or savings) and the actual realized amount.
Why it matters: High leakage means lost profits, unbilled services or underpriced terms. Addressing leakage closes financial gaps and can reveal operational problems.8
Payment/invoice accuracy measures the percentage of invoices issued without error in quantity, pricing or other terms.
Why it matters: Invoice mistakes can lead to delayed payments, disputes and revenue leakage (see above). Accurate billing is vital for cash flow and customer satisfaction.
Savings or cost avoidance measures the financial impact of things like negotiated discounts, waived fees, mistakes identified or averted penalties -- all revealed by careful contract management.
Why it matters: This metric quantifies the value that contract analytics adds by identifying cost-saving opportunities.
Overall contract Return on Investment (ROI) measures the net return traceable to improved contracting processes that consider cost reductions, revenue gains, time savings and improved dispute resolution outcomes.
Why it matters: Executives want a clear financial rationale for investing in contract analytics, showing demonstrable ROI can help lock in necessary buy-in.
Risk and compliance
Compliance incidents measure how often a contract deviates from regulatory, industry or internal policy requirements.
Why it matters: Each incident can create exposure to potential disputes or fines. A lower incident rate indicates stronger controls.
Timely compliance with key obligations measures the ratio of obligations fulfilled (e.g., deliveries, payments or reporting) in accordance with their specified deadlines.
Why it matters: Incomplete or late obligations can trigger penalty clauses, degrade relationships or violate regulations.9
Negotiation and consistency
Redlines per contract measures the average number of changes, deletions or additions before an agreement is finalized.
Why it matters: Frequent redlining can prolong negotiations and create unnecessary friction. Tracking redlines can encourage standardized language and reduce overhead in negotiations.
Clause deviation rate measures how often contract clauses differ from standard or preferred positions.
Why it matters: Higher clause deviation rates can signal riskier terms, lost leverage or confusion. Monitoring deviations mitigates compliance and legal risks while standardizing preferred positions.10
CONTRACT ANALYTICS - CASE STUDIES
Billing time cut by 80%
A large telecommunications company chopped its billing time by 80% by using analytics to automate subscription management, improving payment and invoice accuracy and reducing contract cycle time.11
Hospital system incentives eliminated noncompliance, raised performance
A major hospital provider compared salaries for housekeeping with patient satisfaction scores. Linking pay to clear metrics drastically reduced rework and boosted service consistency. These improved incidents of noncompliance (e.g., fewer missed cleanliness standards) and improved timely compliance with key obligations pertaining to staffing and performance.12
Unbilled work led to leakage -- analytics resolved the loss
One company fulfilled the terms of a service agreement, but part of the work was unaccounted for in the invoice. This demonstrates contract value leakage, when obligations go unbilled. Contract analytics can remediate this problem by tracking tasks, time billed and billing clauses. 13
Getting there – facing all challenges
Transitioning to contract analytics presents significant challenges that organizations must address systematically. Clean data, human intervention and alignment with the firm’s technical vision and controls are some of the essential building blocks of any analytics program.
Put data quality and humans in the loop
Applying human judgment and oversight throughout each stage of the contracting process remains critical even though contract analytics can streamline routine tasks and enlarge access to valuable new information.
In practice, the best contract analytics programs pair AI’s speed and accuracy with ongoing professional engagement to ensure that “the collaboration between AI and human professionals in contract management maximizes the benefits of both automation and human judgment, leading to more effective contract management and better business outcomes.”14
Engaging industry experts who have dealt with these issues can help speed the transition and maximize an organization’s resources to build out an analytics function.
Data quality is one example of the importance of this pairing, because any analytics function is only as good as the data feeding it. Without well-curated and structured inputs, “garbage in, garbage out” becomes a major concern.
Performing look-back exercises and establishing consensus around “golden sources of truth” discovered within potential conflicting corporate data sources will alleviate this. Additional practices are essential too, such as enforcing standard naming conventions, sampling scanned documents to ensure legibility, accurately capturing text from images and validating metadata routinely.15 Ongoing monitoring of data quality, accuracy and completeness must happen without fail to allow contract analytics programs to create trustworthy, useful and reliable outputs.
integration, controls and data protection
Program managers working with contract analytics must align their initiatives not only with the organization’s existing technology, but also with established controls and standards—a typically complex environment at any company.
Managers often inherit a technical architecture that cannot be fundamentally altered. This requires all new contract analytics capabilities to integrate seamlessly with matter management, multiple data repositories, customer relationship management (CRM), enterprise resource planning (ERP) and finance tools to incorporate contract data into broader business workflows and prevent fragmentation that may hinder the adoption of clean data flow.
Centralizing and applying analytics to contracts also demands rigorous security measures and a well-documented data accessibility framework to ensure regulatory compliance and protect against data breaches.
Twenty-five percent of businesses cite security concerns as the biggest barrier to adopting advanced contract analytics technologies, and regulations. Such regulations as The General Data Protection Regulation (GDPR), the Digital Operational Resilience Act (DORA), the European Union’s AI Act and the New York Department of Financial Services (NYDFS) cybersecurity requirements impose substantial penalties for noncompliance; therefore, companies must carefully balance data democratization with robust security and access controls.16
Advanced analytics programs should surface relevant insights to precisely defined, need-to-know audiences while maintaining strict compliance protocols via sophisticated access permissions. End-to-end encryption of contract data, role-based access controls, comprehensive audit trails and secure application programming interface (API) integrations are table stakes here, and since these security requirements evolve constantly, the contract analytics program will mandate vigilant monitoring and updates from information security, privacy, technology and other teams to maintain their effectiveness.17
Change management – take time to do it – or risk pushback!
Finally, even after clearing all of these hurdles, identifying measurable benefits, getting executive buy-in and putting the proper controls in place, contract analytics programs can still fail to launch as a result of stakeholders underestimating the importance of effective change management. An organization that starts making simultaneous changes involving many disparate departments and well-established legacy workflows -- all working within a complex technical environment -- might expect cultural backlash.
That’s why communicating early and often at multiple layers of the organization is so important.18 Provide frequent training and easy-to-access reference materials and use a phased approach to rolling out new tools, processes and resources. These are a few tactics that can ease the perceived pain. Organizations should prioritize putting time into a change management strategy and executing a program like contract analytics.19
ANALYTICS – A GOLD MINE OF ACTIONABLE INTELLIGENCE
Using analytics can transform these archives into a gold mine of actionable intelligence. That intelligence can uncover dormant revenue opportunities, sharpen negotiations, mitigate risks and enhance strategic decision making.
As we’ve seen, contract repositories are no longer mere storage solutions; they are reservoirs of untapped potential. As the business environment grows increasingly complex, the ability to extract strategic insights from contract data becomes not just an advantage but a necessity. Taking an organization’s contract management approach from traditional analysis to advanced analytics means you are generating value and making compliance and contract performance of contracts faster, easier and smarter.
READ PART ONE
END NOTES
- Contract Management Dashboard, UCSD, December 11, 2024 (https://blink.ucsd.edu/finance/bi-financial-reporting/bud-finmgmt/contract-management.html#Contract-Invoice-and-Payment-De).
- A comprehensive guide to contract analytics, Thomson Reuters, January 11, 2024 (https://legal.thomsonreuters.com/blog/a-comprehensive-guide-to-contract-analytics/).
- Predictive Contracting, Columbia Business Law Review, Williams, S., April 27, 2019 (https://journals-test.library.columbia.edu/index.php/CBLR/article/download/3425/1371/5778).
- AI-Enabled Contract Life-Cycle Management Software Drives Significant Performance Improvements Over Traditional Methods, The Hackett Group, September 10, 2024 (https://www.thehackettgroup.com/ai-enabled-contract-life-cycle-management-software-drives-significant-performance-improvements-over-traditional-methods/).
- Contracting for performance: Unlocking additional value, McKinsey, Belotserkovskiy, R., Sewak, J., Teodorian, A., and Lietke, B., May 2, 2018 (https://www.mckinsey.com/capabilities/operations/our-insights/contracting-for-performance-unlocking-additional-value).
- Exploring the role and benefits of AI in M&A due diligence, M&A Community, July 1, 2024 (https://mnacommunity.com/insights/ai-in-ma-due-diligence/).
- Managing M&A Risks With Contract Management Governance, GatekeeperHQ, Linsley, R., November 11, 2024 (https://www.gatekeeperhq.com/blog/managing-merger-acquisition-risks).
- What is revenue leakage? Here’s how to detect it and prevent it, Stripe, February 28, 2024 (https://stripe.com/en-dk/resources/more/what-is-revenue-leakage-heres-how-to-detect-it-and-prevent-it).
- Leveraging Contract Analytics to gain insights And Improve Decision-making, Contractzy, Dalvi, V. (https://www.contractzy.io/blog/leveraging-contract-analytics-to-gain-insights-and-improve-decision-making).
- Contracting for performance: Unlocking additional value, McKinsey, Belotserkovskiy, R., Sewak, J., Teodorian, A., and Lietke, B., May 2, 2018 (https://www.mckinsey.com/capabilities/operations/our-insights/contracting-for-performance-unlocking-additional-value).
- Revenue leakage: How to close the gaps in your order-to-cash process, Zone & Co (https://www.zoneandco.com/articles/revenue-leakage-how-you-can-save-millions-of-dollars).
- Contracting for performance: Unlocking additional value, McKinsey, Belotserkovskiy, R., Sewak, J., Teodorian, A., and Lietke, B., May 2, 2018 (https://www.mckinsey.com/capabilities/operations/our-insights/contracting-for-performance-unlocking-additional-value).
- What is revenue leakage? Here’s how to detect it and prevent it, Stripe, February 28, 2024 (https://stripe.com/en-dk/resources/more/what-is-revenue-leakage-heres-how-to-detect-it-and-prevent-it).
- Artificial Intelligence (AI) can manage your contract repositories quickly with smarter solutions, World Commerce & Contracting, Goebel, C., December 13, 2023 (https://www.worldcc.com/resources/content-hub/details/artificial-intelligence-ai-can-manage-your-contract-repositories-quickly-with-smarter-solutions).
- 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).
- AI in contracting: an untapped revolution, World Commerce & Contracting, Guyer, S., July 2023 (https://www.worldcc.com/Portals/IACCM/Resources/11556_0_AI%20in%20contracting%20an%20untapped%20revolution.pdf).
- Leveraging Contract Analytics to gain insights And Improve Decision-making, Contractzy, Dalvi, V. (https://www.contractzy.io/blog/leveraging-contract-analytics-to-gain-insights-and-improve-decision-making).
- Unlocking the Power of Contract Analytics and AI: Transforming Legal Data Management, Relativity, Post, C. and Scott, L., August 7, 2024 (https://www.relativity.com/blog/unlocking-the-power-of-contract-analytics-and-ai-transforming-legal-data-management/).
- Legal Project Management: 10 Best Practices for In-house Teams, Bigle Legal, Esteve de Miguel, S., June 1, 2023 (https://blog.biglelegal.com/en/legal-project-management-for-in-house-teams).
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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