Understanding and managing contracts is a far more complex task for vendor managers than it appears on the surface. Contracts often include hierarchies including Master Service Agreements (MSA), Master Subscription Agreements, Statements of work (SOWs), and Work Orders. Each of these may have multiple schedules and exhibits; furthermore each of these contract documents can have several amendments with the amendments also having schedules and exhibits.
Even if the responsibility to draft these documents is with the sourcing and legal teams, vendor managers are responsible for the ongoing monitoring of contract performance and it is challenging for vendor managers to monitor and keep track of the versions of documents and changes in key clauses and performance terms of these. For example, an amendment may restate the supplier obligations section or may add or change obligations or payment terms or service levels. Or, there may be amendments due to changes in regulations or enterprise policies.
The industry has evolved from having a single monolithic vendor providing a myriad of services to enterprises increasingly using a best-of-breed approach for vendor partner selection. There are SaaS tool providers, and data-services providers and specialized and regional IT services providers in addition to the strategic partners.
The increasing volume of contracts and the evolution of the contract itself with dozens of privacy regulations adds another layer of complexity to it. A simple agreement can become overwhelmingly complex as multiple amendments and renegotiations take place. For instance, you might have a contract with a service provider and it might have gone through ten amendments in five years, making it a massive and fragmented contract with dozens of documents representing the full contract. Each change introduces new terms and alters the existing ones, making it crucial to track everything including SLAs, renewal periods, termination and a lot more. Now imagine this handling the same with a thousand contracts.
In addition to the complexity of the contract, the volume of contracts, and the evolution of contracts, there’s another very common challenge facing vendor managers when it comes to contract lifecycle management: Handling Ad Hoc queries from business stakeholders.
Let’s say, a vendor manager receives a request from a business stakeholder asking if the contract with a specific vendor includes a ‘termination for convenience clause’. This would require a dedicated team to look through multiple pages within the contract to locate the specific clause. Imagine that the contract has gone through multiple amendments, it is going to be painstaking and the whole team has to spend days looking to check the history of changes. For vendor managers managing hundreds of contracts with different renewal cycles, and obligation, the complexity keeps increasing.
With the increasing complexity of contracts, traditional contract management practices struggle to keep pace, leading to inefficiencies and missed opportunities. There is a need for a more efficient solution that can simplify and automate the complexities of multiple amendments, and compliance requirements and help manage the increasing number of vendor contracts.
AI for Vendor Contract Analysis
- AI-powered Compliance Monitoring
Vendor managers must ensure that both their organization and their vendor network meet compliance requirements. However, keeping track of these clauses across a large volume of contracts can get extremely overwhelming when dealing with different regulatory updates across different regions and industry-specific laws.
Let’s say you are a vendor manager working for a global organization, overseeing contracts with vendors across EU, US and Asia-Pacific regions. You must ensure that their contracts comply with their regional-specific regulations including GDPR, CCPA and China’s Data Security law. This can be a challenge because of frequent updates in these regulations and the amount of contracts you could be dealing with. For example, if the GDPR guidelines change, the contracts need to reflect those updates. Not to mention, it is quite possible to miss these updates, or make an error which leads to non-compliance. Even if you try to make changes to the contracts, it is labour-intensive work to track these changes across thousands of contracts.
With AI-powered contract lifecycle management systems, vendor managers can continuously scan for compliance clauses and track any regulatory changes in real-time. This helps them stay ahead of the ever-evolving standards. AI can continuously monitor contracts for clauses tied to specific regulations, say GDPR or CCPS and notify vendor managers, if any part of the contract becomes non-compliant due to change in any regulations or laws
- Standard Clause Matching and Comparison
Every organization has a set of standard contract clauses that are required to be present within every contract they are involved with. These could be any kind of clauses including payment terms, or intellectual property etc. But when dealing with thousands of contracts, with variations in language, it is possible that these clauses could deviate from the standard agreements, making it difficult for the managers to detect potential risks.
Imagine that an organization has a set of intellectual property (IP) standard clauses that protect the rights of the company and clarify ownership rights. As a vendor manager overseeing a large number of contracts with global vendors, it could be challenging to manually identify the different formulations of the IP clauses. One vendor might have a clause that could limit the usage of your innovation to specific regions and another might have unclear terms about sublicensing. These are very subtle deviations, yet have the potential to turn into legal and financial risks.
AI-powered standard clause matching and comparison helps vendor managers streamline the contract review process by automatically identifying deviations from established benchmarks, giving them an opportunity to identify potential risks, ensure consistency across contracts and facilitate effective negotiation.
Also read: Obligations Management for Vendor Contracts
- AI-Powered Key Information Extraction
Vendor managers often deal with thousands of contracts filled with crucial information including KPIs, SLAs, renewal dates, and termination clauses. Manually extracting all the information can take a lot of time, draining valuable resources and leading to missed deadlines, and possible errors. AI tools can automatically extract key information such as service-level agreements (SLAs), key performance indicators (KPIs), contract expiration dates, and renewal terms.
Let’s take an example of a large telecommunications company. Vendor managers in these companies are responsible for hundreds of service contracts with network service providers and every single contract has specific SLAs that define performance standards for network uptime, response times for support requests, and repair timelines. Different contracts contain different information regarding performance, renewal dates, compliance requirements etc. Which makes it a huge task to manually keep track of these SLAs. VMS must ensure that the performance metrics are met but it might take days even for dedicated teams to manually extract information from lengthy contracts.
With AI-powered solutions, these contracts can be scanned to automatically retrieve critical information such as SLAs, KPIs, renewal dates, terms of renewal or any specific metrics related to performance. This automation ensures that vendor performance aligns with contractual obligations and business goals.
- Supporting Ad Hoc Queries
Let’s say you’re a vendor manager responsible for 150 contracts spread across 40 global suppliers. While monitoring performance is your priority, you get asked multiple questions about different contracts by different business stakeholders. Like, the legal team asks you whether a recent contract amendment complies with a new data privacy regulation. Manually retrieving this data and reviewing it could take days.
Vendor managers spend a lot of time answering ad hoc queries from business stakeholders like mentioned earlier. AI-powered solutions like Enlighta allow you to ask natural language queries about the contracts where you can just ask questions in natural language like ‘Does the latest amendment in the contract with Enlighta comply with the CCPA privacy regulation?’ and it will skim through the entire contract amendments and volume of pages and answer accurately.
If a procurement team requests for information on early termination clauses in contracts with multiple suppliers, AI can generate an instant report, pulling out relevant details, and allowing vendor managers to respond to such requests almost immediately. This kind of real-time, data-driven approach enhances decision-making and helps vendor managers maintain focus on the strategic aspects of vendor relationships.
AI-powered contract analysis offers a sophisticated, data-driven approach to overcoming the challenges faced by vendor managers. AI-based contract management solutions automate key processes, analyze vast volumes of data, and ensure contract compliance.
Do you want to know how Enlighta’s AI studio can help you navigate contract management? Get in touch with us today info@enlighta.com or click the button below.
