(a) Contract automation (automated contract creation)
The contract creation process is almost entirely automated with the use of a contract creation application: a user who needs a tailor-made contract selects the appropriate template and answers an intelligent questionnaire. Based on the answers given during the Q&A, a contract is assembled: optional clauses are left out or inserted, alternative options are inserted as required, the data entered, and the correct schedules and annexes attached. Clauses number neatly and cross-references are correct. Schedules and annexes number correctly and are all cross-referenced in the contract.
Automated contract creation ascertains a high quality of the created contract thanks to a thought-through questionnaire (and any freedom to deviate or modify is in principle limited to the options offered during the Q&A); it allows (and justifies) an organisation’s lawyer to delegate a substantial part of the contract-creation-process to ‘the business’.
Contract automation is also referred to as ‘contract assembly’, ‘automated contract creation’, ‘document automation’, ‘automated contract creation’ or ‘intelligent contracts’.
The business case of contract automation. The competitive advantages of legal tech are significant. Contract automation alone improves the performance of a legal counsel (higher productivity) improves 12 to 18 percent. As a result of improved contract know-how management (availability and access to model contracts and model clauses) the response time of a legal department may decrease from three weeks to a few days only. With these improvements, many transactions maintain their ‘momentum’ and are more likely to be closed.
The quality of contracts and contracting improves such that contract creation can be delegated to ‘the business’ reducing the response time to zero (or to the time required to approve a created contract). These improvements lead to higher compliance: where business managers tended to avoid legal involvement, with such improvement of productivity and response time, sometimes the volume of created contracts increases from only a few per year to several hundreds of contracts signed; in turn, having more transactions covered by a formal contract improves clarity about each party’s obligations and reduces risks in case of defective deliveries.
A lawyer will argue that his or her work is too bespoke to be automated. Indeed, if the starting point is still a Word-document, then the further development of model contracts remains poor: in order to keep such model contract ‘workable’ the included options and alternative clauses will be kept to a minimum (too many options and all explanatory notes will need to be reviewed each time a contract is created). Such starting point may be good for 60 percent of the end-result. But automated contracts are not burdened by ‘workability’: a computer can handle infinite options; the question becomes whether automation of such option is desirable. If the implementation and maintenance of automated contracts is easy, the lawyer’s added value is in formulating and building an effective questionnaire.
Advanced contract automation application. Simple contract automation tooling may be very time-consuming and model contracts are difficult to update: implementation is a hidden cost factor, if only because specific skills are required for automating the model contracts. Also, the best contract automation solutions provide for a clause library: allowing the reuse of contract clauses across templates, and enabling lawyers to insert any transaction-specific clauses during contract creation that were not anticipated in the template. A clause library implies significant future cost savings in the maintenance of contract templates. Advanced contract automation applications also provide for a WYSIWYG editor: a separate screen in which those who answer a questionnaire can not only preview their contract real-time as they answer the Q&A, but also (immediately) tweak the contract language.
Enterprise-oriented contract automation solutions will also be able to produce a complete overview of all answers given to one or more of the underlying template’s questionnaire questions. Likewise, a legal department will be able to establish for which territories agents or distributors are proposed (but not necessarily signed yet), in which territories any exclusivity is pending, what payment terms were proposed, how IP rights were proposed to be allocated or owned, and which other specificities (contract currencies) were proposed. These data will later be exported to other contracting solutions (such as a CLM or an ERP, see below).
Import of data. This type of enterprise-oriented automated contract creation application will allow for integrations with external applications, such that contract data (party details, transaction or business-related information) can be inserted into the questionnaire or contract fully automatically. The automated contract can be made part of an (automated) approval workflow and send approvers and submitters e-mail alerts. Also, in an enterprise setting, the Q&A answers given in one questionnaire can be reused in another template (e.g. the parties having signed a letter of intent or ‘term sheet’, the definitive agreement based on that term sheet can be created; or if the created contract is a tendered contract, several language versions can be created for bidding parties from different countries, based on the original language version).
Export of contract and data. In an enterprise contract creation application, the data entered during the questionnaire can be exported as well to other business applications (customer relation management CRM, enterprise resource planning software ERP, document management or storage DMS, e-signing applications, contract lifecycle management CLM).