As in any other field, improvements can be achieved through looking back on your work and seeing what works and what doesn’t. This process can also be called analysis. Contract analysis may seem redundant in the short term, and for that reason, it’s often overlooked. However, in the long term, it can significantly improve your operations.
So, how is that applicable in the field of law? Contracts are some of the most popular and versatile legal documents. The average employee will sign at least one contract a year. That number is much higher for business owners and individuals who work with other firms and individuals (think suppliers, clients, freelancers, and so on). Lawyers are the people who get to put these contracts together and manage them.
In this contract lifecycle, everyone can benefit from AI contract review tools. In this context, contract analysis refers to the process of pointing out areas for improvement. That is done by looking back on contracts that are already in effect or analyzing contracts that are in the first stages of creation. A contract can be improved in a number of ways. Usually, the goal is to reduce costs and risks and arrive at the most desirable solution for all parties. As with most things, practice makes perfect. The more contracts you analyze, the easier it will be to optimize the next contract.
Cut costs
The objective of any business is to make a profit, legal businesses included. Following this business model, it’s safe to say that cutting costs is always welcome and appreciated. Contract analysis can facilitate that.
If you plan on renewing a contract and continuing your collaboration with a certain firm or individual, you can definitely benefit from contract analysis. Contract analysis can reveal that the pricing model you’ve selected is not the most cost-efficient one. If you renegotiate the contract, you can save a lot of money. It’s alright to select an incorrect pricing model initially; everybody makes mistakes! Just don’t keep making the same mistake for years to come.
Create templates
If you don’t conduct contract analysis, you may be wasting time without even knowing it. The truth is that contracts rarely need to be written from scratch. Once you have a couple of strong templates, you can use them again and again. Oftentimes, all you need to do is personalize the contract by filling in personal information like names and addresses.
Another part of an effective contract template is the language used. The language used in contracts cannot be too vague. Every single word needs to clearly convey the message. Additionally, the information presented in the contract must be accurate. While that all sounds like common sense, many people fail to deliver such quality in their contracts. Using incorrect language may lead to fines and penalties in the future, as well as make the contract invalid altogether.
This issue is not simply solved by creating effective templates. You can come across a template that seems fitting but is actually meant for a different contract type. The slight changes in language can make all the difference, deeming your contract unusable even though the template is not flawed. That’s where contract analysis software comes in.
Contract analysis software can ensure that you’re using the appropriate templates for your contract drafts. Run some analytics to see if your contract makes sense in context. Through contract analysis, you can identify clauses and paragraphs that are commonly used in your specific practice area.
If you can create effective templates, you can continue to use them for years to come. Just that simple act can save you lots of time. Imagine the time it takes you to draft a brand-new contract. At the very least, that can be cut in half. By optimizing your workflow and following best practices, you can not only save lots of time but deliver more accurate work every time.
Strengthen relationships
Relationships tend to be more qualitative, so it’s hard to put a price on one. However, in the world of business, that’s what you have to do. You can’t focus on everyone at the same time, so you have to pick which relationships to prioritize. You can do that by analyzing your contracts and seeing which vendors or clients have proven to be the most reliable.
For example, if you see that a certain client always sends their payments on time and requires your services consistently, you can reward them by suggesting a different price model or quicker delivery times. Strengthening important relationships will provide a return in the future when you have a strong network of partners. Though you can’t exactly determine how much money a partner will bring you, you can estimate whether or not the relationship is worth pursuing.
Extract data
Document management includes document retrieval, which has proven to be difficult and confusing for some firms. In order to be able to find your stored documents in the future, you have to have a good organization system. That never involves storing documents on hard drives and categorizing them into folders manually. Storing documents this way makes retrieval very difficult.
Contract analysis tools allow you to extract data from certain contracts without having to jump through hoops. You can easily locate the contract you’re looking for using search criteria and tags. Extract specific data sets without as much as opening a document. For example, you can ask the program to search for contracts that are due for renewal within a month. The program will provide a data set containing all the contracts that fit that criterion.
Optimize your contract lifecycle
Contract management may seem easy to some. It appears as though all you have to do is write your contract, and end or renew it on time. Unfortunately, it’s not that simple and there are several steps that constitute a contract lifecycle. Even big firms are often unaware of these steps, resulting in inefficient operations, not meeting deadlines, and poor execution.
Contract analysis can help you gain a better understanding of your contract lifecycle and implement initiatives that will optimize and streamline the workflow. Not only will you be able to get an overview of the steps that go into contract management, but you can also get a detailed analysis of everything that’s right and wrong about your processes.
So, what is contract analysis? In short, it’s a useful tool (or a whole toolbox, if you will) that can help you conduct thorough and effective contract management. If you work with clients and vendors, you could definitely benefit from contract analysis. Don’t hesitate to try it and reap the benefits.