Contracts form the bedrock of the work performed by the army of in-house counsels and law firms that support Indian businesses. Lawyers have to review routine contracts such as employment agreements, NDAs, vendor agreements, customer agreements and licensing agreements. Traditionally, such routine contracts are reviewed manually in the form of paperwork-based workflows creating printing, administrative and courier expenses.
In-house teams in Indian companies spend 60-80% of their time reviewing contracts, flagging clauses and monitoring performance. Poor contract management can cause revenue leakages costing businesses up to 9% of their annual revenue.
AI-driven Contract Lifecycle Management (CLM) software automates such processes by creating a centralized repository of contracts and assists in drafting, redlining, summarizing and negotiating contracts. AI-driven CLM software transforms contract management into a strategic business function by aligning with the goals of the business.
The article examines how AI-driven CLM software is reshaping contract management, how Indian law firms and in-house teams can choose the right tool and the challenges and legal validity of CLM software in India.
What is AI-driven CLM software?
AI-driven CLM software refers to solutions that assist law firms and in-house teams in managing their contracts end-to-end – from the creation to the signing of the contract. Popular AI-driven CLM software used by Indian law firms and in-house teams include solutions such as SpotDraft, Juro, SpellBook, SignDesk and Icertis.
AI-driven CLM software is mainly used to automate routine contracts such as NDAs and vendor agreements while for complex agreements such as investment agreements, M&A term sheets and multi-party commercial agreements a high-level of human oversight is required.
CLM software is transforming legal workflows by automating key legal tasks such as drafting, summarizing, negotiating, risk-scoring and clause extraction, enabling legal team to work faster and reduce errors. This improves contract compliance for Indian businesses.
Source: SignDesk (Survey Report)
How AI is transforming drafting, summarizing, redlining and negotiation
- Drafting
AI-driven CLM software uses standard templates and fills in details such as commercial terms, jurisdiction clauses and entity details automatically. This ensures language consistency and reduces drafting errors. In-house counsels and Indian law firms do not repetitively draft the same contracts.
- Negotiation and Redlining
CLM software highlights problematic clauses and gives suggestions based on past contract behaviour. These suggestions can be used by lawyers in deal negotiations. Lawyers shift from document reviewers to deal strategists that effectively have more time to formulate a negotiation strategy rather than reviewing paper-heavy contracts.
- Risk-Scoring and Clause Identification
AI-driven CLM software analyzes clauses such as the governing law, indemnity, arbitration and termination triggers and is able to utilize predictive analytics to judge which kinds of clauses lead to disputes. This transform contract management into a real-time business function helping businesses assess the feasibility of a contract before being executed.
- Strategic Benefits for In-house Teams
In-house teams in Indian businesses mainly enjoy three benefits from the usage of AI-driven CLM software which are:
- Time Efficiency – Contracts that took weeks to be reviewed can be reviewed within seconds and this coupled with e-signatures provided by CLM software drastically reduces delays.
- Stronger Compliance – With every contract time-stamped and in digital format allows for easier audit readiness, regulatory compliance and monitoring the performance of contracts.
- Operational Cost Saving – CLM software ensures that contracts are signed digitally cutting down on printing, courier and administrative expenses. AI-driven CLM software reduces the cost of creation of a contract by up to 60%.
India-specific criteria for choosing an AI-driven CLM tool
- India-trained and Firm specific model – CLM software has to be trained on Indian contracts, Laws, Companies Act, 2013 and Indian legal terminology. Furthermore, the CLM software has to be customized according to the proprietary workflow of the firm as every law firm and in-house legal team has a different approach to evaluating a contract. The CLM software has to be trained on a diverse range of clauses such as indemnity, governing act/law, conditions for termination and force majeure specific to the Indian context.
- Multi-lingual ability – CLM software should be able understand a variety of languages ranging from Tamil to Hindi as In-house counsels and Indian law firms have to draft and negotiate contracts with regional vendors, government tenders and regional businesses as well.
- Data Privacy – Trust and Confidentiality are the two pillars of the legal services industry. AI-driven CLM software has to comply with the provisions of India’s DPDP bill. Furthermore, many Indian law firms are hesitant to adopt such software because of concerns surrounding the validity of electronic agreements. In a survey conducted by SignDesk, 57% of the professionals did not have knowledge about the validity of electronic agreements. The Information Technology (IT) Act, 2000 and Indian Evidence Act (IEA) recognizes the validity of electronic agreements and that it is admissible in court as evidence.
Case Study
A Mumbai-based law firm serving multi-national clients transitioned to a digital CLM system during the pandemic. The firm digitized 90% of its contractual workflows within 12 months. This resulted in:
- 42% faster contract execution
- Rs 18 lakhs in savings because of lesser printing, courier and administrative expenses
- Higher client satisfaction due to faster deal closure
Similar to this, KPIT technologies, an Indian MNC experienced benefits such as centralized digitalization, lower errors, seamless negotiation and improved compliance after implementing Icertis’s CLM software.
Conclusion
Indian markets are becoming competitive due to which businesses are operating at a speed and scale which manual contracting is not able to keep up with. AI-native CLM solutions drives faster contract review, reduces errors and quicker revenue. Indian Law Firms and In-house teams will outperform on efficiency and commercial alignment. Organizations should run pilots, integrate AI-based contract workflows, evaluate ROI and gradually scale to become AI-native contracting teams.
Sources: Legalon’s official website, Melento’s (Formerly SignDesk), Survey Report “Beyond the Signature: How India’s Corporate Legal Teams are Embracing Digital Contracts, Juro’s official website, Thomas Reuter’s white paper “Smarter about contracts: Bringing a system of intelligence to contract lifecycle management”, Inside AI news, Express Computer.
Authored by: Harshith Viswanath