A notable passing last week was that of Forrest Gregg, one of the greatest players on one of the greatest teams in the long history of pro football, the 1960s Green Bay Packers. Gregg played right tackle for the Packers and according to his obituary in the New York Times (NYT), coach Vince Lombardi called him the “finest player I have ever coached.” High praise indeed. Gregg was seven-time All-Pro and was “selected for the Pro Bowl nine times. He was elected to the Pro Football Hall of Fame in Canton, Ohio, in 1977, his first year of eligibility, and was named to the N.F.L.’s 75th anniversary team in 1994.”
Gregg’s final year in the National Football League (NFL) was with my team, the Dallas Cowboys, and he used all his amassed wiles to help the Cowboys win their first world championship, defeating the Miami Dolphins in Super Bowl VI in 1972. Gregg also coached after his playing days were over. He took the Cincinnati Bengals to Super Bowl XVII in 1983 where they lost to the San Francisco 49ers. He also led Southern Methodist University (SMU) out of the abyss after it was delivered the Death Penalty, coaching at his alma mater from 1989 to 1993.
Gregg introduces us to consistent greatness. In the compliance world, consistency is one of the keys to a successful compliance program. One of those areas where consistency is mandated is in contracting. I was therefore intrigued by a 2018 piece by Beverly Rich, writing in a Harvard Business Review (HBR) article, entitled “How AI is Changing Contracting”. In this article Rich explored several areas where Artificial Intelligence (AI) can assist the compliance professional. I was particularly interested in her opening sentence, “Contracting is a common activity, but it is one that few companies do efficiently or effectively. In fact, it has been estimated that inefficient contracting causes firms to lose between 5% to 40% of value on a given deal, depending on circumstances. But recent technological developments like artificial intelligence (AI) are now helping companies overcome many of the challenges to contracting.”
Having consistency in the compliance terms and conditions of any contract is a critical aspect of the compliance professional. While there will certainly be negotiation over a wide variety of terms and conditions, from the financial and payment terms, to the operational terms, to the legal terms, companies need consistency with their compliance terms and conditions. This is particularly true given the paucity of compliance terms which should be put in place.
Equally importantly, AI can easily extract data and clarify the content of contracts to perform a number of analysis. Rich notes AI can “quickly pull and organize the renewal dates and renegotiation terms from any number of contracts. It can let companies review contracts more rapidly, organize and locate large amounts of contract data more easily, decrease the potential for contract disputes (and antagonistic contract negotiations), and increase the volume of contracts it is able to negotiate and execute.” Moreover, it can lead to an increase in both “productivity and efficiency in their contracting.”
Rich believes by using AI contracting software there is the potential to improve how organizations contract in three ways: “by changing the tools firms use to contract, influencing the content of contracts, and affecting the processes by which firms contract.” The first area is in contract management. Here AI contracting software can identify contract types through algorithms to recognize patterns and extract key variables. This allows management of contracts more effectively so you can more efficiently determine the terms in each contract. Rich noted one specific compliance component, “AI contracting software can quickly sort through a large volume of contracts and flag individual contracts based on firm-specified criteria.”
The next area is around contract consistency. Here the key is maintaining term and usage consistent in your contracts. But it also works at scale as well. Rich relates, “Being able to identify and extract key data points helps firms organize and execute contracts as well.” In an organization with a large number of vendor contracts, you need to ensure documentation of exceptions to standard terms and conditions as variations in compliance provisions are the bane of compliance professionals. Rich concluded, “Managing variations is a huge undertaking that requires proactive organization. But AI contracting software can record and standardize these provisions in the company’s contracts and in those that vendors send, making it far easier to identify instances of noncompliance and ensure that unfavorable provisions are dealt with promptly.” Of course, AI can quickly (and efficiently) point out clauses which are suboptimal as well.
For the compliance professional this probably means less time pushing through rote terms and conditions and more time focusing on true risk assessments and risk management in the contracting process. Compliance professionals, even those with legal training and perhaps a legal role at the organization, will shift their focus from routine activities to much more high value work involved in shaping strategies and navigating complex compliance issues.
AI will not replace compliance practitioners, contracting professional or lawyers. This means you must understand what AI can and cannot do in the contracting realm. While AI currently offers the highest value add to companies with large volumes of contracts by cutting time spent in contract review and drafting for issues that come from more routinized transactions. Rich concluded her piece by noting that AI around contracting is “currently at a midpoint: One stream of development will be in industries with highly routinized, template-based contracts. Here, AI contracting technology will be used in a blockchain model, allowing contracts to evolve and essentially re-write themselves according to the parties’ needs. The other main use will be to help develop contracting standards, such as how to debate and structure certain clauses. When companies negotiating a contract can easily access every similar contract from the past twenty years” to “see what wording is most commonly used, we should see less onerous negotiating over clauses, leading to an easier contracting process.”
For the compliance professional this means that less may well slip through the cracks and you will not be in an after the fact position of finding out that your agent or distributor in a high-risk venue does not have an audit clause.
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© Thomas R. Fox, 2019