What is Contract Analysis?
Contracts play a vital part in any business’ processes and their success. They are the groundwork for relationships, used to establish regulations and frameworks that drive daily activity. However, once a contract has been signed, many companies will store them with the rest - the equivalent of sticking them at the back of the cupboard. Typically, that is the last time the contract will see daylight again unless something goes wrong.
A contract is often complex and lengthy, full of legal terms and unfamiliar concepts, and it can be difficult to keep track of its contents, unless regular reviews are carried out. That’s where continuous, real-time contract analysis is important.
Contract analysis is a process used throughout the contract lifecycle to examine and track information within a contract. This trackable information could be financial or related to the status of the contract, its clauses, and changes in company policy. Contract analysis can also be comparative to previous versions if that is beneficial to the business.
What’s the Difference Between Contract Analysis and Contract Review?
Contract analysis and contract reviews are similar, but entirely separate processes. It is common for contract reviews to have a crossover of similar tasks to a contact analysis framework. Contract reviews may also use the data provided from analyses to increase the speed at which the process can be completed.
No business would sign a contract without first reading it. They are the foundation to relationships that you enter, that will help define how the business is run in the future. And so, this is where contract reviews feature.
A contract review is a process that is used to identify the key provisions within the agreement. Before entering a new contract, the involved parties are expected to review the agreement and negotiate terms and conditions flagged as unsatisfactory. The process of reviewing a contract provides the parties with the opportunity to protect their firm's interests and negotiate the best possible deal.
A contract analysis, however, is a process used to constantly track information within the agreement throughout the contract lifecycle. The process of continuously reviewing contracts allows the business to flag what’s worked within the contract and what hasn’t, equipping them with better knowledge for future decision making.
Why is Contract Analysis Important?
Today, we live in a digital world that is driven by data. Every interaction we have as consumers is through a digital touchpoint where data is created, stored, and analysed. Companies across the globe have seen the importance of data collection, and the benefits it can bring if analysed and used to inform business decisions.
Businesses are in a race against each other to obtain and analyse more data to allow them to drive smarter decisions, and they are coming up with more creative ways to obtain it. Yet, one of the most data-rich sources available to a business is not data, but contracts.
Contracts are often a goldmine of information; they are a receipt of what is happening within the business and provide a timeline. It is common for businesses to evaluate operations and processes to allow them identify areas for improvement and this should include contracts. By breaking down clauses and data into manageable sections, it makes it easier to understand the contract and any changes that are likely to occur. It provides instant insights into the business’ information and can be displayed in graphs, tables, or text.
They are the foundation of any business’ relationship and transactions and will often contain the precise deliverables attached to the agreement, including fees and other crucial requirements. By analysing contacts, businesses are not only equipped to make better, informed decisions, but they are also provided with an opportunity to spot inefficiencies in their contracting process.
What Are The Benefits of Contract Analysis?
Throughout the year, businesses will undertake process, operations, and performance reviews. These reviews will help them better understand the areas for in need of improvement. Contracts should not be treated any differently. The benefits of effective contract analysis will vary depending on the sector and who is conducting the process. However, we have included some of the key benefits to contract analysis that can be seen across any sector.
- Risk Mitigation
When entering a contract, every company does so at a risk that they could fail to meet their agreed obligations and face legal action or hefty fines. A thorough contract analysis process provides a heatmap of your business, identifying areas with different liabilities and the level of risk associated with them. This allows teams to identify risk and turn it into a new revenue channel.
- Improved Decision Making
The more scrutiny a contract has, the more it acts as a detection system for highlighting anything that could potentially pose a financial or legal risk. This increased information helps us make more accurate and strategic decisions later.
- Improved Future Contracting Processes
Everyone makes mistakes, even the best of us, and most of us learn from those mistakes. Contract analysis provides the opportunity to spot and avoid making the same mistakes in future contracts, whether it’s with the clauses, terms, or agreements, if they didn’t provide the outcome that you had intended previously.
What Is The Contract Analysis Process?
There is no set process or steps to follow when conducting a contract analysis, and reading a contract isn’t the same as simply picking up a newspaper or magazine on your break. Contracts are a technical manual to the agreements that your business will enter, and quite often, they will hold vast amounts of critical and actionable information.
Contract analysis can mean various things, depending on who is conducting the process. However, the analysis of a contract should form part of your contract management process. If it doesn’t already, be sure that to include this important step. Continuous analysis allows businesses to break down complex topics into smaller parts to gain a better understanding, drive better decision making and improve existing client relationships.
How Can Software Be Used for Contract Analysis?
For most businesses, contract data is just another untapped resource. If they knew the value of data that a contract can hold, they would bump contract analysis up the priority list of to-dos. Effective contract analysis can be a key driver in the success of a business. The process provides a window into the business’s transactions, allowing teams to improve existing processes, mitigate financial and business risk, and improve future decision making.
There is no doubt that over the past few years, companies across the globe have turned to technology to automate more and more tasks. When it comes to tech adoption however, typically, the legal industry is one of the slowest. Global investment for fintech in 2018 reached $41 billion, whereas legal tech was just $1 billion. Individuals cited privacy concerns, billable hours, and cost as the main barriers to adoption.
Most tasks associated with contract analysis are not known for their efficiency, considering the amount of human effort and time that is required the sift through hundreds of pages. However, legal teams everywhere are beginning to turn to legal tech software in a bid to replace outdated processes with contract review, creation, and management tools like Summize.
Some of the main benefits include cost-effectiveness, accuracy, and speed. Summize offers users an easy approach to contract analysis, that will extract key information within a matter of seconds, no matter how unique the contract is. The flexible tool works within your existing everyday program – Microsoft Word. By using our software, we can simplify and digitise your existing processes, allowing your team to focus on fee-earning work.And that’s Summize’s ultimate guide to contract analysis!
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