Contract management systems today are largely insufficient. The vast majority of systems available to the legal teams within companies big and small focus on one component of a contract instead of its entire lifecycle.
In particular, today’s contract management systems are focused almost exclusively on the logistics of making a deal. The leaders in the market generally break into three predominant categories. The first category are systems meant as a tool to perform document assembly, taking a template and adding variables to it, and producing a document. The second category are systems that focus on reducing the back-and-forth between organizations during the negotiation process. These tools simplify the process which currently entails redline changes, add a new version (think: final, FINAL, reallyFINAL v12.docx), and email to the other side for them to do the same (think: final, FINAL, really FINAL v12 ABC edits.docx). The third category of tools are meant to simplify getting to an end result of the deal: namely, electronic signatures.
These areas are all fundamental and vital building blocks in the digitization of contracts. We believe that all of these areas are important and bringing the “deal making” efforts out of the Word sandbox and onto more open digital platforms is a drastic improvement. Many of these platforms are used by, founded by, or invested by current or former lawyers. And to many lawyers, the deal making is the portion of the contract management that they worry about. However, to businesses, deal making is simply one portion of contract management.
To bring contracts into the digital age, we need a system to track the obligations outlined in them and understand what happens after a deal is finalized. Too often, contracts are filed away into folders and never again reviewed, which means deliverables are often not monitored and not met. Business owners and the heads of companies’ legal department really care about what was agreed on and what has actually been completed; because this is where the risk accrues. They need to be updated in a real-time as to what has happened, something which can only happen if we extend contract management beyond deal making and into obligations management.
In order to track post-signing obligations, all parties should have access to a data set that can be co-managed across the parties. Often times, people do not want this type of contract “running” on somebody else’s computer because they feel they are lacking ownership. In today’s digital age, we need to create a system where all parties involved can manage it and have equal access and control.
This can be done through the use of blockchain. According to Investopedia, “blockchain is a distributed, decentralized, public ledger.” This means that blockchain will offer an infrastructure layer which can be collaboratively managed by the parties.
Another important component of future contract management systems will be machine learning, which SAS defines as “a method of data analysis that automates analytical model building.” This will be used during negotiations, where the system can update contracts to reflect detected future nuances, and also to understand future risks, providing access to information to both counterparties.
The use of technology will help modernize contract management systems and ensure a more collaborative, open environment where the engaging parties have visibility into deliverables. This will help minimize unnecessary costs associated with risks and alleviate unforeseen issues, ultimately helping to streamline the process.