Contract management and related software is a necessary tool for large companies to organize and analyze the multitudes of agreements and documents that govern their commercial relationships. Recent innovations in contract technology include using natural language processing and machine learning to extract terms and compare the language of contracts, simplifying, digitizing, and automating various aspects of contract negotiation and workflows, and providing a wide variety of contract analytics and visual dashboards for insights about a company’s contracts. These innovations are helping companies reduce a wide variety of costs and risks and improve their workflows and relationships.
But the problem with contract management software is that it tries to manage traditional, static contracts that are disconnected from the world they govern. By doing so, contract management creates a layer between contracts and business management systems that is highly resource intensive and lacks a real-time status of contract state and performance. Contract management is based on the fundamental assumption that contracts need managing.
But what if contracts could manage themselves?
At Clause, we are taking a fundamentally different approach to the role of contracts in the modern, data-driven, enterprise. We are building an infrastructure that actually enables commercial contracts to manage themselves by responding to data about a party’s performance and adjusting commercial relationships in real time.
As noted by the Artificial Lawyer, we set out to change this by building the world’s first Internet of Things-enabled legal contract. This took the form of a supply agreement in which the price term was connected to real-time temperature and humidity sensor data. The contract price decreased if the data violates contractual covenants. The contract automatically updated and reconciled to accounting and invoicing software in real-time. When contracts automatically respond to changes in the real world and update business systems, they do not need to be managed.
The need for contracts to dynamically update and be more directly integrated into a company’s business system and decision-making is now widely recognized. As noted in the IACCM’s 2016 report, The Future of Contract and Commercial Management, a lingering problem is that
Contract management has long been viewed as a transactional and largely administrative activity within most organizations, in keeping with the old concept of a contract — a dry, dusty document that sits in a drawer until there is a dispute or someone realizes it should be renewed.
As a result, “contracts and the contract management role must enable dynamic shifts in market conditions and business needs through more agile models,” the report observed. At Clause, we are building the infrastructure for contracts that are self-managing and dynamic — precisely the kind of “agile models” required for the modern enterprise and beyond.