As we have covered in prior articles of this series, with supply
chain disruptions wreaking havoc on the ability of companies to get
their goods and services to market, the terms of a company’s
commercial contracts have never been more important. In some cases,
losses due to inefficient or ineffective contracting can add up to
be a sizeable percentage of the contract’s value. As such,
getting the contract terms right is extremely important to a
company’s bottom line. This requires knowledgeable review and
is an opportunity to utilize artificial intelligence to add
efficiency
One issue, of course, is volume. Companies today can easily have
hundreds or even thousands of supply contracts in place, with new
agreements, amendments and renewals coming in nearly daily. Each
agreement addresses a large number of critical issues, such as
pricing structures, termination and renewal terms, delivery,
warranties, indemnification, and limitations of liability, among
others. Manual review and revision processes place a tremendous
strain on the organization, from sourcing to sales, procurement to
legal, and in-house and external counsel.
AI-Assisted Review Improves Efficiency and Negotiations
Businesses frequently receive contracts proposed by the other
contracting party. Even if the company is able to use its own
“paper,” the agreements often come back from the other
side heavily revised and marked-up. In both situations, the company
must review the language and determine whether it is agreeable or
needs modifying.
This is where AI-assisted contract review and analysis can help
significantly by adding consistency, quality control, efficiency,
structure, cost savings and collaboration to the process.
AI-assisted contract review can quickly and efficiently identify
the key contract issues that are important to the organization. As
an example, Foley has launched Foley Equipped, an AI tool powered by
ThoughtRiver, which provides that efficiency to our clients and
includes playbook commentary, negotiating tips, fallback positions
and example contract language.
AI Helps with the Contract Revision Process
Newer AI solutions with natural language processing (NLP) and
machine learning (ML) capabilities are addressing this use case.
Solutions with Microsoft Word plug-ins, like Foley Equipped, are particularly
useful as they provide the AI results directly in the Word document
that is under review. Solutions can also incorporate advice notes,
playbook commentary, clause bank language and model template-based
provisions.
On the other hand, the tools designed for bulk review of
post-execution documents (as is often used in M&A due
diligence) typically do not integrate directly with Microsoft Word,
because this is not needed in the context of an M&A or other
bulk legacy contract analysis.
Issues Lists Created Automatically
AI review tools can automatically create issues lists that can
be used by the company to track open issues, the parties’
positions, and proposed and agreed upon solutions. Appropriate
versions of these lists can also be shared with the other party as
a negotiating aid to get the deal done quickly and efficiently.
Machine Learning Adds Another “Eye”
As computers became faster and more powerful with the ability to
store and analyze more information, computers have acquired the
ability to “learn.” For example, through both human
training and machine learning, an AI application can learn to
determine whether a contract deals with limitations of liability,
even though there are numerous – almost countless –
different ways to word a limitation of liability provision. AI
technology does this by rapidly examining hundreds of example
contracts with the assistance of human training by individuals
“teaching” the system what to look for. With enough human
training combined with complex algorithms, the AI application can
then improve its results automatically over time (i.e., machine
learning).
With no end to the supply chain crisis in sight, successful
companies will find ways to contract smarter, quicker and more
efficiently. AI-assisted contract review like Foley Equipped can provide a useful
tool and helping hand with the contract review, revision and
negotiation process to achieve these goals.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
