Every business builds on the foundations of a good contract. They ensure standard business operations by clarifying the requirements and specifying agreed methods for meeting them. In legal terms, the law of contract states that a contract is a document that comes into existence by the will of the parties involved.
Unlike other laws, contracts do not derive their origin from any statutes. When two or more people agree on the same goal, they form an agreement. This agreement then becomes a contract after it gets the sanction of law.
This makes it clear that every business has contracts at its inception. Companies, partnerships, employee hiring, and many other business-related documents are nothing but contracts between various people.
A good contract satisfies all the parties’ requirements, complies with applicable laws, and is unambiguous. Any party that stands in breach of the contract is liable to pay damages. This safeguards businesses against financial losses and holds them accountable for their actions.
From a business perspective, a contract serves as proof of acceptance; it clarifies the agreed-upon terms, provides for confidentiality, and serves as a record of business dealings. Any enterprise that aims to operate successfully must have a strong foundation for contracts.
In recent times, businesses have evolved through technology. Many tools contributed to fast-tracking business processes, such as sales automation and accounts management. The efficiency of business operations skyrocketed because of automation.
But the contracting processes have somehow not kept pace. The entire contracting process is still slow, unstructured, and inscrutable – causing friction in businesses that need to be agile.
What are the challenges to digitizing contracts?
Drafting and executing a good contract has always been challenging. It requires a specific set of legal and business expertise to attain finality. Let’s look at some reasons as to why contracts have not yet been a part of the digital revolution.
Dynamic nature of contracts:
Contracts are ever-changing. They go through many shifts and changes in the structure, terms of the agreement, and execution. Every minute change made to the contract by any of the parties involved must be captured by the software and notified to the other parties.
There can be thousands of changes in the existing draft. A digital platform has to be agile enough to redline, track, and update all of these changes. The software works wonders to capture static data, but keeping track of these dynamic data sets requires intelligent software. Such frameworks are incredibly tricky to construct.
Multiparty involvement in contracts:
Contracts come into existence because parties are willing to enter into one. There is collaboration and deliberation among numerous stakeholders, with input and changes to be considered by all. Multiparty negotiations over contracts can be very chaotic, even with software's help. There can be different opinions on the terms in debate, or various parties demanding entirely different terms.
Keeping up with the negotiations and facilitating a smoother deliberation process would require the platform to be smart, fast, and proactive. Once the deliberations are complete, the parties must affix their signatures to make the contracts valid. The evolution of electronic signatures has rapidly changed this scenario.
You would also need all collaborators to use the same tool and provide valuable insights to execute a contract. Getting so many parties to work on the same tool for a multiparty contract is, in itself, an arduous task.
Contracts are hard to understand:
Understanding and interpreting a contract is difficult for humans and machines alike. The language of a contract, its structure, and its fields are inscrutable. We need lawyers to make it simple for us. An insane amount of time is required to program, familiarize, and teach a machine the language of the law.
Complex algorithms, clever application of artificial intelligence, dense and critical coding all play a significant role in building software that can learn and comprehend the requirements of e-contracts.
Additionally, designing a tool or software that successfully executes e-contracts requires substantial input from subject-matter experts in law and tech. This makes the process not only time-consuming but also complex. The information from all the experts has to be combined, structured, and ultimately used to build software.
Contracts have staggered timelines:
The final execution of a contract takes a huge turnaround time. It’s a process that can go from days to months. Streamlining the timeframe while keeping track of all the changes becomes challenging. Doing this work manually is just as tough as teaching it to a machine.
Primarily, building a device that can learn what you teach itself is a task that will take years to construct. Then the intricate process of teaching the software skills to make it functional would take more time.
In short, the entire process demands a significant amount of time investment.
Final Thoughts
All the challenges we saw above are being solved by intelligent software. Luckily, there is a way to shed the shackles of traditional contracting. It is not hard to digitize contracts with the help of artificial intelligence and machine learning. Once the software is programmed and completely functional, successfully executing e-contracts becomes a walk in the park. Companies are witnessing a paradigm shift as they employ CLMs to streamline the contract lifecycle.
Maitreyee works as a content writer on the team. She is a lawyer by education and is passionate about creating content for the legal community that is relevant and thought-provoking.
Dive deep into Provakil's numerous blog posts & discover how legal tech can streamline your litigation, contracts, IP, and notice management processes.
