AI improves contract risk-rating (spectacularly) - Weagree

AI improves contract risk-rating (spectacularly)

AI is changing legal service delivery fast. Results are so spectacular and implementation efforts so minimal that every step you take immediate translates into ROI (return on investment).

As we explore the field of AI for some 4 years now, we no shortage of ideas. In the contracting area, there are roughly three applications:

  1. Automated contract review (analyse and comment on a first draft contract received from the other party): not merely analysed for a few CLM fields but checking the full monty.
  2. Automated data extraction (automatically registering a signed contract into your CLM or ERP): not merely extracting a few CLM fields but checking the full monty. This is where you bring your CLM to life, where AI will be keeping it up-to-date, (therefore) leading to mature and more advanced contract management.
  3. Automated contract risk analysis (this is a field where unseen improvements will be achieved): not merely flagging a few phrases but checking and qualifying the full monty for any risks.

Traditional risk rating is fluffy and depends on people’s expertise. Moreover, human assessments are hardly auditable:

13 Stuck GruberImages edit contract risk-rating

Traditional contract risk assessment

AI brings contract risk assessment to the surface. In traditional contracting processes, business managers rely on legal counsel for assessing and approving a proposed contract. Upon ‘manual review’ legal counsel advises their internal clients on the risks implied by the draft contract, and leaves it up to them whether or not they assume such risk or negotiate for the better.

AI-driven risk assessment

AI will not (yet) take over a human’s assessment of risks associated with a proposed contract. But with the introduction of AI-automated contract review, legal departments are forced to think about how they qualify and quantify risks.

Because if AI reviews contracts, the set of parameters for which a contract is being analysed will be expanded, compared to traditional CLM metadata fields. The quality of AI-driven contact review is so impressive that also an AI-contract risk assessment is going to happen sooner rather than later.

Weagree Data retention all in the picture 01 contract risk-rating

Risk rating is simple and becomes desirable

This is not only because attaching a risk rating to every review-finding is one simple extra step to AI-automated contract review: if you know which limitations of liability can be expected, it is also easy to anticipate which variations are non-preferred or unacceptable. The same is possible in connection with other clauses (change-of-control, indemnities, disclaimers, etc.).

Look at how it should be:

Weagree Merely a helicopter to monitor 02 contract risk-rating

Risk rating also becomes desirable because legal counsel and businesses will want to know the top-5 risks immediately: in an AI-generated contract risk analysis, you do not want to dig through some 43 to 300 AI-review findings to identify what is key and what not.

Believe me: 43 to 300 parameters is not an oddity, it is simply the number of Q&A-questions to be answered when you were to draft the same contract yourself (we know this, as it is the set of Q&A-questions triggered by contract automation – our specialty). An AI-contract review goes further than a basic data extraction for the purpose of registering a contract in your CLM.

Risk rating is as hot as Cyber security and ESG are

Enterprises must be able to upgrade both their cyber security and their ESG policies. Both trends have a common advantage for contract review:

  • Cyber security is so complex that risk assessment requires a systematic, structured approach: an auditable process for identifying, quantifying and qualifying risks.
  • Enforcing ESG policies across the supply chain suffers from their inherent vagueness and immeasurability. But quantifying ESG-implications becomes inevitable, as an enterprise cannot responsibly continue without adequate, auditable quantification. If only for the climate-change-part of ESG.
AI contract risk assessment analysis contract risk-rating

At Weagree, we are trained in risk assessment and risk management: we do that extensively in the context of our ISMS (information security management system) for our ISO 27001, ISO 27017 and ISO 27018 certifications. Moreover, our insurance policy is explicit about the cyber risks for which we must adopt measures (preventing ransomware).

Developing an adequate risk assessment method is not difficult. There are countless methods. For our ISO certification, we adopted one in which a risk is rated by combining the Risk Exposure with the Chance that the Risk materialises.

AI-contract risk assessment in the Weagree Wizard

You will like it: as we implemented it as an integral part of our own ISO certifications, we also included risk assessment and risk management in Weagree’s AI capabilities. We think that during contract review, a contractual provision is:

  • Acceptable (according to our policy)
  • Acceptable (albeit not the preferred option)
  • Unacceptable (but may be approvable)
  • Unacceptable (dealbreaker)

The screenshot shows how it works:

AI contract risk assessment adjustment contract risk-rating

Also the absence of a contractual stipulation may be a red flag. So, Weagree will allow four qualifications of a risk, plus allow flagging the absence of a clause. (And yes, if the AI gives a false negative – not identifying a clause where there is one – it will still be marked by such red flag.)

Impressed? Want to reflect on AI-automated contract review, AI-contract risk assessment, or abot simple AI-driven registering contracts in a CLM?

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