For the average legal department, slow contract review costs the equivalent of three top-paid full-time employees. Wasted money aside, companies with inefficient contracting processes have more deals fall through and miss out on sales revenue opportunities due to product launch delays. In revenue terms, legal drag costs organizations some $7 million in losses.
It’s not all doom and gloom, however. Artificial Intelligence (AI) technology has matured into a viable solution for legal departments seeking a solution to improve sales velocity. Not only are deals closed 33% faster with artificial intelligence integrated into the contract review process, but employees are freed from routine work that hampers productivity and workplace fulfillment.
Last year, only 17% of organizations reported using self-service contracting tools, which means the use of such technology is, at present, a differentiator for businesses looking to scale and compete. But we’re likely to see explosive growth in the years to follow.
Why Is Contract Review So Time Consuming and Monotonous?
Contract review teams frequently report that their work is time consuming and boring. Here’s why:
Sheer Length. Every single line of a contract needs to be read. If you’re reviewing a general contractor agreement, that might be five or six pages’ worth. A non-disclosure is typically over 10 pages. A Master Service Agreement (MSA) can also be lengthy as they can encompass a range of services.
Volume. A large organization handles an average of 19,000 contracts per year. The busiest ones manage over 50,000, so it’s no surprise they report contract management as a major challenge. Though much of this work is routine and low-complexity, 65% of legal department staff members are buried in it for more than 40% of their time. As a result, 96% of legal departments face challenges when attracting and retaining talent willing to perform menial tasks.
Growing Complexity. Gartner’s analysis of more than 23,000 S&P 1200 companies has indicated a growing complexity in deal-making since 2010. Top trends prompting this slowdown include increasing capabilities and scope, the rise of digitally-driven deals, cross-border agreements, and scrutiny from governments, regulators, and investors. As a result, time to close has risen more than 30% over the last decade.
Risk Management. Of 100 corporate legal departments surveyed, 40% of managers admit that risk management is a slow-moving process. Teams spend inordinate amounts of time manually locating information in past agreements, tracking the legal and regulatory environment, and comparing documents side by side.
Embedding Artificial Intelligence in Contracts for Max Efficiency
Lawyers can save time and speed up the close of a deal by using LexCheck’s AI for contract review. Here’s how AI-based based contract review works: Set up the platform by uploading a dozen contracts to it. LexCheck will then create a Digital Playbook based on those contracts and leverage it as a guide for future review rounds. Instead of having a junior-level attorney spend days taking the first pass on a draft, simply feed it to the system and have it do the work for you.
Using natural language processing, AI, and machine learning mechanisms, LexCheck automatically reviews the contract for errors, omissions, and deviations from the corporate legal playbook. Risks are color-coded based on risk, and redline corrections can be added alongside contextual notes to further guide the review process. Best of all, all of this is completed in five minutes.
Lawyers can then clearly determine how much rework is necessary and whether a contract should be escalated to the appropriate party. Changes can be made at the click of a button, suggestions can be finetuned by senior legal counsel, and the supporting notes can be used to aid in multi-party negotiations.
In the end, senior legal counsel will have more time to focus on engaging, high-value activities like relationship building, data analysis, rewriting, and strategy. Best of all, the automated and streamlined process cuts contract cycle times down from weeks to days—closing deals faster and allowing the company to conduct more business overall.