Handling contracts, a core task for legal professionals across organisations of all sizes, is detailed work that includes project management, negotiation with third parties, and management of internal stakeholders. While larger legal departments have rapidly adopted sophisticated contract management systems, small and medium-sized businesses have historically managed this alongside their primary legal drafting work through manual processes. Now, with proven technology becoming both robust and accessible, these organisations can achieve the same efficient contract management as their larger counterparts — transforming what was once an enterprise-only solution into a practical reality for businesses of all sizes.
The importance of effective contract management has increased over the past few years as transactions and contracts have become more complex and multi-jurisdictional. Due in part to this growing complexity, legal department workloads are increasing. Sixty-five percent of legal departments saw matter volumes increase in 2022, often while department budgets remained the same or shrank. As a result, legal departments often don't have the resources to proactively manage their overwhelming workloads, meaning that they often use a "top of the pile" system rather than prioritising the most urgent and impactful work.
Legal departments have more data than ever before. But without a system to organize, analyze, and query that data, legal professionals can't get the information they need. To gain optimum use from their data, legal departments need advanced technologies such as artificial intelligence, but that AI must be trained by trusted legal and data science professionals — requiring time and a data science background that few legal teams have in-house. This limits the legal department's ability to make contract drafting and approval scalable and replicable for the future.
Contract lifecycle management (CLM) is the way to ease this burden. A CLM system is a software-based, end-to-end system for handling, tracking, and automating the creation, negotiation, execution, and monitoring of all the contracts a legal department handles. CLM complements lawyers' expertise and adds value to legal departments by controlling all aspects of the contract management process in one place, creating a central repository and a single source of truth.
The benefits are even greater when CLM systems utilise AI, enabling legal departments to handle contracts faster and more efficiently with automation and data analysis functions tailored to their needs. With AI resources expediting tasks and delivering unprecedented insight into contracts — such as identifying geographic areas related to contractual obligations or analysing which contracts use specific indemnification language — legal departments can become proactive value centres for their businesses. While AI will never replace the role of a lawyer, it's a valuable tool for helping lawyers perform their jobs faster and more efficiently.
CLM systems are gaining broader acceptance in corporate legal departments
According to the Thomson Reuters 2022 State of Corporate Law Departments report, using CLM systems went from 44.1% in 2018 to 55% in 2021.
Intelligent CLM: Where legal departments are headed
Understanding how AI may be best positioned to help lawyers with contract management involves looking at the CLM maturity model — a series of stages through which legal departments of any size typically progress as they improve their contract management function.
- System of record. At this stage, legal departments employ a CLM system to record, track, and store contracts — using it as a largely inert repository, like a digital filing cabinet with some additional improved functionality. The system likely includes signature, search, and post-signature management functions. Best-in-class CLM tools offer support for post-signature contract management, even if legal departments at this level might not be using such capabilities yet.
- System of engagement. Legal departments at this level start to use their CLM solution more than just as a storage place. They start to see it as a tool that can help them with their work. They use the CLM system to build a legal "front door" to manage matter intake, triage projects, and drive consistent processes and reporting. Some types of high-volume or low-complexity matters may be largely automated so that business users can self-serve. The business at this stage can benefit from insight into how external events or trends in contracting may impact finances and operations. A legal department that can provide this type of analysis begins to transition from a cost centre to a driver of business value.
- System of intelligence. At the highest level of maturity, legal departments can use AI within their CLM tool to evaluate contracts, leverage data, and analyse risk to drive business decisions. Legal departments can identify risks and opportunities they had not previously seen and gain insight into anomalies and patterns within the company's contract portfolio. At this stage, the legal team can perform predictive analysis that provides high value to the executive team, cementing the legal department's status as a contributor to the overall business.
Many legal departments, from small teams to large operations, are moving towards this system-of-intelligence level — a new development enabled by the emergence of more user-friendly and scalable CLM offerings for the legal field.
For example, while AI has long been touted as a solution for legal departments, uptake has suffered in the past because the solutions required end users to train the AI to recognise key data. Lawyers typically haven't had time — or sufficient knowledge and inclination — to widely train and adopt AI technology. Budgets often preclude hiring employees specialised in data science to train the AI on the department's behalf.
Recently, however, technology providers are taking over this AI training using the expertise of in-house teams of legal professionals, making it possible for legal departments of all sizes to access pre-trained AI-enabled CLM systems. Some providers, such as Thomson Reuters, employ hundreds of legal experts, including experienced lawyers working in their areas of practice, to hone the system's ability to recognise legal wording, identify relevant clauses, predict lawyers' needs in various scenarios, and run analysis that will help legal departments draw meaningful conclusions.
These providers recognise that lawyers aren't data scientists. Because they take on the responsibility for training and supervising AI, their customer-friendly solutions are driving an increase in the adoption of AI-enabled CLM. Today's legal departments can employ these solutions immediately, without the need to spend time shaping the AI algorithms to fit their needs.
While AI has long been touted as a solution for legal departments, uptake has suffered in the past because the solutions required end users to train the AI to recognise key data.
How does AI complement and enhance CLM?
AI moves CLM to become a system of intelligence by surfacing important elements of contracts, enabling deviation analysis, speeding up document review by searching entire document portfolios, generating reports, and allowing for greater visibility into a business's overall contract workflow. As such, the software becomes a force multiplier — allowing lawyers to apply their expertise more effectively and efficiently where and when it is needed.
AI-enabled CLM allows legal departments to tackle their central problem in contract management — lack of insight into contracts' contents. Legal departments, no matter how big they are, often have trouble seeing contracts and finding information. They often don't know when contracts are due to be renewed or if the parties are following the contract's rules. Legal departments often must manually get the information they need from each contract. They read the document to find important dates, terms, and parts, then copy all the important information into a spreadsheet. This tedious and time-consuming process keeps lawyers away from other, more valuable work.
AI helps transform this manual, inefficient, time-consuming process into a fast and streamlined workflow, and it can help CLM tools adapt to legal department needs. AI-enabled CLM can be actively trained to make the process of using it easier than many lawyers think. Using natural-language processing (NLP) techniques, legal experts can train the system with large sample sets that include a wide variety of contractual language, and data scientists can meticulously analyse the system's performance. The Thomson Reuters AI-powered CLM platform is a great example of this process. It was trained by legal and data science experts using a variety of legal situations, clauses, statements, and other language.
This training means that the tool can pull out the necessary information without requiring extremely specific conditions, like the presence of certain words, adding value to the CLM process.
Use-case example: Responding to inflation
A company facing supply chain issues and inflation wanted to understand all its contracts that included a price escalation clause. Doing so would allow the company to assert a contractual right to raise prices without negotiating. Without AI, its legal professionals would have had to read through every single contract to look for the right clause and assess whether the clause allowed unilateral price raises or if negotiation was required. Using AI-enabled CLM, the company easily identified which of its contracts had a price escalation clause and then identified the language that explained its rights. Using AI to do this task saved hundreds or even thousands of hours. In-house departments gained greater confidence in their results by using AI tools that search contextually and across document libraries, instead of manually searching each document individually for keywords.
What legal departments can achieve with AI-enabled CLM
An AI-enabled CLM system of intelligence offers a consistent, reliable, and valuable way to help lawyers perform their jobs faster and more efficiently. Teams of all sizes, from solo practitioners to large departments, are discovering that when done correctly, AI is a tool that supports legal departments in:
- Working faster. Lawyers using these tools can understand what's included in all contracts at any given moment, as AI can extract the few provisions that need a lawyer's attention, cutting through the noise to get to the key information required. Using this ability to quickly find important terms and provisions helps lawyers avoid having to read through many contracts. This helps them do simple tasks more quickly and frees up time for more important goals. The many other capabilities of AI-enabled CLM — such as analysing contracts in process for necessary language and providing insight into roadblocks in the signature process — also allow lawyers to devote their attention to what matters.
- Automating workflows. Manual handoffs often cause disorder and disruption in legal workflows. Requests for contracts and queries come in from across the business in various formats, and they can languish in inboxes or digital files if manual processes for addressing each request aren't efficient. Progress can also stall as contracts move through stages when handoffs among legal staff are done manually, such as via email. AI-powered CLM can automatically send requests to the legal expert or staff person who is assigned to them. It can also help automate workflows to make sure that each document goes through the required processes smoothly.
- Understanding and eliminating bottlenecks. Legal departments are often accused of keeping contracts for too long. Answers to questions can be slow, unpredictable, or not available because there are no automated processes. This struggle is particularly challenging for smaller teams, but even modest-sized legal departments have found that AI can help automate workflows, and CLM can also provide insight into where procedures need to be changed or tightened. For example, the tool can track how long it takes to get agreements done, how long documents stay at each stage of the contracting process, and what aspects of processing are the most problematic. Understanding the bottlenecks in the contract lifecycle can help legal departments make contract progression faster and less frustrating.
- Becoming more proactive. AI functionality also can help lawyers identify issues with contracts during the drafting and negotiating phase, allowing them to more easily analyse risk, identify anomalies, and track renewal timelines. These capabilities allow legal departments to be more proactive in their contract management efforts. They can stay alert to risks, fix problems before they complicate business objectives, and anticipate when certain tasks, like renewals and other post-signature obligations, need to be completed.
- Thinking more strategically. From small in-house teams to large departments, greater visibility into the contract repository means that legal departments can more strategically delegate their team members' time. They can prioritise high-value contracts, dedicating the most appropriate team members to those priorities. They can identify which clauses and provisions matter most, or which contracts deviate from the norm and may indicate a risk. Prioritising important questions that have a bearing on business strategy, operations, and risk enables legal departments to deliver actionable insights to the business through their work.
AI helps transform manual, inefficient, time-consuming processes into a fast and streamlined workflow, and it can help CLM tools adapt to legal department needs.
AI-enabled CLM does more than just make lawyers' lives easier — it has capabilities to help businesses in many aspects of their work.
- Offering business value. AI-powered insight helps legal departments do analysis that would be hard to do manually. It does this by gathering a lot of data and running analysis that would be hard to do manually. Legal teams can change from a cost centre to a value driver within the business by allowing strategic decision-making that can improve business results.
Use-case example: Risk assessment
A corporate lawyer was in a meeting about real estate when a question arose involving the level of risk of default presented by the deal. Using AI-enabled CLM, the lawyer reviewed the real estate contract in real time during the meeting and analysed the event of a default clause within the contract to answer the question right away. This enabled the legal department to become a proactive partner in decision-making.
The big-picture benefits of AI-enabled CLM
AI-enabled CLM does more than just make lawyers' lives easier — it has capabilities to help businesses understand their contractual obligations, accomplish more with less employee effort, ensure uniform and risk-reduced contracts, and enhance strategic decision-making. Today's CLM solutions can support:
- New levels of insight into contracts. Whether managing a handful of key agreements or large contract repositories, AI-enabled CLM allows legal teams to efficiently search and analyse their documents. Not only can AI-enabled CLM allow lawyers to search this vast trove of documents quickly and painlessly, but it can also help analyse the contents. This means lawyers don't need to do their own data analysis. Instead, they benefit from the expertise of data scientists who have trained the system to function specifically to meet their unique needs. With this increased insight into contracts, the legal department brings increased value to the organization.
- More efficient contract management. The automated nature of AI-enabled CLM means legal departments can analyse contracts and answer questions faster than they would be able to when processing requests manually. The business benefits when automation enables lawyers to help close deals faster because they can quickly access critical information to perform due diligence reviews. It also means that legal professionals can stop spending inordinate amounts of time reading through documents and analysing their findings in laborious, manual ways. Lawyers are thus able to concentrate on higher-value work.
- Consistent creation of thorough contracts. In many cases, companies need to ensure that certain clauses or language are included in all their contractual agreements. The task of remembering and following up on this language is a poor use of lawyers' time and can easily be missed when legal teams are busy with other priorities — a challenge particularly acute for small teams where each member handles multiple contract types.
- Increased revenue. CLM systems increase efficiency and allow companies of all sizes to secure revenue they otherwise might have to forego due to lack of visibility into contracts. From solo practitioners to larger teams, enabling lawyers to work on higher-value priorities instead of rote tasks and data entry makes more cost-effective use of legal department resources — and the company's funds dedicated to the department. In addition, improved insight into the company's contracts can result in revenue-generating opportunities that would otherwise be missed. For example, the AI-enabled system can notify the legal team about the need for contract renewals, or even implement and manage automatic contract renewals, capturing revenue that may have otherwise been lost.
- Strategic decision-making. Business leaders at organizations of all sizes need as much information as possible to make high-level decisions, and in many cases, the data that could help them is hidden in the repository of contracts. Information around how many contracts have a particular clause or are going to expire in a certain time frame can be extremely helpful to executive stakeholders when they're forming a strategy. Insights from AI analysis can answer such questions quickly, providing business decision-makers with thorough information. By offering this level of insight, legal departments can be proactive partners to executives and add value to the business.
Use-case example: Fast and effective due diligence
A legal department was asked to handle the contracts for a mergers and acquisitions transaction at a large company. With the help of AI, the team completed due diligence in nine days and, in the process, found $20 million in title defects that needed to be addressed. The deal was so large and complex that it would have been impossible for the legal team to complete due diligence so quickly and with such thorough results without the help of AI-enabled CLM.
The ideal CLM solution of today has an AI component that is trained by both data science and legal experts so that legal departments gain a contract management tool ready to meet their specific needs — one that works on day one.
It's time to move to a system of intelligence
CLM tools are evolving to make it easier for legal departments to adopt and use technology like AI to increase efficiency, proactiveness, and visibility across contract workflows and in individual contracts.
AI will never replace a lawyer, but it's a reliable, useful tool for helping lawyers do their jobs faster and more efficiently. Serving the legal market for more than 150 years, Thomson Reuters views legal departments holistically and understands their unique needs. Our AI-powered CLM solution, trained by expert Practical Law attorney-editors, continues that tradition.
Contact us to learn more about AI-powered CLM solutions from Thomson Reuters.
