How AI Is Transforming Contract Lifecycle Management

AI has brought new efficiency to contract lifecycle management (CLM) software solutions.

By 2027, 50% of organizations could support supplier contract negotiations through AI-enabled contract risk analysis and editing tools, predicts Gartner. And generative AI is expected to be most impactful on contract lifecycle management of businesses over the next 12 months.

In a recent Economist Impact-GEP survey of procurement and supply chain leaders too, contract management was on the list of functions they believed would benefit the most from generative AI.

Mind the Gap

However, CLM software usage in organizations reveals a gap between the potential benefits of these systems and their actual implementation and utilization in organizations.

Many companies still rely on traditional document management systems, and those that have adopted CLM tools with AI often struggle with low maturity levels and significant implementation challenges.

The issues, based on customer feedback, range from single entity limitations, inefficient contract approval workflow, and limited customization options. There is no systematic way to track whether the hard-negotiated terms, obligations and SLAs are adhered to during the execution of the contract.

Then there is slow response times, insufficient support, and multiple integration challenges. CLM software is also seen as less intuitive, with visibility and navigation challenges.  

But these gaps needn’t be there. 

Maximizing the Value from CLM Software

CLM software with embedded AI and generative AI provide a smoother and more intuitive user experience and increased efficiency.

Trained on rich, quality data and real-world contracts, capabilities in these CLM solutions range from intake and orchestration for all contract types. There is seamless integration across enterprise platforms, third party systems, and source-to-pay. The solutions follow best practices for legal, procurement, and sales and also meet increased sustainability considerations.

In fact, the AI advances are so great that 80-90% of routine contract administration tasks are expected to be fully automated, says Santosh Nair, chief product officer at GEP.

6 Ways AI is Making Tasks Easier in CLM

1. Orchestration Layer Streamlines Contract Lifecycle  

For a company facing challenges in locating contracts, calculating contract values, producing reports and achieving overall workflow orchestration because of scattered distribution of functionalities, an AI-powered orchestration engine can consolidate the functionalities into a unified interface.

What the organization gets is simplified navigation, allowing the employees to locate contracts, perform calculations, and generate reports from a single platform. The result? There are real-time updates and data consistency, eliminating silos that hindered collaboration and decision-making.

2. More Efficiency in AI Contract Creation & Negotiation 

For organizations grappling with labor-intensive and error-prone manual contract creation and review processes, an AI-enhanced CLM can automate drafting while ensuring accuracy and consistency. Intelligent contract reviews analyze clauses, identify potential risks, and recommend amendments based on historical data. Besides this, AI-driven analytics provide insights into optimal terms, mitigating negotiation complexities and fostering more informed, efficient decision-making. 

3. Automate Legacy Contract Management Through AI Ingestion 

Suppose a company faces  challenge in modernizing its contract management process or analyzing contracts as part of M&A and its reliance on legacy contracts stored in various formats make it tough to access critical information. This can be tackled with AI-enabled bulk contract extraction and creation solution. By leveraging generative AI capabilities, the system automatically scans existing contracts, extracts customer-specific terms and provisions.

4. Insights and Analytics on Contract Performance

With thousands of contracts stored across various departments and formats, extracting valuable insights and analytics can be time-consuming. The lack of a centralized system for contract analysis can lead to missed opportunities for cost savings and risk management, leading to inefficient contract execution, financial losses, and compliance risks. AI-driven contract analytics solution addresses these issues by automatically extracting and analyzing critical data from existing contracts through NLP and ML. The organization gets real-time insights into contract performance, compliance status, and potential risks.

5. Better Compliance with AI-Enabled Obligation & Risk Management

Ensuring adherence to contract terms after execution, particularly regarding service level agreements (SLAs), pricing adjustments, and renewal dates, is often difficult with traditional manual processes. This can result in missed deadlines, non-compliance, and difficulties in tracking performance metrics. AI-powered CLM systems enhance post-execution compliance by centralizing contract storage and automating the tracking of critical dates and obligations. These systems provide real-time alerts for compliance milestones and enable monitoring of adherence to SLAs and other contractual terms. 

6. Support for Sustainability Targets

Modern CLM software is also playing an important role in helping organizations meet their ESG goals and also be compliant with various regulations across supply chains, by embedding these goals within the supplier contracts. For example, a dashboard could show progress on emissions across the supply chain, supported by thousands of contracts. The CLM tool can also scan all contracts in case of change in regulations and update them quickly. 

A Transformative Approach to CLM

A modern-day AI-powered CLM solution offers a new approach to contract management, addressing the limitations of traditional methods. By automating and optimizing various aspects of the contract lifecycle, the solutions bridge the gap in their actual implementation and utilization, increasing efficiency, accuracy, and compliance and ultimately driving better business performance and outcomes.

Learn about GEP’s intelligent contract lifecycle management software.