AI based Contract analytics to spot and mitigate contract risks

Contracts are essential to any type of business and they determine the obligations of both the parties entering into a business relationship. Most of the organizations use their internal legally vetted contract templates when signing up with the other party but in some cases there will be a need to agree to the other party paper which is also called as the “Third party paper”.

When an organization uses its own templates, they are sure what they have agreed to and what are the risks and obligations in the event of not honoring the terms of the contract. But when it comes to accepting third party paper you are not sure of the language used in the most important clauses of the contract and how much nonstandard language is used across the contract. This can potentially put any organization at reasonable risk if no mitigation management is followed to alleviate the risks.

Here are some of the key potential risks when accepting third party contracts

  1. The clauses and terms are mostly slanted to the originating party and hence can cause a higher level of risk
  2. Payment terms may not be favorable to you
  3. The renewal terms could be set to auto renew mode in the event of not receiving any termination notice before certain period
  4. Jurisdiction and arbitration terms could be favorable to the other party

Another area of concern across organizations is the presence of a reasonable volume of active legacy and third-party contracts which are scanned and stored in shared repositories and never reviewed unless there is a specific need. Added to this, there are still gaps in contract management even when organizations are rapidly adopting to using automated contract management software to draft, red line and author the contracts. The biggest gap is that most of the contract automation software do not have expertise in discovering and extracting key metadata from legacy or third-party contracts.

It is understood that unless these legacy and third party contracts are digitized and brought into a central repository there is no way one can know what is inside these contracts and if there are any potential risks with any of these contracts. Traditional contract management processes fail in terms of speed, time and resources required to get to the bottom of each executed contract

Here are some ways how AI based Contract Analytics solutions can help in spotting and mitigating contract risks

1. Automatic classification and tagging of the documents based on what is inside reducing the manual labor of segregating each document and figuring out whether the document is a MSA or a NDA or SOW and so on. Without anyone manually going through the contents of the documents, Artificial intelligence-based algorithms will help in understanding the context of each document by going through the header information and figure out automatically the type of the contract and classify accordingly.

2. AI based contract analytics software along with ML models and NLP can automatically identify key metadata from any type of contracts (once the ML models are trained on a set of sample documents) and further provide Improved stakeholder access to key contract-related information.

3. We already understand and are aware about third party paper and the possibility of using non-standard language in those contracts. Artificial intelligence based contract tools not only have the ability to find terms and keywords that are standard but based on semantic analysis they can also figure out terms and clauses which are similar to what you are looking for and unearth them as well. This potentially reduces the risk due to human oversight.

4. Easily compare your executed contracts with standard vetted templates and spot the differences on the fly. This makes your legal team job a lot easier and faster.

To know more about how you can handle your third party contracts and also easily mitigate possible risks you can contact us 

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