Standard agreement provisions dictate up to 80% of all business transactions—including price, buyer and seller terms, regulatory compliance, and accountability. The typical Fortune 1000 company maintains 20,000 to 40,000 contracts. Large corporations like Walmart typically oversee more than 100,000 agreements with global suppliers each year. For large companies the lost potential revenue and waste in the contracting process can be tremendous; for smaller companies this loss and waste can produce even greater impacts on the bottom line and growth.
Poor contract management leads to limited visibility, inflated costs, diminished negotiation leverage, missed revenue opportunities, and poor compliance. Shared across corporate legal departments is the need for fast, affordable, and scalable contract optimization. Today, technology has finally caught up with demand.
Why Is Contract Optimization Necessary?
Corporate legal departments are responsible for reviewing and revising contract terms in favor of company positions, saving the completed and signed contracts in a repository, and renegotiating or renewing those contracts as needed.
Traditional contract management processes require legal staff to shuffle through seemingly endless documents that were created in MS Word, sent to the parties by email, executed copies saved as a PDF on the company server, and managed manually by an array of people both within and outside of the legal department. At best, this antiquated process led 53% of general counsel to “spend too much time on repetitive tasks.”
Where do contract process delays occur?
The main barriers to effective contract management that create delays include:
- The lack of a standardized process from start to finish.
- Labor-intensive playbook training.
- Manual drafting and past document referencing.
- Poor visibility and bottleneck tracking.
- Face-to-face meetings, phone calls, and email back-and-forth to negotiate terms.
- Ineffective contract compliance and performance monitoring.
- Decentralized document storage that makes contracts difficult to locate.
What Are the Key Elements of Contract optimization?
Contract optimization focuses on systematically improving the efficiency of the creation, analysis, execution, and long-term maintenance of formal agreements. Process improvements require corporate legal departments to update from informal and inefficient manual processes to digital systems and automation that optimize time and cost. AI technology offers the most effective strategies for contract optimization in today’s legal environment.
Three key elements of AI contract optimization include:
- AI Digital Playbook: An AI Digital Playbook is a critical component in contract optimization. By submitting a series of sample contracts and the company playbook to train the AI, corporate legal departments can accelerate the contract approval process while dramatically reducing errors.
- Intuitive Technological Processes: Simple processes are usually the best—and this holds true for contract optimization. Legal teams email or upload an agreement to the platform, and the AI generates suggestions after comparing the agreement to previously-negotiated contracts and the company playbook. The review process is typically completed just minutes after legal staff submits the agreement to the platform.
- Automated Markup: AI leverages big data and Natural Language Processing (NLP) to automatically review, redline, and negotiate contracts according to playbook standards, best practices, and attorney-set parameters.
Discover Cost and Contract Optimization with LexCheck
As the saying goes, “time is money.” The average medium-complexity contract takes 30 days to review and negotiate to completion, costing companies nearly $20,000—up 40% over the last several years. When multiplied across tens of thousands of contracts, hundreds of thousands of legal staff hours are unnecessarily devoted to creating, negotiating, reviewing, and approving documents, not including the actual monetary costs to deploy those resources. While contract negotiation is essential, much of the waste can be prevented. With contract optimization, process cycles can be optimized for dramatic savings increases for both time and money.
LexCheck is the industry’s leading provider of legal AI software. Recognized by the Associate of Corporate Counsel as the 2021 Value Champion Award Winner, LexCheck reduces total contract approval times by 80% and decreases escalation rates by 70% to free senior attorneys to focus on risk reduction, executive consulting, and strategic growth tasks.