In this interview with CCBJ, Lionel Schwirtz, Deputy CEO of Legal-Suite, explains how automated contract management solutions and artificial intelligence can reduce costs and boost operational efficiency.
CCBJ: What are some best practices for establishing an efficient contract management system?
Lionel Schwirtz: Because of how diverse contract management clients are nowadays, we have organized and classified ours according to five different levels of maturity. At the bottom, there is a very low level of standardization, but that increases, depending on the client’s needs, to include different levels of optimization. There are tools for the legal team to use for internal collaborations – with the sales department or purchasing department, for instance – and various functionalities around things like workloads, searches, etc., to find information and start putting in place processes. At the top, we have a best-in-class process where they can also collaborate with third parties like the clients or suppliers, to be much more efficient.
Based on feedback from clients, we’ve found that those using the best-in-class type of contract management are able to reduce the time of contract creations by around 30 percent. They’re also able to reduce administrative costs by about 30 percent.
How do automation and artificial intelligence factor in?
As of today, more than 50 percent of the activities of very good teams are spent on contract management, and this is an area where we see very high volumes. Most Fortune 1000 companies have between 20,000 and 40,000 contracts, a number that has increased more than 20 percent over the last five years. That makes this area a strong candidate for improved efficiency in the law department – a good starting point for applying artificial intelligence to contract management.
There are three different areas where artificial intelligence can improve contract activities. First, we could have artificial intelligence with a chat bot. Basically a chat bot can allow all of the employees in an organization to ask questions to the law departments, and instead of disturbing the legal team, they get direct answers from the chat bot. Second, the AI can actually help create contracts. These could be simple contracts where the supply department or sales department has some kind of self-service contract based on templates or clauses, or it could be much more complex – built based on clauses that the legal team assembles according to the preferences of the contract. The third area is reviewing contracts. Here we are talking much more about third-party contracts, where the AI can help by extracting material from the contract – identifying important elements that we want to work on, or helping organizations make sure that the legal teams are better able to avoid making mistakes by reviewing the contract.
How can AI and contracting solutions help law departments manage external costs?
First, these tools can help a legal team select the least expensive but also most efficient outside law firms to work with. Second, to further reduce external costs, relations with these law firms can be optimized. The tech gives you better visibility into the costs associated with these law firms, so instead of having only a rate-based agreement with them, you can explore other billing arrangements. The third thing to optimize is the cost of the processes themselves, and artificial intelligence can better identify where there are big issues with the bill – if the costs do not comply with what has been agreed upon with the law firm, whether that means having other people involved in the cases that were not agreed upon upfront, or perhaps finding activities that were not the original agreement.
In general, as far as reducing the external costs, contracting tools help an organization have much more standardized and structured processes, while improving the visibility that everyone involved in it has. That will help the organization be much more efficient internally, but it also may make it possible for the organization to transition to full legal-process outsourcing – having some external organization manage contracts on their behalf, for instance, controlling the whole process with the same level of quality while optimizing the cost.
How can law departments use contract management solutions to best serve the business units they support?
This type of tech facilitates collaboration and integration with the rest of the organization. For instance, the law department can provide the purchasing department with information that allows them to perform simple tasks without the legal team being involved – while still allowing the legal team to control what they have access to and make sure that all of it is validated. Various departments, like sales or supply or purchasing, for example, can have access to simple contracts from the legal team – templates, preapproved clauses, preapproved documents, which the sales department can edit and send to the clients without the legal team being directly involved.
Also, as I mentioned before, self-service could involve a chat bot where the internal stakeholders can find the relevant information: Questions and answers related to a contract and how it should operate, or other relevant information that is already included in the contract tool, such as the length of the contract, who can access the signed documents, and whether the contract can be used to purchase certain products, for example.
Overall, these tools allow a company to put in place processes whereby the legal team can be much more efficient in managing or drafting complex contracts. That allows the legal department to spend less time on low-value activities and instead concentrate with the highest-value activities and be much more integrated in business projects. It helps the legal team transition into being much more of a business partner for their operational stakeholders – much more involved and proactive in identifying risks and finding business solutions to complex issues.