Solving the Trillion Dollar Contract Problem with AI

Deloitte and DocuSign recently released a study on the inefficiencies plaguing agreement management. After surveying more than a thousand business leaders across ten countries, the study revealed a staggering statistic: $2 trillion annual loss in global economic value due to poor agreement management. Agreements – or contracts – form the backbone of business activities, governing relationships with partners, customers, and employees. Despite their importance, many organizations continue to struggle with reviewing and managing these agreements efficiently.

Manual processes, disconnected workflows, and poor communication among stakeholders are the main causes for these significant inefficiencies and economic losses. Companies spend an extra 18% of their time on agreements, resulting in over 55 billion hours wasted globally per year. As agreements grow in complexity and volume, the need for better processes becomes increasingly apparent. 

‍Significant bottlenecks in contract review

Contract review is a critical stage in the agreement lifecycle, yet it remains fraught with inefficiencies. The study highlights several pain points, including tedious legal and compliance processes, manual data entry, and delays in obtaining signatures. These inefficiencies lead to significant time wastage and lost productivity. For instance, 50% of respondents face inefficient and repetitive approval processes, while 45% struggle with manually inputting data into contracts, even when the data exists in other systems. 

The report reveals that 50% of organizations face tedious, inefficient, and repetitive legal and compliance approval processes during contract review. Significantly, the study revealed that 62% of respondents struggle in locating and accessing previously approved contracts for reference. 

Another big problem is manually reading, interpreting, and understanding the impact of terms within agreements, with 34% of respondents reporting challenges here. We know that contracts can be packed full of legalese, making them long and difficult to read for both legal and non-legal teams. “[W]hen non-legal business stakeholders are assigned to focus on specific sections, they need some kind of context about what’s in the other parts of that agreement.” Understanding defined terms, making sense of complicated contract language, and drafting new clauses can cost countless hours, creating significant inefficiencies and delays in contract review.

These bottlenecks not only waste valuable time but also strain cross-functional relationships, with 61% of Legal respondents reporting tensions due to delays in approving agreements.

‍Using AI to eliminate bottlenecks

AI has the potential to transform contract review by tackling challenges at both the pre-signature and post-signature stages. Pre-signature contract review involves legal professionals reviewing contracts during negotiations before they are signed, while post-signature contract management focuses on understanding, managing, and extracting insights from executed agreements.

In the pre-signature stage, AI can streamline the contract review process and unlock significant value:

• Automated redlining: AI can assist in the redlining process by automatically identifying, tagging, and comparing edits in contract revisions. This streamlines negotiations and reduces the time required to finalize agreements. With one-click redlining based on off-the-shelf or customizable playbooks, AI ensures precise, word-by-word revisions that align with an organization’s preferences. 
• AI-powered legal assistants: Given that more than a third of the study respondents said they struggle with interpreting and understanding legal terms, this is a prime opportunity to use AI. An AI assistant can answer questions about the contract being reviewed and negotiated. It scans for hidden risks, checks defined terms for consistency, creates summaries in seconds, and drafts new clauses and revisions ten times faster. This reduces the burden on legal and business teams and enhances productivity. You can learn more about LegalOn Assistant here.
• Powerful search: Given that 62% of respondents struggle to locate and access previously approved contracts for reference, better search can solve this problem. AI-driven search capabilities allow for quick retrieval of contract clauses, templates, and language, making it easier for stakeholders to access past contracts, clauses, and agreements. This reduces delays caused by manual data searches. AI tools can store contracts, version history, and templates, facilitating easy review and access.

You can learn more about how AI helps solve pre-signature contract review here.

In the post-signature stage, AI plays a vital role in automating many aspects of contract management, from identifying entities and key provisions to speeding up data extraction processes. However, human intervention is still essential to verify the accuracy of data.

• Intelligent contract analytics: In the post-signature stage, AI-powered analytics can provide valuable insights into executed agreements by extracting and analyzing key terms, obligations, and performance metrics. This enables legal teams and business stakeholders to quickly assess the health of their contracts, identify potential risks or compliance issues, and make data-driven decisions.
• Automated data extraction: AI can automate the extraction and entry of data into contracts, reducing manual effort and minimizing errors. This ensures that data from other systems is accurately integrated into the agreement workflow, saving time and improving accuracy.

More efficient processes

The Deloitte and DocuSign study highlights the urgent need for organizations to address the inefficiencies in their agreement management processes, particularly in the critical stage of contract review. With $2 trillion in annual global economic value lost due to poor agreement management, businesses can no longer afford to rely on manual, inefficient workflows.

AI-powered solutions offer a promising path forward, enabling organizations to streamline their contract review processes and reduce bottlenecks. By leveraging AI capabilities such as automated redlining, powerful search, and AI-powered legal assistants, businesses can significantly reduce the time and effort required to review and manage contracts.

However, technology alone is not enough. As the study emphasizes, organizations must take a holistic approach to agreement management, considering elements such as governance, clear roles, and the execution of agreement insights to create favorable business outcomes. By combining AI-powered solutions with streamlined processes and effective collaboration, organizations can overcome the trillion-dollar problem in contract review and unlock the full potential of their agreements.

Learn more about LegalOn’s powerful AI contract review platform and book a meeting with a member of our team here.