Contract management has long been a cumbersome, manual process—characterized by endless rounds of reviews, siloed data, and inconsistent compliance—that can lead to value leakage and missed opportunities.
However, the tide is turning.
As Generative AI (GenAI) begins to disrupt Contract Lifecycle Management (CLM) as we know it, Chief Procurement Officers (CPOs) can use this transformative technology as an opportunity to not only drive operational efficiency but also spread innovation across procurement, legal, and finance teams.
Why GenAI? The Urgency for Change:
- 70% of CPOs prioritize digitization (EY survey), signaling a shift from static processes to dynamic, data-driven CLM.
- 61% of organizations remain untapped adopters of AI in contracting (WCC), creating a first-mover advantage for early adopters.
GenAI bridges this gap by transforming contracts from static obligations into dynamic assets that drive decision-making. Let’s find out how.
The Broken State of Traditional Contract Management
Traditional CLM struggles with three systemic flaws:
- Manual Processes Create Bottlenecks:
- Legal Teams spend weeks reviewing contracts clause-by-clause. For example, identifying ambiguous “termination for convenience” terms in vendor agreements can take 20+ hours per contract.
- For Procurement teams, delays in finalizing agreements can stall supplier onboarding, impacting production timelines. A delayed contract renewal in manufacturing can cost millions in halted operations.
- Finance: Struggles to track payment terms across 1,000+ contracts, for instance, leading to late fees or missed early-payment discounts.
- Reactive Risk Management:
- Organizations often discover unfavorable terms only after disputes arise, leading to costly litigation.
- A lack of standardized language results in misinterpretations—for example, vague “force majeure” clauses causing post-pandemic supply chain disputes.
- Strategic Blind Spots:
- Without analytics, companies miss opportunities to leverage historical data, such as renegotiating volume-based discounts with suppliers.
How GenAI Can Be A Contract Lifecycle Management (CLM) Game-Changer
Beyond Automation
- Unlike rules-based traditional tools that are simply low-code tools that automate repetitive tasks, GenAI introduces contextual intelligence into the equation. It doesn’t just process commands—it reads context, produces insights, and anticipates outcomes.
- Through this transition, organizations can go from simply housing contracts as static documents to converting them into active stores of strategic information.
The Main Shift: From Documents to Intelligent Assets
- The real revolution is viewing contracts not simply as blockages, file-heavy documents to be exchanged and filed, but as assets that provide insights when needed most.
- Harnessing historical negotiation data, GenAI can propose optimal contractual language that is in alignment with an organization’s preferred terms and that remains consistent.
- This proactive approach streamlines the drafting process and also mitigates potential risks by forecasting likely outcomes based on past performance.
Market Readiness
- GenAI’s transformative potential in contract management is already being realized. According to a recent study by World Commerce & Contracting (WCC), 31% of organizations are early movers, using AI already in contracting or well on their way to doing so.
- However, 61% of organizations are still untapped adopters—a figure that highlights the vast opportunity in pioneering GenAI-driven CLM strategies for the willing.
Practical Applications of GenAI in Contract Lifecycle Management
Auto-Drafting and Language Consistency
GenAI eliminates the “blank page problem” by generating drafts pre-populated with approved clauses. For example:
- A procurement team can input key terms (e.g., pricing, delivery timelines), and GenAI produces a draft mirroring language from past successful agreements.
- It ensures consistency—avoiding scenarios where one contract uses “30-day payment terms” and another uses “net 30,” which can lead to disputes.
Streamlined Analytics
GenAI mines contracts for actionable insights:
- Summarizes 100-page agreements into bullet points for executives.
- Identifies trends, such as suppliers consistently missing SLAs, enabling renegotiation.
- Predicts outcomes, like the likelihood of a vendor accepting a penalty clause based on historical data.
Enhanced Risk Mitigation
GenAI acts as a proactive watchdog:
- Flags non-standard clauses (e.g., unlimited liability) during drafting.
- Alerts legal teams to upcoming compliance deadlines (e.g., data privacy renewals).
- Simulates scenarios, such as the financial impact of a 10% delivery delay.
Democratizing Contract Insights
GenAI breaks down barriers between departments:
- Translates “indemnification” clauses into plain language for sales teams.
- Provides finance with real-time summaries of payment obligations.
- Enables procurement to compare supplier terms side-by-side.
Benefits of GenAI in Contract Lifecycle Management
For Legal Teams
- Risk Reduction: AI identifies outlier clauses in seconds, streamlining reviews.
- Strategic Advisory: Shift from firefighting disputes to advising on complex negotiations.
For Procurement
- Stronger Negotiations: GenAI recommends terms based on historical successes (e.g., favorable payment terms or SLAs).
- Supplier Management: Flags auto-renewals or volume discounts buried in legacy contracts.
For Finance
- Cash Flow Clarity: Predicts payment delays using vendor behavior patterns.
- Cost Avoidance: Identifies hidden fees or non-compliant terms before they impact budgets.
Challenges in GenAI Adoption
Security and Compliance
- Risk: Centralizing contract data in AI systems increases exposure to breaches.
- Solution: Implement role-based access controls and end-to-end encryption. Partner with vendors offering GDPR/CCPA-compliant AI models.
Accuracy and Bias
- Risk: AI may inherit biases from historical data (e.g., favoring large suppliers over SMEs).
- Solution: Audit training datasets for diversity. Use hybrid workflows where lawyers validate critical clauses.
Integration Complexity
- Risk: Legacy systems may lack APIs to connect with GenAI tools.
- Solution: Opt for modular CLM platforms that integrate with ERPs like SAP or Oracle. Pilot AI in low-risk contracts first.
The Future of CLM: Contracts as Strategic Assets
The revolutionary potential of GenAI for Contract Lifecycle Management (CLM) cannot be ignored. Through the transformation of static documents into dynamic, intelligent assets, GenAI enables organizations to automate processes, reduce risk, and unlock latent value in their contract repository.
For CPOs, it is not a tool but a strategic weapon that provides them with a competitive advantage in today’s evolving business environment.
Organizations that deploy GenAI in CLM are not just set to enhance efficiency and accuracy but also strategic decision-making and innovation. Despite security, accuracy, and integration challenges, the advantages far surpass the issues.
With market trends pointing towards a substantial percentage of latent adopters, early adopters of GenAI CLM can expect to enjoy substantial returns.
We at Ascentt recognize the complexity of modern-day contract management.
We help organizations:
- Automate Workflows: Transform drafting, reviews, and compliance checks.
- Unlock Hidden Value: Turn contracts into repositories of actionable insights.
- Future-Proof Compliance: Align with global regulations while scaling AI responsibly.
Ready to redefine contract management? Contact Ascentt today to explore how GenAI can align your teams and elevate CLM from a cost center to a competitive advantage.