Bringing structure to contract reviews to drive efficiency, cost-saving and use of AI

Trends in contract review: a perfect storm
It’s an understandable response. The globalisation of business and new regulatory requirements, like ESG and data privacy, has made contracts longer and more complex. At the same time, the scope of the contract is broadening, becoming a tool for overarching compliance agreements. Meanwhile, reviewing timelines are shortening as resources decrease. It’s a ‘perfect storm’.

Given the trends in contracting, it’s no wonder that many legal teams feel unable to devote time to thinking about doing things differently. On the other hand, if we don’t, we are doomed to inconsistency and working inefficiently.

But now for the good news: rethinking your way of working doesn’t require a completely new way of working and it does not have to take a lot of time, while  the benefits are immediate, even if you choose not to maximise them by employing legal technology and AI.

Efficiency, consistency, and risk-reduction begin with ‘structure’
There are plenty of areas within contracting in which to make gains. When we talk about ‘contracting’, we mean the entire contract life cycle, including:

• Drafting contracts
• Contract reviewing and redlining
• Negotiating contracts with external parties
• Aligning contract goals with internal stakeholders
• Contract execution, and
• Archiving in a central repository for easy information retrieval.

This broad definition highlights why, in our experience, the key to improving contract review begins with 1), bringing structure to your workflow, and 2), aligning your team around that workflow so that everyone is working in the same way.

Before getting into what we mean by a structured way of working – and the tools that enable this -  it is worth touching on how implementing a structured approach to your contract review lifecycle results in certain benefits:

• Time savings: A structured approach reduces the time needed to review and revise a contract, for example, because it ensures everyone works on the same, most recent version. Structure not only saves time while working on a contract, but it also provides a quick and efficient way to retrieve information from the contract depository.
• Risk mitigation: Having a structured approach requires everyone to know their internal roles and responsibilities, and to work in a similar and coherent manner. This reduces the risk of missing out a significant detail or not receiving input from all relevant stakeholders. In addition, legal tools that employ AI reduce the risks involved by highlighting important contract issues.
• Consistency and uniformity: Uniformity and a standardised approach to contracting ensure consistency between contract reviews, facilitating collaboration and helping everyone to speak the same contract language.
• Knowledge sharing: A structured approach makes it easier to share knowledge within a team, reducing the need for extensive training sessions and update meetings.
• Increased confidence: A structured system instils confidence in the quality of every agreement and the ability of the legal to handle multiple contracts simultaneously without losing sight of the details.

All this hopefully sounds great, but how do you go from where you are today to where you want to be tomorrow?

Moving to a standard way of working
At Legadex, we split the contract lifecycle into the preparation phase, the negotiating phase and the contract management phase. We then use these phases to create structure, bring about alignment and decide if, where and how to use legal technology to assist in contract reviews.

The preparation phase involves discovering how the team currently operates and the processes currently in place and focuses on setting parameters. The negotiating phase covers the actual contract review and how to use set parameters to accelerate and optimise the workflow. The contract management phase covers what happens once work on the contract itself is complete – contract signing and execution, storage and future retrieval of the knowledge contained in the contract.

Preparation phase: create your playbook
The first step to improving contract lifecycle management is not to buy an advanced legal-tech solution, but to establish a uniform way of working. This involves documenting what is important for the business, identifying your organisation’s risk appetite and defining key principles. These factors might vary among team members, so the next move is to create a clear framework that everyone can follow. This framework – or playbook, as we like to call it at Legadex – ensures that all team members know what to do to deliver consistent and high-quality contract reviews.

A playbook can be as simple as an Excel sheet listing:

• Important contract clauses
• Default positions
• Fallback options
• Explanations for acceptable deviations.

The playbook should be tailored to each client and contract, but getting the basics down can be done in just a few hours. It’s the quickest win you can imagine for anyone wanting to bring structure to their contract review process. And it becomes even more valuable if it includes input from other stakeholders, such as sales, finance and business teams.

Ultimately, a regularly updated playbook fosters a strong, uniform operational foundation while also facilitating efficient knowledge sharing and, as we will come to later, the use of AI tools.

Negotiating phase: set out the workflow
Phase 2 of contract lifecycle management centres on structuring the negotiation workflow to guarantee efficiency, transparency and uniformity across the company.

Key to achieving this is to:

• Centralise the contract review process, including defining who is responsible for what and when, to avoid delays.
• Employ a uniform system for receiving, reviewing and communicating about contracts internally and externally, so all stakeholders have the same version of a contract. Contract management tools like Luminance, but also SharePoint, too, can help in this by ensuring everyone works on the same document version and has access to internal discussions.
• Streamline internal communication to ensure clarity, transparency and leave a trail. This also supports greater flexibility and enables colleagues to easily support each other as required.

Underpinning your structure, the playbook serves as your guide during the negotiating phase. Its standardised approaches and explanations for specific clauses ensure uniformity and support knowledge-sharing across legal teams, sales, purchasing and other departments. This is already a big win, but even better having a structure in place opens the door to next generation solutions.

From already better to absolute best

With the playbook and a structured workflow in place, it becomes possible to employ legal tools driven by AI, such as Luminance, which is the one we often use, though not the only one.

Luminance and other similar AI-equipped contracting tools can take the reviewing process to a whole new level. For instance, AI can recognise and compare clauses with your playbook, flagging critical clauses using a self-explanatory traffic light system based on the parameters set out in the playbook for your business. Red for an outright conflict, yellow for something that needs consideration and green for clauses that comply with your ideal contract terms.

The result is high-quality contract negotiations that identify and focus on the key issues while minimising unnecessary revisions. Luminance, for example, can review and redraft clauses of a typical NDA in minutes. To see the biggest gains quickly, our tip is to start with high-volume contracts. Doing this will maximise your initial efficiency gains and build a foundation for expanding structured processes to other contract types.

Contract management phase
The contract management phase is the final step in the contract lifecycle process, and so, by extension, for our structure. Focused on execution and management, this phase involves maintaining a centralised repository – a single source of truth for your contracts – that team members can swiftly access any time. Having a centralised, easily accessible repository prevents the kind of waste and frustration that comes from being unable to find a contract and drafting a new one, only for the original to later turn up in someone’s drawer. I think we’ve all been there!

The central repository also opens the door to further AI efficiencies and business applications. For example, say legal needs to assess all contracts for indexation or price change clauses. AI can quickly filter and present the relevant information, saving hours of manual work and reducing errors. AI can also provide real-time overviews and alerts for contract renewals or terminations, preventing costly oversights.

For the purposes of the contract management phase, the storage system doesn’t even have to be particularly sophisticated. As long as all contracts are stored in the same way in the same archive, they can be easily read by an AI tool. As well as catching pending renewals, this is especially beneficial in M&A transactions, for example, where having all documents stored centrally makes it easy to generate insightful reports and provide quick access to critical information. It also makes it possible to include contact-related insights into daily and strategic business decisions.

Key takeaways
Adopting a structured approach and developing a playbook for contract management saves time, mitigates risks, makes it possible to aligns teams and reduces costs. Adding centralised contract storage then opens the door to using AI to enhance everyday contract management and to identifying the strategic opportunities or considerations contained in your contracts.

Getting started can be as easy as setting up one shared document stating the risk appetite and key principles per contract, forming a consistent basis. This playbook can subsequently function as a foundation for further enhancements. Our recommendation is to start small and begin with one type of contract, preferably the most common one, and use this experience to build from there.

Get in touch
To learn more about our contract management services, please contact Noora Maki or Mathijs Hofstede via info@legadex.com.