Contract Review in Manufacturing Industry: What to Know

Contracts serve as a single point of truth for manufacturers, suppliers, subcontractors, and partners. But one contracting error can open up a manufacturer to liability and poor vendor relations. That’s why having a robust review process to identify and rectify pre-execution contracting issues is paramount to a company’s bottom-line success. Increasingly, contract review in manufacturing is taking a digital turn, and businesses are infusing layers of efficiency into the contracting process with artificial intelligence (AI).

Manufacturing Contracting Hurdles

Contracting in the manufacturing sector presents unique challenges pertaining to: 

• Supply chain disruptions: Contracts can only guide parties with a framework for conducting business and legal remedies in the event of a breach. They cannot control supply chain hiccups like stuck shipping containers, dock worker shortages, rising fuel costs, changing regulations, or macroeconomic shifts.
  
  When these disruptions occur, it’s essential for companies to proactively draft agreements that adequately plan for backup and “what if” scenarios, relocating inventory, creating buffers, diversifying supplier bases, and hands-on collaboration with suppliers.
  
  
• Administrative staffing, training, and productivity: “Lean manufacturing” is commonly applied as a cost-control measure, but it often results in overburdened staff and unnecessary delays across departments. Holdups in the contract department can even prevent deals from closing and operations from continuing.    
  
  
• Contract review: Email, spreadsheets, and physical paperwork are poor substitutes for a streamlined contract management system. Manual setups rely on subjective human judgment and frequently result in errors. And without the context to understand another person’s line of thinking, a great deal of time is wasted when trying to decipher proposed changes to a contract.
  
  Manual review work is also meticulous and labor-intensive, involving multiple sets of eyes and revisions. In order to make contracts more consistent and effective, standardized procedures and methods for reducing common errors must be enacted.

How Can AI Automation Prevent Manufacturing Contracting Bottlenecks?

While competent contract drafting is a must in manufacturing, equally important is the review phase.

Traditionally, a junior-level attorney would spend considerable time and effort taking the first pass at review—comparing drafts to pre-established standards, rules, and guidelines. The next phase of review would then be escalated to a senior legal team member for the final stamp of approval. Sometimes, a draft is passed back-and-forth between multiple parties before sign-off.

By contrast, a platform featuring AI technology can automatically compare an incoming draft to the company’s negotiating playbook (derived from previously negotiated contracts), finding deviations, errors, and omissions in the process. Instead of weeks, an agreement is fully redlined in less than five minutes and can include contextual notes to further guide decision-making. Changes can be made with the click of a button and custom “if/then” rules can be applied by attorneys to automate future reviews even faster. 

Of course, an attorney can still take the final pass to ensure that the marked up draft is up to par, but the number of escalations and hours spent are considerably reduced.

Using LexCheck For Contract Review in Manufacturing

LexCheck is the award-winning platform that tackles modern day manufacturing contract review challenges using AI and automation. It includes:

• Easy setup and standardization: LexCheck can create an AI Digital Playbook from only a handful of agreement samples. Whenever a new draft is uploaded to the system, the AI compares it to the AI Digital Playbook and redlines it based on a company’s contracting and negotiation best practices.

• Automated, attorney-quality redlining: LexCheck’s AI is equipped to provide contextually based, playbook-guided insertions in every draft. Deviations from the norm can be flagged and assessed for risk. The system tweaks its recommendations and improves over time, mimicking an actual attorney.

• Improved learning outcomes with reduced training times: All draft changes and recommendations are made in-line and can be accompanied with explanatory notations and best practice guidance. Newer staff members can use these notes to familiarize themselves with standardized positions and language. Changes can be implemented quickly, and contracts with heavy redlining can be forwarded to the appropriate senior attorney for a guided response.

Given today’s litigious climate and the rapid clip of technology deployment, manufacturers need every advantage they can get to stay ahead of the curve. AI coupled with automation is the key to accelerating contract review in manufacturing. There’s no time for email back-and-forths, or expending weeks to perform tasks that can be completed in five minutes. With LexCheck, manufacturing companies can expect to reduce review times by 90% and total time-to-execution by over 33%.