An organisation’s contracts drive much of what it does to achieve its purpose. A wide variety of internal and external data is involved in producing the best contract possible, making it operational, and managing it over its lifetime to get the most out of it.
This data can be useful beyond its original purposes. It can be used to provide intelligence, in a similar way to that employed by law enforcement, the military and others.
Intelligence is the outcome of software-based analysis of masses of data. Analysis can reveal insights hidden within that data, through detection of patterns, relationships, anomalies, inconsistencies, inefficiencies, outliers and trends.
Those insights can represent opportunities to be exploited or risks to be avoided. They allow facts-based decisions to be made.
With respect to contracts, those decisions can be corrective or preventative, internally or externally focussed, cost-saving or quality-increasing, incremental or transformative."
That’s how it is with processing contract intelligence: the options that might become available in response to insights it reveals are only limited by imagination but rightly need to be tempered by practicality and ROI.
This article discusses:
- Examples of data commonly used in contract management
- Examples of contract intelligence derivable from available data
- The value of contract intelligence
- The problem with scale
- Technologies enabling contract intelligence
- Producing meaningful, useful contract intelligence
Examples of data commonly used in contract management
Many different types of data are used in contract management, obtained from various sources.
Contract documents provide foundational data, including:
- Agreed clauses
- Third-party details
- Key dates
- Contractual and regulatory obligations
- Performance specifications
- Amendment details.
Contract management activities often record various types of operational data, such as:
- Level of compliance with obligations by both the organisation and its third-parties
- Potential risks faced by the organisation from each contract and its associated third-party, and actions taken to mitigate them
- Actual contract-related risks sustained by the organisation and outcomes experienced
- Performance against agreed standards by both the organisation and its third-parties
- The industry sector each third-party operates within
- Regulations applicable to each industry sector the organisation’s third-parties operate within.
Clause libraries might have been established to specify the organisation’s preferred, alternative and fallback settings for the different clause types used, possibly for different contract types and situations."
External information useful for contract management purposes includes:
- Regulatory information provides details of the individual rules within applicable regulations that the organisation and/or its third-parties need to comply with
- Third-party risk information
- Market conditions and industry trends
- Supply chain concerns.
Examples of contract intelligence derivable from available data
Various categories of contract intelligence can be derived from the data at hand, including:
- Contracts
- Containing non-preferred clause settings
- Failing to deliver the desired level of benefits
- Non-compliant with applicable regulations
- Provided by third-parties and not negotiable
- Regulations
- Hardest for the organisation to fully comply with
- Most third-parties used need to comply with
- Penalising the organisation for its third-parties’ non-compliance
- Where non-compliance poses the greatest regulatory risk to the organisation
- Risks
- Catered for by important third-parties
- Encountered unexpectedly with high impact on the organisation
- Suffered by contracted third-parties that had a downstream effect on the organisation
- With standard mitigations set up by the organisation
- Third-parties
- Exhibiting poor risk management performance
- Providing the organisation with the same products from the same country
- Subject to specific regulation
- With access to or possession of the organisation’s sensitive data
- Workflows
- Delivering inconsistent results
- Having more manual steps than automated
- Rarely used
- With process steps that regularly do not get completed within the expected time.
The value of contract intelligence
By revealing the interesting, the unexpected and the worrying about what’s actually going on behind the scenes with an organisation’s contracts, contract intelligence can more than earn its keep.
That’s because it derives insightful meaning from isolated facts extracted from masses of data that can be beyond human capabilities to reduce complexity.
These insights can be used to:
- Adjust the settings used in clause libraries to reduce risk to the organisation from not keeping up with general practice improvements
- Advise contract negotiators about approaches commonly used by third-parties to allow development of counter-strategies
- Train Contract Managers about signals they should look for in operational data collected about contracts that can provide early warning signs
- Standardise and optimise approaches used to manage contracts to minimise or counteract undesirable situations that the intelligence has highlighted
- Provide a rolled-up view of the potential scale of contract-related risk the organisation could be facing unless it gets its act together
- Generally increase the visibility of what’s happening, or not, in and around the organisation’s fleet of active contracts.
Overall, contract intelligence enables enhanced negotiations, better risk management, greater compliance and improved decision-making."
The problem with scale
People can struggle with processing large amounts of data for a range of reasons, including:
- Cognitive overload: exceeding working memory capacity which can reduce decision-making accuracy
- Confirmation bias: overlooking important data that contradicts preconceived notions or does not fit expectations
- Data complexity: difficulty understanding ambiguous, diverse or interconnected data
- Lack of context: misinterpreting the meaning of data in isolation
- Lack of expertise: misunderstanding unfamiliar data
- Technology limitations: using ineffective or constrained technologies that slow down or hinder processing of the data.
Given that an organisation’s contract fleet is likely, preferably, continually growing, scale is a problem that needs to be faced head-on, sooner than later.
Technologies enabling contract intelligence
There are several types of technology solutions that can be used to handle scale and provide contract intelligence, including:
- AI-powered contract management software: This software leverages AI and Machine Learning technologies to automatically extract key information from contracts. These include contract terms, obligations and risks, and provide insights and recommendations based on that information
- Natural Language Processing tools: These tools use Machine Learning algorithms that can analyse and interpret natural language in contracts. They can identify key clauses, risks and obligations, and provide insights into contract language and structure
- Contract analytics tools: These tools use data analytics techniques to analyse large volumes of contract-related data and identify trends, patterns, and anomalies. They can help organisations to identify areas of risk, and improve contract performance
- Dashboards: Presentation of information about levels of contract compliance, dispute, performance, risk and other details. Figures shown in compressed, rolled-up ways with drill-down to the details when required provide ready access to the intelligence derived from mass data.
Producing meaningful, useful contract intelligence
The road to contract intelligence starts with a definition of scope. This needs to cover matters like goals and objectives, sources and nature of available data, stakeholders and their requirements, validation of delivered intelligence, and proposed or confirmed supporting software.
Following scope sign-off and completion of all necessary preliminary work, attention moves to the software to be used.
Using software to produce contract intelligence isn’t a plug-and-play, low-effort matter."
As it is with any piece of software, its capabilities, limitations, installation requirements and operating methods need to be thoroughly understood to maximise its value.
Training of the software in the nature of the data it will process might be required to maximise its knowledge base.
Don’t forget that some of this data might use numbers to designate different meanings, like 0 = non-compliance, 1 = some compliance, 2 = full compliance, so such situations need to be catered for.
Training of the software users will be required to maximise its utility. Knowing how to express requests for certain combinations of data is critical for ensuring that such requests can be trusted to deliver only what is wanted, if it exists.
Considerable testing may be required to finetune how the software works, and provide confidence in the contract intelligence it provides.
Considerable effort may be required to successfully leverage the available intelligence, and make the organisation’s contract management practices more effective.
The stakeholders likely to be involved in efforts to transform contract data into contract intelligence could include:
- Contract Managers, who manage contracts over their lifecycle
- Data Analysts, who have expertise in data analytics software and techniques
- IT, who manage the technical infrastructure that supports the collection, storage, and analysis of contract data
- Legal, who ensure that contracts are acceptable in form, function and content.
Wrap-Up
It’s no exaggeration to say that organisations these days are awash in a sea of data. Some they produce, some they consume. The old saying ‘the devil is in the detail’ means what you don’t know can hurt you.
When it comes to an organisation’s contracts, that potential for hurt is enormous these days, precisely because there is so much detail to consider."
Beyond a very low point, so much detail can become too much, certainly with respect to people’s unaided ability to make sense of the contract data they’re confronted with.
Skid Row once sang ‘Can’t see the forest for the trees, got my head down, down, down in the weeds’.
That’s exactly how it is for many Contract Managers, especially when the contract inventory is sizable, distributed and/or spanning multiple industry sectors and their applicable regulatory environments.
Contract intelligence is a valuable tool for risk management in modern organisations.
It can provide them with the insights needed to manage risks associated with contractual relationships, minimising their exposure to legal, financial, and reputational risks while ensuring that they can effectively manage their contractual obligations.
Poorly implemented contract intelligence is unlikely to provide much relief.
Done well though, contract intelligence will almost certainly boost the IQ of contract management practices."
Working smarter can be hard to achieve, but is always better than having to just work harder.
If you would like more information about preparation for obtaining contract intelligence, or how Gatekeeper can assist with that activity, then contact us today.
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