Trends in contracts automation

Since the pandemic began, many legal departments have struggled to extract and manage data from contracts. Contracts are an integral part of business, and lawyers have been required to quickly identify the risks and consequences of non-fulfillment of contracts. Research has shown that the majority of companies (80%) worldwide do not know the terms of the contracts they have entered into. Even when contracts are stored electronically, in 53% of cases the files do not allow for easy and quick retrieval of information.

Contract Lifecycle Management (CLM) is the process of digitally managing contracts with customers, suppliers, partners or employees at every stage. The goal of CLM is to digitize and automate the contractual process to increase efficiency and improve the interaction of the parties.

CLM includes the following stages:

• Contract request: includes negotiations between the parties prior to the conclusion of the contract, discussion of terms and request for the form of the contract.

Standardized company templates or a document designer in combination with these templates, and an electronic document management system with the functionality of filling out the contract, sending the completed form to approving persons, and tracking the status of requests help speed up the completion and preparation of the contract form.

• Coordination: Parties must be able to quickly track changes, comments and versions of the agreement before signing. Otherwise, the approval process is delayed, which entails financial losses for the business.

• OK: In small companies, a lawyer can manage this process independently, while in large companies, the participation of several departments or divisions will be required. Electronic document management systems allow for effective tracking of the stages of agreement and approval of a contract.

• Signing: increasingly occurs in electronic form, which makes it possible to abandon paper document flow.

• Storage: should be organized and orderly, with easy navigation and search, in one secure repository integrated into the contract lifecycle management system.

• Documentation management: In the event that the agreement is supplemented with acts, protocols and other documents, all of them must be stored centrally with the ability to quickly search.

• Search and extract information: directly depends on the quality of the organization of storage of documentation. Without transferring documents into digital format, it is difficult to ensure fast search, data filtering and risk analysis.

• Audit and reporting: the least developed part of CLM. The lack of automation in the extraction of analytical data does not allow for effective tracking of contractual performance statistics.

• Extension and termination: When deciding on the extension or termination of a contract, analysis of its provisions and execution plays a key role. Quick access to information, data on contract execution statistics allow businesses to make informed and prompt decisions.

Given the need for import substitution, it is important to note that in Russia there is no single ready-made solution for contract lifecycle management. While abroad, more than 100 suppliers of CLM solutions that automate one, several or all stages are already represented on the market. According to InnoLaw Group, 54% of foreign companies already use CLM systems. 67% of companies that do not use these systems are looking for a suitable option for implementation.

In Russia, some large companies, such as SIBUR and Gazprom Neft, have already assigned contract managers to manage the contract life cycle. Rostelecom, Cherkizovo Group develop their own solutions for contract work both independently and with the involvement of contractors. Large LegalTech solution providers (e.g. PravoTech, Megafon) are also working on creating CLM solutions that cover all stages of contract lifecycle management. Most legal departments are increasing their spending on automation, and 52% of them plan to invest in contract management in the next 12 months.

Thus, there is a growing need for domestic CLM solutions, which, unlike electronic document management systems, will allow the use of dynamic routes for coordinating contracts, allowing parties to a transaction to work together in a single space, and tracking changes, approvals, and approvals of documents.

Given the increased interest of users in technological solutions based on artificial intelligence, it should be emphasized that it brings the greatest benefit in contractual work with the presence of a CLM infrastructure and effective automation of processes. The main motivation of businesses in searching for and implementing such solutions is the desire to speed up and improve the efficiency of task execution. For example, before signing a contract, artificial intelligence can provide rapid text analysis, organize metadata, identify repetitive actions and anomalies, and offer draft documents. After signing, it is useful in searching and grouping large volumes of stored contracts, analyzing and extracting key ideas, building a matrix of the parties' obligations, managing risks and complying with the law.

However, it should be remembered that the capabilities of artificial intelligence are limited. Its accuracy directly depends on the quality and structure of the data on which it is trained. Artificial intelligence does not take into account the context and linguistic subtleties, as well as the legal justification for including a particular provision in the contract, which makes it necessary to double-check the results of its work.

It is also important to understand that artificial intelligence can only be useful at certain stages of the contract life cycle. Integrating CLM solutions with artificial intelligence at the contract request stage allows you to create initial drafts of documents based on previously used samples and templates. At the approval and negotiation stages, such solutions can help determine the type of contract, analyze and compare documents, and automatically make edits and suggestions. At the storage and retrieval stages, artificial intelligence helps in data search, grouping, and analyzing key metadata from document archives, providing analytics.

Before deciding whether to use artificial intelligence in CLM systems, there are a number of key points to consider:

• Is your company's current CLM system effective enough to benefit from AI?
• What additional features and characteristics are needed to enable the system to effectively process and use the data it receives?
• Does the company have the necessary qualified resources to implement and support artificial intelligence in contract work?
• How will the company verify the extracted data?
• How will the data obtained be stored and used?
• How much and what kind of data does a company really need to achieve its goals?
• Does the company have sufficient data security?

Only after answering all these questions can we consider the possibility of using artificial intelligence as a tool to enhance contract work and integrate it into the CLM system.

It is worth noting that due to issues with confidentiality, data security, accuracy and quality of responses, as well as limited implementation budgets, according to a study by the non-profit organization World Commerce & Contracting, 60% of foreign respondents do not apply artificial intelligence in contract management. However, the number of companies that have integrated artificial intelligence into contract management has increased by 25% compared to the previous year.

Companies' desire to increase transparency, speed and efficiency in the processes of approval, contract execution, as well as data search and retrieval, indicates a growing interest in CLM solutions that can be integrated with or already include artificial intelligence modules.

In conclusion, I would like to emphasize that in Russia, in the absence of a unified contract lifecycle management system, companies implement technological solutions for specific stages (such as document designers, electronic document management systems) or develop their own systems for internal needs. However, it is extremely important to remember that before implementing technological solutions, it is necessary to standardize and simplify contract lifecycle management processes. Proper construction of processes and their automation allows solving such problems as a long approval process, non-compliance of documents with local regulations and legislation, strategic planning and decision-making based on data from contracts, loss of revenue due to untimely renewal of contracts, missed opportunities for cross-selling and loss of data or difficult access to it.

Automation of contract management will become a priority for most companies, as businesses are not interested in losing 9 to 15% of the contract value due to shortcomings in contract management. Given the departure of foreign companies from the Russian market, demand and supply for domestic products for contract lifecycle management are expected to grow. In addition, given the availability of solutions for individual stages of contract management, market players will strive to create comprehensive systems to meet customer needs for CLM solutions. According to Gartner forecasts, by 2026, 25% of current suppliers of LegalTech solutions will cease to exist.