Description

Contract management is an integral part of business. According to the American National Association of Purchasing Managers, there are about 1,000 of the world's largest companies constantly in circulation. However, 10% of contracts are still managed on paper, making them difficult to work with and prone to loss. Inefficient contract management can cost an organization anywhere from 5% to 40% of the deal price.
Currently, more and more businesses are adopting specialized software to automate their contract management. Three years ago, the LegalTech market was worth $17 billion, and by 2025, it will grow to $25 billion. Additionally, in the next five years, companies will increasingly use AI-based solutions to automate their contractual activities.

How is the analysis of contracts carried out manually?

A large company signs tens of thousands of contracts per year, and a large team of lawyers is assigned to review and approve them, depending on the size of the organization. In most organizations, documents are processed manually by employees. Highly skilled professionals are often involved in routine tasks such as reviewing contracts for specific language and analyzing contracts for compliance with internal corporate standards and regulations, which can include up to 100 rules for review. Every year, the amount of information that specialists have to work with increases, and in addition to corporate rules, legislation changes.

In addition, not only lawyers deal with contracts, but also representatives of other departments – contract managers, technical specialists, the recruitment service, etc. Often, these employees do not have sufficient knowledge in the field of law: to minimize risks, companies invest significant resources in training specialists, and the average period of staff adaptation is two weeks.

But this does not exclude negative consequences. Non-performance of contracts is one of the most common causes of economic disputes in court. In 2020, arbitration courts in the Russian Federation reviewed more than half of the cases related to non-performance or improper performance of contractual obligations.

How is the non-automated process of contract analysis organized in companies? Usually, the manual verification of a document looks like this:

1. Before the agreement is signed, a draft contract is created. After the initial verification, the document is sent to the other party for approval. Here, the terms of the contract can be further discussed and revised.

2. The contract is signed when the parties to the agreement have finalized the text of the document. The signature of the decision-makers is one of the guarantees of the validity of the transaction.

3. After the contract is signed, the parties fulfill their obligations. It is important for specialists to meet the deadlines specified in the agreement, as well as to monitor the possibility of extending or terminating the contract. Once the agreement is completed, the document is archived. However, the overall collection of contracts is often reused in the company's operations. For example, when concluding a similar contract or clarifying the terms under which agreements are typically signed.

At each stage, it is important to perform a thorough review of the contract, which is usually done by several specialists. In most cases, this review is carried out by a full-time lawyer, a contract manager, or a procurement manager. The manual review of documents can take several weeks, which can delay the conclusion of the transaction. Typically, there are multiple parties involved in the negotiation process, and each party may make their own revisions to the contract. As a result, the lawyer must review the document again each time. If the contract is not reviewed, the company may face significant legal costs related to violations of the contract terms. Such situations can arise for several reasons. For example, due to a lack of common understanding of the main terms used in the agreement, disproportionate liability of the parties for non-performance of the agreement, unrealistic deadlines, etc.

How AI changes the contract verification system

Artificial intelligence radically changes the process of working with a contract. AI is able not only to suggest edits to the text of legal documents, but also to optimize the contract management system. Most companies do not have a unified database where all information on concluded contracts would be collected, and there is no tool for quick and accurate analysis of corporate documents. AI solves this problem: it searches the entire array of intra-corporate data, finds the required or similar document, provides explanations on the main provisions of the contract, and also offers tips to reduce risks or include more.

The neural network segments contracts into 6 classes.

If you are interested in this neural network and it can help you with your business and other technical tasks, please send an application to info@ai4b.org