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Accelerating legal negotiation with contract analytics

3 Feb 2021

by Angus Chudleigh

How contract analytics can help inside counsel balance the demand for speed with the need for accuracy.

Contract negotiations are a staple part of an in-house lawyer’s role. The volume of such negotiations can easily engulf a lawyer’s day, both in terms of the frequency of negotiations landing on their desk and the time it can take to progress from first draft to final signature. This results in slow deal velocity for the business, and a somewhat monotonous and repetitive working existence for the lawyer.

On the surface, there are no obvious shortcuts to this conundrum. For many lawyers, mundane and repetitive work has become an accepted status quo. Consider the fact that an estimated 90% of a company’s annual revenue is dependent on their negotiated contracts. Rushing contract reviews carries clear risks – with so much income based on successful negotiations, any oversight can prove disastrous.

This risk-averse approach is reflected in the time it typically takes to finalise deals. For example, the average time to close an M&A deal has risen more than 30% in the last decade. As transactions become more complex in an increasingly competitive and volatile economic landscape, so businesses take extra precautions.

Yet this prudence has its own drawbacks. Slow negotiations can sap the value of a deal, with KPMG estimating that up to 40% of a transaction’s value can be lost due to poor deal velocity and inefficient contracting. Even worse, the entire deal could be lost if negotiations proceed too slowly.

Accelerating legal negotiation with contract analytics

Just like Goldilocks and her encounters with the three bears, in-house legal teams are looking for a solution that is ‘just right’. A solution that balances the need for precision and accuracy, with the desire to move at a pace that maximises results for the organisation.

Which is where contract review technology and contract analytics comes into play to accelerate contracting.

The importance of digitisation in accelerating contract negotiations

The important role that inside counsel plays can never be underestimated. Their input is essential – but that does not mean that they personally need to read every word on every contract draft. Neither does it mean that they need to work alone. Technology can lend a helping hand in a number of ways.

By digitising contracts at the point of first review, previously analogue information can be converted into structured data. This data serves as valuable reference points when each new contract negotiation commences. If the business has undertaken similar contract negotiations previously, lawyers working on a new deal can analyse the transaction and see how effective those negotiations were.

The importance of digitisation in accelerating contract negotiations

Firms that aren’t utilising contract analytics or a contract acceleration platform will be starting every new contract from scratch. Insights and learnings from historical negotiations will remain locked away in their existing portfolio of contracts.

By being able to access and explore existing contracts, in-house legal teams can bring valuable speed to each new negotiation – saving time and money in the process.

How legal technology is adding years of experience to the legal team

There is typically a blend of experience within an in-house legal team. When entering unknown territory, a junior lawyer may refer to a more experienced colleague to help steer them through the process. Even the most benevolent of senior lawyers who are willing to share the wealth of their experience will find it difficult to allocate sufficient time to do so. It means carving out time from their busy days with their own pressing deadlines.

Introducing technology to democratise this shared knowledge within an organisation enables more junior lawyers to learn on the job without relying on their more senior colleagues to steer them through it. This is achieved in a number of ways:

Accelerate negotiations by focussing on the issues that matter

If similar clauses were questioned in past agreements, a junior lawyer can see how they were handled. Were they altered to make them acceptable for both parties, or were they completely removed? Having a track record of the previous narrative accelerates any future negotiations as lawyers work to streamline negotiations.

Clauses specific to the same counterparty

The same thinking can be applied to contracts negotiated with the same counterparty. What specific clauses did they find unacceptable? What existing knowledge can be applied to future negotiations? By having direct access to historical contracts, lawyers can save time and effort by addressing these issues up front. Experience then comes from knowing how best to redline and reduce any back and forth that may occur.

Comparisons to external records

Using contract review technology gives you access to aggregated data from volumes of external contracts, so you can compare your contract against this view of the norm. This allows both parties to understand how far away they are from most commonly agreed terms, which theoretically makes it quicker to resolve points of conflict.

Accelerating legal negotiation

Make smarter decisions, faster, and with less risk

By introducing AI technology for contract negotiations, firms immediately harness the potential powers contract analytics brings to a firm, businesses add years of expertise to their legal teams' experience, giving them direct access to the insights and knowledge they need to accelerate the contract process.

Embracing technology allows companies to negotiate contracts without exposing the business to unnecessary risk. Having a digitalised portfolio of existing contracts to hand means lawyers of all experience can proceed with confidence and understanding. It allows them to make smarter decisions faster.

Contract analytics enables legal teams to complement their own knowledge and experience using a time-saving tool that offers accuracy and transparency throughout the process.

In a world where speed is of the essence, technology is transforming the contract negotiations process to allow businesses to move at pace and with unerring accuracy.

Want to find out more about contract analytics and exploration? Download our free playbook to discover why it is important, who benefits, and how to get started.

  

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