What is contract intelligence?

May 19, 2022
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Contract intelligence is a difficult concept to pin down. Part of the blame rests with artificial intelligence (AI) becoming a marketing buzzword. AI is everywhere these days. But underneath marketing and sales materials is the truth of what we can and can’t do with machine learning (ML), neural networks, and other AI solutions.

For the legal and financial services industries, AI has a long way to go before it can manage complex problems and tasks. The good news is that contract automation and intelligence have already come a long way in the past decade and continue to evolve.

Contract automation vs. contract intelligence

Contract automation encompasses technology that reduces manual tasks associated with executing and managing contracts and related documents. Point solutions tackle a specific task. An example is a platform that drafts agreements by pulling information into a template from a spreadsheet, form, chatbot, or another source. End-to-end solutions tackle contract lifecycle management (CLM) with various types of automation.

Contract intelligence is the integration of AI within CLM. CLM solutions with natural language processing (NLP) and other ML models move beyond simple automated tasks or suggestions. The result is the ability to drive better business results through contract-related insights.

Image compares two definitions of contract automation and contract intelligence and how it can be used to improve contract lifecycle management to meet needs of investors.

Contract intelligence is more than analytics and reporting

Contract intelligence is an essential aspect of improving and getting more out of CLM. With or without a high-tech solution, contract management helps organizations execute contracts, track their obligations, and enforce their agreements. But contracts, even those as routine as nondisclosure agreements (NDAs), can do more through the right solution.

Structured data and insights

Organizations can turn static contracts into structured data with the right contract intelligence tool. Businesses can gain unique and actionable insights that drive them toward their strategic goals and improve outcomes through this data. For example, contract data can highlight trends or identify acceptable market terms that speed up future negotiations.

Contract drafting assistance

Contract intelligence is beginning to help lawyers during contract drafting and negotiations. However, current solutions rely heavily on pattern matching. Many solutions simply identify ambiguous or non-market-standard language during negotiations.

More sophisticated solutions use NLP to derive the true meaning of the contract language. An AI solution can then offer alternative language or terms when it identifies ambiguous language, overly complex legalese, or clauses outside market terms.

This technology can significantly speed up turnaround times for high-volume, routine contracts. As a result, parties can quickly move beyond the routine agreements, like NDAs, and finish deals faster.

What will contract intelligence do in the future?

Contract intelligence will eventually understand more complicated contract language and make suggestions in more complex situations. Right now, it works best for high-volume, low-stakes, routine agreements. In the future, AI will help veteran attorneys negotiate and finalize bespoke agreements faster and, hopefully, with fewer disagreements.

How will that happen? Through deep learning. Contract intelligence technology improves through an extensive data history and human input to learn from and base decisions on. The more contracts and other documents used to train a model, the more accurate that model can be.

Contract intelligence for private asset managers

Contract automation and intelligence have many use cases for private asset management firms, including improving compliance with side letters, Limited Partnership Agreements, and regulations. The firm also would be prepared to swiftly collaborate with the SEC if an audit was necessary.

Other use cases include mitigating risks related to personnel changes, handling event-based actions, efficiently conducting conflicts checks, and performing internal audits.

Firms that take full advantage of contract automation can experience many benefits, including:

  • More consistent contract language
  • Fewer negotiations and faster turnaround times
  • Improved risk mitigation
  • Stronger relationships with investors and other parties
  • Faster deal speed
  • Visibility into the contract lifecycle
  • More efficient obligation tracking
  • Comprehensive audit trail
  • Actionable insights from static documents
  • Reduced spend on outside counsel

These benefits are particularly pertinent to the financial services industry. Right now, private fund managers are staring down new regulations and evolving investor expectations. Implementing a contract automation and intelligence solution is essential to get ahead of the regulatory curve and strengthen investor relationships.

The next stop is to connect contract-related insights with other business data for a more holistic look at the firm’s core functions.

FAQs about contract intelligence

  1. How does an AI solution read the contracts? Natural language processing parses the documents and learns language patterns indicative of specific clauses. The effect is that the NLP model learns the meaning of the clause.
  2. How is the solution trained? The solution provider or another organization feeds examples of contracts into a machine learning model, and over time, the model learns the clause language and meaning. Solutions are trained on thousands of documents. Typically, the more training documents, the better.
  3. What are the benefits of contract intelligence? There are myriad benefits of contract automation and intelligence, including faster contract execution workflows, decreased turnaround times, faster dealmaking overall, and faster extraction of business insights from structured contract data.
  4. What kind of documents can contract intelligence handle? In theory, these solutions can handle any contract type with the proper training. The more rote and standardized the contract, the easier it is to train a machine learning model.
  5. Can contract automation and intelligence write agreements without a lawyer? Generally speaking, contract automation and intelligence aren’t generating agreements without a lawyer’s oversight. Instead, these technologies drastically speed up and improve lawyers’ workflows, making contract execution easier and freeing up their time to focus on higher-value work.
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