The Next Generation of CLMs: Why it’s Time for AI

16 August 2023 | Luminance

In the fast-paced world of business, adapting to change is crucial for survival. With overburdened legal departments increasingly under pressure to boost efficiency and drive profitability amid challenging economic conditions, AI has quickly become a priority for organisations looking to meet key business goals through automation.

And yet, the recent drive to adopt AI technology has quickly revealed the gaps across many organisations’ existing tech stacks. It is increasingly apparent that some traditional Contract Lifecycle Management (CLM) systems are no longer fit for purpose in the modern business landscape. This is largely because many CLM systems still rely on rigid rules-based technology rather than AI. And this lack of flexibility means they are often unequipped to deal with the demands of a dynamic legal and regulatory environment, which often require businesses to regularly update or revise their contracting processes.

Today, we’re breaking down why AI represents the next evolutionary phase of contract lifecycle management.

What are CLMs?

Contract Lifecycle Management (CLM) refers to the process of managing contracts from creation and negotiation, all the way through to execution, renewal, and termination. Historically, it has been an essential practice for businesses and organisations that deal with large volumes of contracts, ensuring they are all properly managed and monitored.

The first generation of CLMs emerged in the early 2000s and essentially functioned as storage systems for executed contracts. These “digital filing cabinets'' were early iterations of what we see today. Although the pace of innovation in CLM software has accelerated dramatically in recent years, allowing them to service the entire contract lifecycle, even the most modern solutions are yet to integrate advanced AI and machine learning into every stage of the contracting process. This often makes them incapable of delivering granular insight into contractual detail or facilitating more complex work typically undertaken by modern day legal teams. So, what are the benefits that AI-driven automation could bring to a business’s contracting processes?

5 Ways AI Can Fill the Gaps in your CLM

1. End-to-end AI – despite marketing themselves as ‘end-to-end’ digital contracting platforms, the inherent rigidity of the rules-based technology that underpins CLMs means they can service a limited number of complex use cases. This is especially evident in the post-execution phase of the contract lifecycle, where a lack of AI-powered analysis prevents legal departments from conducting review exercises such as M&A due diligence or supply chain analysis. By contrast, AI augments a legal department’s ability to act as an agile and business-enabling function, without forcing them to justify additional expenditure on more advanced review technology.

2. Conceptual understanding – many lawyers are still limited to keyword or near-match searching documents across their organisation’s contract landscape. Really, this is no different to pressing control-F on your computer. But AI presents a novel way of searching your data by understanding documents on a conceptual level. Let’s imagine, for example, that a lawyer was searching contracts for the word ‘coal’ during an ESG review. Luminance’s AI would also highlight documents mentioning ‘emissions’ or ‘mines’ as being potentially relevant, ensuring no stone is left unturned.

3. Maximum legal agility – any system underpinned by AI will learn from the interaction between a user and their documents, allowing the technology to stay current in light of global market or policy shifts. Last year, biotechnology company IDEXX Laboratories used Luminance to analyse 20,000 contracts across their entire supply chain. Luminance’s conceptual understanding of language allowed it not only to surface documents in the Russian language, but also any reference to Russian places or legal structures, with IDEXX completing the task in just 20 minutes instead of the estimated weeks.

4. Instant implementation – CLMs are notorious for the amount of resource typically needed to configure multiple user accounts, program workflows, build contract templates, and deliver user training. One of the greatest advantages of AI is that it works out-of-the-box with no pre-programming required, ensuring businesses can see instant value from day one. This approach allowed Colombia’s flagbearer airline, Avianca, to upload over 1,000 documents and begin a Covid-19 related compliance review in less than 24 hours. Having estimated that the review would take a whole month to complete, the team completed the project in just three hours!

5. Legal-grade AI – since many CLMs have simply been designed to store contracts, they have not specifically been built to read, understand, and analyse legal-specific terminology. Luminance is the only AI-powered contracting software with a large language model (LLM) purpose-built from for legal-specific applications and is informed by 150+ million verified legal documents.

But what does legal-grade AI look like in practice? A good example is Luminance’s latest feature – our brand-new AI chatbot! Whereas previously a lawyer would need to read every single page of a contract to understand key information, Luminance’s chatbot allows them to ask questions in a natural language format about their contract and receive instant answers. So, how does this legal-grade chatbot differs from generic generative AI chatbots that many CLMs have chosen to adopt? Well, Luminance’s legal-grade AI is sophisticated enough to know when it doesn’t know the answer – it will flag this to the lawyer rather than ‘hallucinate’ incorrect answers to legal queries. The result? A highly specialised AI for a highly specialised profession.

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