Contract Maturity Model (Part 2): Technology Assembly Line — from Active to Passive Systems

Originally published in The Legal Executive Institute’s blog, Jun 16, 2016 http://legalexecutiveinstitute.com/contract-maturity-technology-assembly-line/

This is the second in a series of three blog posts examining how contract creation is evolving to meet the needs of modern business. The first post looked at the major drivers of change and predicted future states through the lens of a contract maturity model. This post examines the future of contracting platforms focuses on the technology systems designed to streamline contract tasks.

Over the next few years, applications will likely evolve from point solutions — automating particular tasks — to fully integrated platforms enabling a contract automation assembly line, orchestrating all phases of the contract lifecycle. The overall trend is to introduce more standardized procedures and then to integrate such standards across all systems both internal and external.

Stages of Contract Automation

Today the majority of contract tasks are performed by professionals with limited application of technology. Over time, this pattern is likely to reverse with more tasks handled by standard procedures and fewer tasks performed by skilled individuals. As the graphic below shows, the trendline portends a decreasing percentage of tasks will be performed by professionals in a one-off manner and an increasing percentage performed by technology and systems. This graphic tracks the evolution in three main trend lines: workflow processes; data capture; and application tools.

State 1 — Ad Hoc: Today, most contract-related tasks are performed manually. Professionals identify past precedent using basic search or email blasts to colleagues. Most agreements are drafted by marking up the last draft or the agreement received from the other side. Executed agreements may be stored in a variety of storage platforms and little information is captured. Many organizations may not even be able to find all their agreements and have little knowledge of what terms the documents contain.

Stage 2 — Basic (Informal): The second stage of automation is characterized by contract teams applying pragmatic techniques to coordinate their activities. In most cases, however, they have very limited access to specialized technology. Email is used as a workflow tool; some standard word processing templates are built by manual techniques, usually costing great time and expense. But, at this stage, there are no tools to help maintain the templates, so some may fall into disuse. Organizations also lack tools to collect detailed information about the agreements and their key terms.

Stage 3 — Standardized (Partial Automation): The third stage is characterized by increasing application of dedicated technology that addresses discrete tasks. The solutions typically start with addressing the situations where the organization “controls the paper.” Organizations deploy technologies that automate tasks where the agreements are drafted on the company’s form. These technologies may include routing applications, document assembly, and the capture of data into a contract management system.

Stage 4 — Systematized (Full Automation): At Stage 4, both outbound and inbound contracts are automated through the introduction of technology-augmented contract review and approval. Contract playbooks are developed, containing standard and fallback terms, with legal review for exception handling. Data capture is expanded to automatically extract contract obligations from existing and new agreements and to track the performance of all contact tasks.

Stage 5 — Optimized (Integrated and Monitored): At Stage 5, with few exceptions, all contract tasks are managed through a fully integrated contract lifecycle platform. Business managers can benefit from self-service contract preparation and review tools using an interface that walks them through the key terms with guidance on their use. Counsel can monitor the agreements with a dashboard that will track time, costs and quality metrics. The system offers insights on compliance, risks, and even predictive trend analysis. New technologies will emerge that connect contracts to smart objects such as payment systems that use blockchain technology, as well as insurance policies, escrow services and event notifications, such as changes in legal and regulatory requirements. Ultimately, through embedded systems, the entire platform becomes self-reporting, alerting contract managers to events requiring their attention.

Key Trends: Automate, Integrate & Monitor

The contract assembly line envisioned is not a one-way track — like Henry Ford’s Dearborn plant — but rather a feedback loop that seeks continuous improvement and refinement. The loop is illustrated in the diagram below. It separates pre-signature and post-signature tasks.

The two versions this chart highlights are critical facets of the changes ahead: Namely, a transition from fully active systems to ones that are more passive. Active systems require professionals to engage each step in the process. Passive systems, on the other hand, take the lead role and guide users through the process, relying on monitoring systems to notify individuals when action needs to be taken.

Today, lawyers hand-draft each agreement, sometimes from a template, more often from a prior transaction’s contract. Self-service systems will permit the majority of agreements to be requested by business managers, who will be able to generate terms and conditions, and have them automatically approved if they fall within pre-determined guidelines.

Current contract storage systems require contract managers to manually enter contract profile information, manually identify agreements containing particular terms, and manually create templates. Next generation contract management solutions will provide high-level oversight of the entire contracting platform, compliance and risk assessment alerts, and the learning systems that can predict trends from internal and external information resources.

Conclusion

It is less easy to predict when such fully integrated, self-service and self-reporting platforms may be available. However, significant resources in a large number of innovative businesses are working as fast as possible to realize the vision. One of the most critical developments is the capacity to embed monitoring and reporting systems into the contracts themselves. This requires an examination of the underlying content platforms.

(In the next part of this series, I’ll look at the structure of the contracts themselves, their platforms and templates.)