How AI Transforms the Contract Management Process

Procurement teams have to spend a lot of time and effort getting contracts right. Effective contract management enables businesses to remain compliant, mitigating risks and maximizing operational efficiency. Contracts are the backbone of business relationships, outlining the terms and conditions that govern interactions between parties. 

What is Contract Management?

Contract management is a structured approach to handling contracts throughout their entire lifecycle. It includes everything from planning and drafting to negotiating, approving, executing, monitoring, and eventually renewing or terminating contracts. The goal is to ensure that all parties meet their obligations while also achieving the business's objectives.

Effective contract management is not merely about leveraging the right technologies, but it's also about implementing efficient processes and conducting a thorough risk assessment.

Advantages of an Effective Contract Management Process

Standardizing and automating routine tasks can free up expert resources so that they can focus on exceptions and complex cases. Furthermore, a robust contract management process ensures that all contracts comply with relevant laws and regulations, reducing legal exposure.

Proactive risk assessment enables organizations to identify and manage potential risks associated with contractual agreements, while maintaining comprehensive records and audit trails simplifies compliance audits and assessments.

Financial optimization is another key benefit of effective contract management. Visibility into contractual commitments and expenditures leads to better budget management and timely invoicing and payment collection, improving cash flow and revenue recognition.

By promoting transparency and clear communication in supplier relationships, a strong contract management practice ensures that all parties understand their obligations, which in turn facilitates performance monitoring and enables timely feedback and improvements.

A well-executed contract management process supports strategic decision-making by generating valuable data and analytics on contract performance and trends.

Steps Involved in the Contract Management Process

The contract management process usually begins by identifying the need for a contract. The initial phase determines the scope, objectives and key terms of the contract and engaging relevant stakeholders — legal, procurement, finance, operations, etc. — to gather input and align expectations.

Once the contract requirements have been defined, the procurement team starts the authoring and drafting phase, ensuring that the contract document accurately contains the agreed-upon terms and conditions.

The next phase involves discussing and adjusting terms to reach a mutually acceptable agreement, conducting thorough internal reviews by legal and compliance teams, and allowing counterparties to review and suggest modifications to the contract terms.

The contract then moves toward formal approval and signing. This stage involves following predefined approval workflows to obtain necessary endorsements from authorized personnel. The executed contract is stored in a centralized repository for easy access and future reference.

The contract management process also includes continual performance and compliance management. This requires monitoring and managing the fulfillment of contractual obligations by all parties, regular assessment of progress and performance against contractual terms, and adherence to regulatory requirements and internal policies.

How Artificial Intelligence can Transform the Contract Management Process

Generative AI can transform the contract management process, starting from the drafting phase to enhancing contract accuracy to providing actionable insights. Let’s take a quick look at some of ways generative AI can significantly boost the contract management process, making it more efficient, secure, and strategically valuable:

AI-Assisted Contract Drafting

Based on GEP’s interactions with various high-tech companies, the absence of dedicated buy-side contracting teams leads to sourcing and category managers spending 30% to 50% of their time working on contracts.

But with generative AI, human intervention is minimum. GenAI can produce contract drafts from existing templates and use the specified legal language, ensuring consistency, accuracy and adherence to compliance standards.

Intelligent Clause Suggestions

AI can also recommend relevant clauses based on the context and specific needs of a contract. This helps enterprises cut time and effort needed to tailor the text for different situations.

Contract Analysis and Risk Identification

AI can analyze contracts for potential risks, inconsistencies, or non-compliant clauses. This can provide the legal teams instant access to issues so that they tackle those before they snowball into issues.

Data Extraction and Reporting

Organizations can leverage AI to extract valuable data from contracts for insights and reports for informed decision-making and improving contract management strategies.

Constant Monitoring and Alerts

Artificial intelligence can monitor contract performance, track key milestones, and automatically send alerts for critical dates (such as renewals or deadlines), enabling companies to cut the risk of missed commitments.

To sum up — implementing contract management best practices should be an ongoing process. Establish mechanisms to capture and analyze contract data, identify trends, and learn from past experiences.

Conclusion

Effective contract management in the fast-paced and complex business landscape requires a comprehensive strategy, robust processes, and the right technology. A structured AI-driven contract management framework can help organizations navigate the unique challenges and unlock the full potential of their contractual agreements, driving value and fostering resilience.