Contract Review Best Practices You Need to Know

Contracting inefficiencies are costly. Nearly 60% of businesses say poor contract management actually delays revenue, and 50% state that it has resulted in lost business opportunities. By one estimate, poor contract management costs the average company 9% of their bottom line revenue. 

Unsurprisingly, nearly every enterprise aims to address the issue and get it under control. Financial incentives aside, most people prefer to contribute value to their workplace and use the latest technology to streamline their workflows. 

The legal sphere is no different. By implementing the contract review best practices listed below, corporate legal departments can ensure fellow employees stay happy and organizations profitable for years to come.

3 Contract Review Best Practices To Implement Right Now

Best-in-class organizations that deal with contract management are nearly three times as likely to fully comply with their contract terms. They are also achieving better metrics for:

• Spend under management: 89% vs 51%

• Average realized yearly savings: 12.8% vs 5.6%

• Average cycle time for approvals: 40 days vs 49 days

• On-time delivery: 82% vs 59%  

Here are three contract review best practices top organizations consistently follow to achieve these results:

1. Standardize Agreements

   Effective contract management starts with efficient draft creation. Before an agreement is drawn up, a comprehensive resource such as an AI Digital Playbook should be utilized to standardize terms, conditions, clauses, and legalese set forth by the company. Taking the time to pre-approve boilerplate language saves time and ensures consistency.

   Having a central point of truth like a legal playbook can help define the amount of flexibility built into certain provisions to aid in renegotiation efforts. Businesses may also build digital templates that are easy to edit and review so that it becomes easier to focus on any terms that are unique. 

   Depending on the nature of the business dealings, some companies may need multiple playbooks for different types of contracts, vendors, or verticals.                                                                                                                                 

2. Conduct Efficient Risk Analysis 

   Getting a handle on third-party risk analysis should be a top priority for every business, as 3 in 4 companies surveyed say they’ve encountered “significant disruption” over the past year. Four in 10 companies have had three or more incidents arise during that time. Further, 54% of survey respondents believe they have been overbilled by a third party at least once during the last 12 months. Consider the risk of getting sued in court over breach of contract, and risk analysis becomes even more significant of an undertaking. 

   Busy legal teams are able to prioritize their work using an automated solution to handle risk analysis. They can simply upload a contract draft into the system to cross-reference it against a digitized copy of their corporate legal playbook. AI-powered risk analysis reduces errors by ensuring all boilerplate provisions are included and aligned with the preferred negotiating positions. 

   Once a review of third-party contracts are complete, the system can then review the changes and automatically escalate contracts based on the level of perceived risk; for example, high-risk (red) assessments can be escalated to senior legal staff, medium-risk (yellow) contracts can be forwarded to managers, and low-risk (green) issues can be automatically accepted and incorporated in the response document.                                                                                                                                                                                                           

3. Leverage Automation and Artificial Intelligence (AI)

Contract management solutions built with AI and automation technology are quickly gaining traction across enterprises, helping legal teams finalize agreements with unparalleled accuracy and efficiency. For example, they can: 

• • Compare drafts to standard legal playbooks and past agreements via natural language processing (NLP)—mimicking an actual attorney. 

• • Automatically redline risky provisions, unapproved language, deviations, errors, and omissions to help train staff on standardized terms and negotiating positions.

• • Insert intelligent revision suggestions, providing contextual links to clarify guidance and steer stakeholder decision-making. 

• • Incorporate unique “if/then” rules configured by attorneys to further accelerate contract review. 

Gartner predicts that AI-powered contract review solutions will reduce the degree of manual effort by 50% over the next two years.

It’s Easier With LexCheck

Technology drives organizational change, and LexCheck was created with this philosophy in mind. It’s an award-winning, AI-powered solution that helps legal teams around the world address common pain points in the pre-execution phase of contract review and negotiation. Featuring the latest in AI, NLP, and automation, LexCheck delivers attorney-quality redlining in less than five minutes. It also reduces review time by 90% and total cycle time by a third. With it, companies can mitigate organizational risks while making a positive business impact for every party involved.