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- With complex, ever-changing contracts, it can be a cumbersome process to gather evidence of contractor delivery gaps
- Cognitive technology (when it is trained to do so) can slice through complex clauses and verbiage in the blink of an eye, and identify tangible items or services which aren’t fulfilled
- “Legalese” is a language which few speak fluently, though many are called upon to understand in challenging times
- Digital reasoning helps contract governance experts better understand which terms and conditions have been most successful, so they can author new contracts that build on that expertise, rather than lose it
In a large enterprise or public sector organization, procurement analysts can feel like they work in the eye of the hurricane of thousands of contracts, clauses, conditions and compliance requirements. Just as they make sense of one contract, they are tasked with another, equally dense with data and needing careful assessment.
In a busy procurement organization, it can be nearly impossible to pinpoint every project gap, product shipment deficiency or missed service level. This depth of analysis exceeds biological brain processing, and demands a digital processor.
Any company that competes for a contract, negotiates terms, and signs off on meeting them shouldn’t think they will only need to live up to the parts of an agreement which are in their best interest.
A McKinsey study about vendor and supplier relationships found that most leading financial institutions have 200 to 300 high-risk relationships at a time. If procurement analysts can’t monitor the contracts behind these relationships effectively, many will fall apart, and leave the institution scrambling to find another supplier to fill the void. Not to mention the potential of repeating this cycle again.
With complex, ever-changing contracts, it can be a cumbersome process to gather evidence of contractor delivery gaps. Cognitive technology (when it is trained to do so) can slice through complex clauses and verbiage in the blink of an eye, and identify tangible items or services which aren’t fulfilled.
Compare, classify, contrast, correct, comply
Contract governance is more than just pursuing non-compliant service providers and checking boxes on meeting expectations.
- Ensuring that all parties in a contract live up to their promises, such as statements of work or bills of lading. Classifying clauses by their “nature” (such as obligation or definition) and category (such as Deliverables, Intellectual Property)
- Maintaining business relationships between parties based on trust and accountability
- Defining a set of criteria for third parties to meet in order to receive payment for goods and services
- Communicating circumstances where contract will be terminated, and any potential ramifications (beyond contract termination) of those circumstances taking places.
Contracts and their terms are often complex, granularly thorough, and rife with detail. Procurement teams are under pressure to deliver faster results, despite decreased resources and escalating amounts of information.
Effective contract governance is critical to enterprise growth
A recent Deloitte survey of Chief Procurement Officers found that reducing procurement costs was a top priority among nearly all those surveyed, yet over 60 percent of those surveyed said they had a skills gap in their organization which would hinder procurement growth. The CPOs acknowledged that digital innovation was critical to addressing that gap.
For large, geographically dispersed enterprises, setting standards and policies on contractor quality is critical. Procurement professionals might establish relationships with their local suppliers, and emotion might impact how they enforce quality and service levels. AI-enhanced contract governance applications don’t build relationships, and they measure compliance based solely on data, such as critical dates product quality and documentation requirements.
Other common contracting concerns for large enterprises may include:
- Differences in local laws and regulatory requirements
- Contracts with companies with subsidiaries, partnerships or with a division of a company. Consider cases where one contract is cancelled due to non- compliance, but others are ongoing.
The McKinsey report mentioned above found cobranded partnerships, joint ventures, sponsorships, and similar relationships can account for up to 80 percent of the spending for some financial services companies. Enterprises can’t afford for one cancelled contract to cause others to come crashing down like a house of cards. An AI assist engine can be trained to understand these sorts of arrangements, and advise a procurement analyst accordingly.
Many contracts have complex terms which vendors may not realize they should be meeting, or revenue recognition requirements which aren’t being met. Complex contracts can cause contract governance specialists to make mistakes resulting in missed contract milestones, short-shipped orders or unmet quality standards. Siloed supply chain data sources and information overload are frequent culprits which overwhelm analysts and can let vendors off the hook when they fail to deliver.
Translate Contract-Speak to Natural Language
Just as Augmented Intelligence can help customer service and sales agents to be more effective in their role, AI can empower procurement analysts too. “Legalese” is a language which few speak fluently, though many are called upon to understand in challenging times.
Natural language processing can be programmed to interpret and understand legalese, and translate it into, well, natural language which can be understood by busy analysts.
Instead of reacting when a contract lapses and a project isn’t completed to specifications or a commitment isn’t met satisfactorily, analysts can leverage an AI assist engine to receive alerts to proactively monitor progress and compliance over the life of even multiple agreements with the same or various vendors.
On the other hand, there may be instances when the analyst’s own organization errs and fails to comply with specific conditions, thus holding up delivery of a critical asset or customer commitments. AI can help not only avoid errs like this but also quickly identify where the failure fell so that the analyst can take appropriate action promptly, minimizing risk, ill will and costly fees.
At the beginning of every contract lifecycle, procurement analysts and their sales analyst counterparts working for vendors hope for a “straight line” of delivery from contract initiation to renewal or completion. Yet because the “best laid plans” don’t always work out as expected, analysts need help from intelligent assist agents to determine the best next steps should a relationship deviate from contract terms.
Contracts are knowledge entities to be discovered
Contracts are often thought of as large files which are created, signed and then filed away until there is cause for renewal, termination, legal action or to justify payment. AI platforms like Watson transform contracts from stand-alone, static forms into integrated, “living” entities that contribute to a knowledge base.
Digital reasoning helps contract governance experts better understand which terms and conditions have been most successful, so they can author new contracts that will:
- Mitigate risk consistently across the enterprise
- Establish clauses, remedies, budgets and milestones based on successful engagements
- Accurately select potential product vendors and service providers based on past performance
Add Watson Compliance Assist to your contract governance toolkit