Organizational change is slow, which is why it’s no surprise that working faster and more efficiently has been a priority for legal departments for the better part of a decade. Of 100 corporate legal departments surveyed by Gartner, 40% of managers admit that managing contract risk is a slow process. The average company’s contract review turnaround time adds 10% more time (6.5 days) to the launch of a new product, amounting to $7 million in revenue losses. Companies can’t afford to spend extra time contracting with third parties as it ends up costing the equivalent of three full-time employee salaries.
To improve contract review turnaround times, legal teams are approaching the issue in multiple ways. Some outsource the work to alternative legal service providers when workflows back up. Others have adopted semi-automatic approaches by leveraging various in-house, third-party tools. More recently, implementing artificial intelligence (AI) and automation technology has proven incredibly effective at shaving considerable time off the process.
Contract Review Checklist
A company’s contract review process should be carefully documented to ensure smooth workflows. Typically, low-risk, low-sum contracts are handled by junior team members for preliminary review after a draft has been conceived. Some companies stipulate that liability exposure greater than $250,000 must be handled by senior team members.
Reviewers typically run through a checklist that covers topics like:
- Are all relevant parties expressly included?
- Is the summary of the need, project obligations, and the deadlines accurate?
- Is language clear enough to mitigate risk?
- Does the contract deviate from the company’s standardized negotiating positions?
Once a preliminary risk assessment and review have been completed, the document is then forwarded to a senior staff member for another review. Occasionally, back-and-forth email discussions take place with the third-party involved.
When Should a Contract Be Reviewed?
Manual contract review turnaround time requires hours of due diligence. The contract review process is typically initiated four to eight weeks before planned execution to account for contract complexity and potential delays. If multi-party negotiations over contract language is anticipated, the review process could easily take twice as long.
Once the initial contract is signed, routine monitoring and review ensures that business objectives are achieved. Forbes reports that 60% of supplier contracts are auto-renewed unbeknownst to buyers who forgot to terminate or renegotiate them, resulting in significant profit losses.
How Do We Get Better At Reviewing Contracts?
Today, AI-based contract review and negotiation solutions can solve a number of issues bogging down contract review turnaround time. LexCheck, for example, features AI-powered contract review software that’s proven to reduce total approval times by 80% and agreement escalation rates by 70%. With it, corporate legal departments can:
- Create an AI Digital Playbook by uploading two dozen sample contracts to the system.
- Train the AI to identify draft errors, omissions, and deviations from the company playbook.
- Receive a fully redlined contract draft with attorney-quality revisions in less than five minutes.
- Apply changes automatically and configure custom “if/then” for future reviews.
- Receive color-coded risk assessments of any third-party changes to standard forms. “Red” issues can be automatically escalated to legal counsel for a governed response, “yellow” issues can be self-negotiated by parties managing the negotiation, and “green” issues can be automatically accepted and incorporated in the response document.
Many corporate legal departments are already using LexCheck to support their training programs. By reviewing the system’s provided suggestions, drafters can easily see the errors or omissions they’re making, and reviewers can quickly find the contextual information they need to understand standardized negotiating positions. Companies like NetApp not only see faster contract review turnaround times with LexCheck, but also a 99% reduction in employee training costs.
Gary Sangha | Founder & CEO
Gary Sangha is the Founder and CEO LexCheck. He's a serial entrepreneur and an academic. Gary previously founded Intelligize, a legal technology company that was acquired by LexisNexis. He's affiliated with the University of Pennsylvania and Stanford University and started his career as an attorney at Shearman & Sterling and White & Case.