Did you know that a study by LawGeex revealed that AI outperformed trained lawyers in accuracy by a significant 10%? This is not a mere futuristic prediction but a current reality. AI is already changing the field of contract management.Â
Signeasy's AI assistance, for example, can simplify contract review with AI summaries, extraction of key terms, and smart Q&A. This capability of AI can streamline time-consuming administrative tasks that have long been problematic in the contracting process.Â
By helping professionals with these mundane burdens, AI in CLM empowers them to shift their expertise and time to more nuanced and strategic aspects of agreement negotiation.
But what is CLM?Â
How does it relate to AI?Â
And how does it function within the legal ecosystem?Â
Is this technology solely for legal departments?Â
Can it benefit a broader range of business owners?Â
Curiosity led us to seek answers!Â
I got on a call with Lucy Bassli, a renowned expert in the CLM space. Lucy is the founder and principal of InnoLaw Group, a legal consulting firm specializing in contract management solutions. She is also the author of two acclaimed books, "The Simple Guide to Legal Innovation" and "CLM Simplified: Efficient Contracting for Law Departments."
Lucy, with her deep domain expertise honed over years of advising legal teams, shared some insightful views on how AI can streamline contract management, its use cases, and its benefits.Â
Read on to learn more from their engaging discussion. However, if you prefer to watch the webinar instead, click this link to access the full recording.
Key Takeaways
- AI in contract management is not new, but the application of AI within CLM systems is evolving and expanding rapidly, especially in areas like contract extraction and review.Â
- Successful implementation of AI and CLM technology requires careful preparation, including evaluating the current contracting process, identifying future outcomes, and effectively managing change.
- While legal operations professionals tend to be more excited about the potential of AI and CLM technology, lawyers often approach it with caution. As AI is a relatively new technology, many lawyers are not yet fully comfortable with the idea of relying on it for critical tasks.
- Businesses should identify their specific pain points in contracting and select technology solutions that directly address those needs, rather than being swayed by exciting features that may not be applicable.
- Â AI is not a perfect solution and requires ongoing training, guidance, and oversight to ensure accuracy, much like a junior lawyer would. Expectations around AI's capabilities need to be realistic.
- CLM technology and AI can benefit not just legal departments, but entire organizations by streamlining processes, reducing risk, and empowering business owners.Â
- Organizations like InnoLaw Group and Signeasy can help companies adopt CLM and AI technology by assessing their unique needs.Â
- The CLM tech market is crowded and complex, with a wide range of providers and solutions available. Understanding your specific requirements and use case is essential to choose the right tool.Â
Q1. What is CLM or a contract lifecycle management platform?Â
Lucy Bassli: Yeah, I love that question! Right now, the CLM or contract life cycle management space is quite complex. There are over a hundred providers that may or may not define themselves as CLM vendors or service providers. That number can grow to, well, over 300 if you expand the definition of contracting.
For those who are here to learn more about AI, I would say, think of AI as the engine inside a car. But, before getting excited or jumping into the kind of engine the car is built on, you need to understand what kind of car you need and what kind of car you’re shopping for. Especially for those of us who are not a mechanic or a race car driver by profession, should make sure we understand the basics.Â
In the most generic and standard definition of CLM, if we truly follow the acronym, it’s contract life cycle management, which means there’s technology and automation are being applied to the entire lifecycle of a contract.Â
This lifecycle includes creating the contract, routing it, negotiating it internally within the company for approvals and inputs, negotiating it with legal professionals, and eventually, signing and storing the contract.Â
However, that’s just one part of a contract’s life. Once a contract is signed, it’s not dead. The lifecycle continues because there are expirations, terminations, renewals, and amendments. So, until a contract is truly terminated, expired, or done, and its lifecycle has ended, everything about that contract can be part of CLM and the management of that contracting lifecycle.
Now, technology, of course, has strengths and focus areas within this entire broad definition of CLM, and different technologies are used in different ways across the life cycle.Â
AI is one of those technologies. It's by far the most exciting right now – it's very shiny and has made huge leaps and progress. But it's important to note that AI has been around for two decades; it's not new.
However, the applications of AI inside CLM are new, and that's why we're seeing an explosion right now. So, in the broadest terms, CLM is the automation of various steps, phases, and functions across an entire lifecycle of contracting, which is a long, long life that contracts have.
Q2. What if someone missing out if they’re not leveraging AI, or how important do you think AI is in CLMs?
Lucy Bassli: Well, let’s start with the base foundation. If you’re already automating or choosing some aspect of contracting, and you’re ready to jump into technology and automation of a very natural and traditional process, that’s the first step.
Assuming that, I do think AI has some really interesting roles to play, not everywhere and across all types of contracts. It’s important to appreciate that AI has become very useful in certain areas more than others, although it's being tested and applied in many places.
If I think where I see AI making a really good substantive impact, it is definitely in contract extraction and contract review.
If we're saying artificial intelligence is something that can be taught and can be learned from the prior experiences of a company, and if it's learning from someone training it on what is acceptable and what isn't, then using AI during contract review and extraction of terms can be very powerful.”
Let's focus first on the easier one: extraction of terms. Extraction of terms has been happening for decades using technology. Being able to educate the technology in a way that it's learning to extract terms, not just looking for specific words like "liabilities" or "limits," but understanding that limitations on liabilities can be found in other sections of the contract that don't use those exact words - that's where AI becomes really useful and smart. But it's only as smart as those educating it and the content it's being educated from.
Similarly, we're seeing really good progress and advancements in contract review, treating the AI like a junior lawyer, maybe a fresh graduate from law school, or a really smart intern.Â
It can be trained to read contracts, identify sentences that are not in the company's favor, and suggest different sentences or sets of words to replace them. While that is very good progress, we also know that simply replacing words doesn't create a good contract. So, human oversight of the contract review is critical and much more intense than in contract extraction.
I like to focus on these two areas because you can't assess AI across all of CLM like a hobby - it's complex and takes a lot of energy and time. On the review automation side, it's a way to enable the legal department, make it faster, and help it focus on identified points that the AI solution can bring to the law department professionals so attorneys aren't reading 30 pages of words over and over again. It speeds up the legal team.
On the extraction side, it can enable the business and suddenly get legal completely out of answering questions like "When does this contract expire?" or "I don't understand the termination provision." These are all questions that the legal department gets from the business.
So, I look at it as two different ways of using AI for two different purposes: one is to enable speed in the law department, and the other is to enable the speed of business and remove the legal department if possible.
Q3. There's a perception that legal professionals and legal ops are supposed to read through the entire contract language and not rely on AI. There seems to be a sense of apprehension toward AI in this context. What's your take on this?
Lucy Bassli: Â You've conflated two different views on legal. There are legal operations, and there are legal professionals. Let's call them attorneys substantive, you know, practicing lawyers. Legal operations teams focus on automation, efficiency, and treating the practice of law like a business, like a smooth operation and sometimes in conflict with the practice of law.
On the other hand, practicing lawyers are primarily concerned with mitigating risk and doing the best possible substantive legal work that they can in the context of contracting. That means lawyers are paying attention to what's happening inside the four corners of the contract. All the words, exactly every word and how it's placed, what those words represent, and how those words mitigate risk saving the company.Â
Within a law department, there could be two very different views on AI. There could be a legal operations view that says AI is an exciting development that can help make the legal department more modern and efficient.
And I think from the lawyer side, there's a little concern, and there's a little caution. They want to fully understand the implications and potential risks before embracing this new technology.
(For Lawyers) I don't wanna say it's fear. I think that's over-exaggerating. But I think it's caution. Lawyers like to know exactly what they're getting into. They wanna understand all the what could happen?
As lawyers, that’s how we are trained to identify every possible negative outcome. AI is unfamiliar territory, and trusting it requires a leap of faith. We need to feel confident that AI can be relied upon in our day-to-day work of lawyering and handling contracts. It's not that we're afraid of AI but rather cautious. We like to know exactly what we're getting into.
Adopting AI will take time, just like it took the legal profession nearly 20 years to fully embrace email, and for bar associations to accept that email doesn't breach confidentiality or waive privileges.Â
However, technology has evolved tremendously, and lawyers' personal use of tech has skyrocketed. So that same lawyer now is using tech to shop online to book travel, to get a taxi or car service. I mean, so much of their lives have now been automated. The pandemic also had a significant impact on accelerating technology adoption.
While there is still caution, I believe there is now a growing realization among lawyers that we need to learn about AI and start incorporating it into our work. There's a bit of a push in that direction.Â
Q4. Are AI tech platforms useful only for legal professionals, or can other business departments and users also leverage them effectively?
Lucy Bassli: Sure, absolutely. It's not just about the legal department. I think we have a bit of an identity crisis when it comes to who owns contracting and who's driving it. Because contracts are so connected to what the law department does, legal often takes ownership and tries to fix contracting for the whole enterprise. But that's not always the best path to go.Â
Contracting is a necessary subprocess of so many other core business processes, such as buying, selling, and exchanging information, you name it. It depends on the business you're in. Are you doing clinical trials because you're in pharma? Are you doing supply chain because you're in car manufacturing? All of that requires contracts.
These core business processes rely on contracting. But we sometimes flip it around and expect contracting to plug into all these other complex processes. I don't think that's a smart approach. So, in short, to answer your question of who does this benefit? This should benefit the entire company. There's no reason why it shouldn't.Â
Now, how it is brought into the company, how it is implemented, how the business is trained, that's a whole different thing. It's no different than implementing any big enterprise system. If implementation falls on legal, it starts to feel like just a legal tool. But if IT drives it, then it becomes more of a foundational corporate system.
So there isn't a very clear answer because it looks different everywhere.Â
But the benefits can absolutely extend to any department. Without legal, procurement can use AI extraction to track contract expirations and terminations. On the flip side, legal can use AI contract review to work faster. Those are just two examples - there are dozens of ways AI can benefit different departments. It's certainly not just for legal.
Q5. If I'm a business owner, when is the right time for me to start adopting such a platform? Should I go for a one-size-fits-all solution or purpose-built software for different parts of the lifecycle?Â
Lucy Bassli: Let me divide this up! There are probably two questions to ask yourself.Â
One is, am I ready for AI and CLM technology? And second, if I am ready, what’s the solution I’m looking for?Â
Getting ready for CLM automation is absolutely critical. There's no gray area here. You simply cannot successfully implement a CLM system, especially one that covers the entire contracting lifecycle, without first taking the time to get ready for it. Being ready means clearly articulating how contracting works in your organization today.Â
It sounds like a simple question, but if I asked everyone on this call to write down the steps your contracts follow, I guarantee there wouldn't be a single linear list. There would be different flows for different contract types, business units, geographies, pre- and post-acquisition. There are complexities, and sometimes we forget about them until we buy a piece of tech.
At that point, the tech provider is asking you all these questions to configure the system, and the buyers often don't have the answers needed to get things up and running as envisioned. So getting ready means you are looking at your current contracting processes. You're also taking a step back from the current ones and deciding, hey? I don't think I want this to
keep going like this.Â
I think if we're going to bring in the technology, the technology won't solve a bad process, as we all should know by now, the technology will simply automate a bad process.
It won't magically change people's behavior. For example, if your process includes "having so-and-so usually take a look" at certain contracts, that's not something you can automate. You have to define a clear rule - does it always need their approval? A single button click? Editing access?
Beyond process mapping, readiness also means answering substantive questions like: Who are the decision-makers in this contracting lifecycle? What stakeholders need to be involved, and at which points? What should and shouldn't be automated? If legal is driving this, what should their role in contracting be in the future as the technology enables the business to do more on its own?
So there's a pretty hefty laundry list to work through to get ready for a CLM system. Don't jump into buying the technology until you can answer those basic questions about how contracting happens today, who approves what and why, and what role you want legal and the business to play going forward. You need to understand your current state and define your future state. That's the key.
Now, assuming you've done that readiness work, the most important question we would ask a buyer is: What's the top pain point you think this technology will solve? What's the single biggest problem driving your interest in CLM or AI for contracting? There has to be a specific pain you're trying to alleviate.
Really honing in on that primary pain point will clarify whether you need a full end-to-end CLM platform or a point solution targeted to a specific problem. eSignature is an easy example. It's clearly part of an automated contract lifecycle, but it also stood on its own for over a decade, solving a particular pain point within that broader lifecycle. Signeasy understands this well since that's why you built an eSignature solution in the first place.
But let's say your biggest pain point is that you have no idea which contracts are flowing to whom and who has them. Maybe you're a general counsel who's just overwhelmed because your team is swamped, salespeople are complaining about turnaround times, and you don't have a handle on the overall contracting process. That's a workflow problem.Â
What you need is intake - knowing how many contracts are coming in, what types, from whom, how long they sit with legal, how long they sit with the business, and where the gaps are causing all the pain. So in that case, you're looking to automate workflows, which is very different than using AI to extract terms after signature. A workflow tool will likely be good enough to solve 80% of that problem.
Now, the most common pain point seems to be, "I can't find my contracts." But here's the newsflash - there's no technology silver bullet for that. It's a human change management problem. If you automate the full contracting process, it will force contracts into a centralized repository, which is great. But you'll have to also force people to use that system consistently.
So all I'm saying is that it's all about clearly defining your pain points and the change management effort you're willing to take on. Once you've done the readiness work, identified the problems you're trying to solve, and understood your current and future state, then you'll be well-equipped to choose the right technology, whether that's a full CLM suite or a point solution. Just remember, you have to know what you're shopping for. You don't want to wander into the grocery store hungry and just start grabbing things off the shelf. that's a bad outcome. We all know that!
Q6. Do you want to take a minute or two to talk about how InnoLaw Group can help customers in thinking about adopting a solution like this?Â
Lucy Bassli: Yeah, absolutely. We are kind of translators, mediators, moderators, and negotiators between the excitement and promises of tech and the needs and the pain of the law department. We work with law departments. Those are our clients. They have pain with contracting. Our job is to help them figure out what is the best way to fix that pain.Â
And we don’t just straight go to the technology. However, we look at the problem with contracting holistically. We ask questions like: Do you have the right people involved in the contracting process? Is your law department resourced appropriately, or are they stretched too thin? Are there trust issues between the law department and the business side due to a lack of training or misaligned expectations?
There's a lot that goes in there to understand. Why is the law department doing contracting the way it's doing it today? And how do we help them think about contracting in a different way? We also closely examine their existing contract templates and playbooks to see if they have them. We help identify which ones are truly valuable and which new ones they should create to better enable the business.
And finally, we turn our focus to technology. We consider how the right tools can support and enable positive changes. So, in a way, our job is to swoop in as a SWAT team, coming in with fresh eyes to assess the history and background the law department shares with us. Then, we guide them to the future, by leveraging technology, rethinking human resources, and creating the right templates and playbooks.Â
We really guide them through a transformation, although we prefer not to use the word “transformation” since it sounds like a big consultancy word. But, fundamentally, that’s what we’re doing- helping them reshape their approach to contracting.
At the broadest level, when it comes to CLM, think of us as that trusted friend you bring with you when shopping for your first car.
