Contract Analysis: Best Practices For Legal Professionals In 2024

Content

• What is contract analysis?
• How does contract analysis work?
• How does contract analysis help a business?
• What are the best practices for contract analysis?
• Centralize Contract Storage
• Automated Data Extraction
• Generate Contract Reports
• Contract Reminders
• Role-based Permission
• Customizable Dashboard
• Conclusion

Every business wants to improve their commercial relationships. The best way to get the most out of their vendors, clients, or partners is by leveraging contracts. It contains a wealth of information on opportunities, risks, and trends. Organizations can find insights into how the relationship is faring and its prospects within legal agreements.

However, when companies have thousands of active legal agreements, legal teams must stretch far to manage them. Contracts stay out of focus unless there are issues or it’s time for renewal. This blog will cover contract analysis and how to use it to enhance your contracting process overall.

What is contract analysis?

Contract analysis involves reviewing and analyzing contracts to extract actionable insights. It entails elaborately examining the terms, clauses, and obligations outlined in a contractual agreement to track relevant data and values. 

Analyzing the content of contracts throughout the lifecycle goes a long way in identifying chink in the armor. They can pinpoint potential threats, openings, and strategies for enhancing company performance. Traditionally, contract analysis was a manual and time-consuming task. This approach is prone to errors and oversights. However, with advancing technology, especially the rise of artificial intelligence and machine learning, contract analysis is now more efficient and accurate. 

How does contract analysis work?

Contract analysis can be done manually or with the help of technology. Most contract management tools utilize OCR, ML, and AI to automate the extraction and analysis of contract data. Despite how you go about it, all the contracts and related documents must be easily accessible and understandable for efficient analysis. 

The first step in contract analysis involves extracting data from contracts, including key terms, clauses, dates, and parties involved. This process can be automated using AI-powered contract analysis tools, which can quickly scan and extract relevant information from large volumes of contracts.

The next step is analyzing contract text to identify patterns and interpret the meaning of clauses and terms. It helps in understanding the legal implications of the contract and identifying any potential risks or ambiguities. Contract analysis also involves assessing the risk associated with the terms and clauses of the contract. It’s an opportunity for parties to flag risks such as non-compliance with regulations, ambiguous language, or unfavorable terms, allowing businesses to mitigate these risks before signing the contract.

How does contract analysis help a business?

Companies put a lot of work into reviewing contracts before execution to ensure the terms and conditions align with their objectives. However, post-signature, the contractual agreements become inert. That’s where contract analysis comes in. It enables parties to retrieve actionable data from contracts throughout.

1. Identifying obligations and deliverables

One of the primary benefits of contract analysis is its ability to help businesses extract and examine their obligations and deliverables outlined in a contract. Analyzing the terms and conditions of a contract can ensure that they are meeting their commitments and fulfilling their responsibilities promptly. It helps build trust and strong relationships with other parties and minimizes the risk of disputes and legal issues.

2. Risk management

Risk is an inherent part of business and contracts. Thoroughly examining the clauses and conditions of a contractual agreement allows organizations to identify potential risks and liabilities. It prepares enterprises to take the necessary precautions before they become an issue. They can mitigate contractual risks and protect themselves from financial losses or legal disputes.

3. Predicting financial implications

Analysis helps businesses forecast the financial implications of a contract. Extracting and examining the pricing, payment terms, and penalties specified in a contract enables parties to predict the costs and revenues associated with the agreement. This insight can help enterprises make informed financial decisions and allocate resources effectively.

4. Establish compliance

The contract and parties must comply with legal, organizational, and regulatory requirements. Contract analysis allows businesses to scan and extract large contracts to establish compliance. It can help mitigate legal issues and save time and resources.

5. Informed decision-making

Contract analysis provides a comprehensive view of contractual obligations, rights, and risks. Organizations can gain valuable insights into their relationships with partners, suppliers, and customers. It enables informed decision-making based on accurate and up-to-date information, improving contract management procedures and negotiating tactics.

What are the best practices for contract analysis?

Earlier, companies had to spend hours poring over contracts and manually extracting critical information for analysis. They are hardly viable for scaling organizations with large and complex contract portfolios. Fortunately, today's modern tools help speed up contract analysis while maintaining quality. Here are a few tried and tested strategies to streamline contract analysis for businesses of all sizes and purposes.

Centralize Contract Storage

A fundamental prerequisite for efficient contract analysis is visibility. However, storing contracts as physical documents or across different folders and drives can slow down accessibility. That is why businesses must store all their contracts and related data in a single location within a centralized repository. It enables parties to access documents and data for analysis without effort. 

For instance, Dock 365 contract management software provides a cloud-secure repository to store, organize, and search legal documents. It has sophisticated search features that enable speedy retrieval of particular contract terms and clauses, along with pertinent dates and milestones. Thus, businesses can examine, extract, and review contracts for analysis with little effort.

Automated Data Extraction

One of the main components of contract analysis is gathering pertinent information from contracts. Manually retrieving and reviewing data from voluminous legal documents can be time-consuming and resource-intensive. Hence, businesses need tools to automate contract data extraction.

Dock 365 leverages machine learning algorithms and natural language processing (NLP) capabilities to quickly analyze and extract relevant data from contracts with high accuracy. Users scan through vast amounts of text, identify clauses, dates, obligations, and other details, and extract them in a fraction of the time it would take a human. It speeds up the process of contract analysis and reduces the risk of human error.

Generate Contract Reports

Merely extracting data doesn’t constitute efficient contract analysis. The information must be readily digestible to enable parties to identify risks, trends, and opportunities within contractual agreements. Organizations can achieve that by using advanced reporting to systematize relevant data.

Dock 365 enables users to create custom reports for contract performance, value, risks, and deadlines. Companies can smoothly analyze contracts by finding and filtering the precise data they need for contract reports. From tracking contract status to monitoring key metrics, contract reporting enables enterprises to gain valuable insights into their contract portfolio and optimize the contract analysis process.

Contract Reminders

Missed deadlines can have severe consequences for any organization. Contract analysis allows businesses to extract and examine relevant deadlines and milestones. However, Dock 365 takes it one step further. 

In addition to retrieving essential dates, users can create automated reminders with our all-in-one platform. Stakeholders will receive timely alerts for renewal deadlines, payment due dates, and milestone events. It helps companies fulfill their contractual duties promptly and prevent costly disputes or legal issues. 

Role-based Permission

Contract analysis involves going through legal agreements to obtain actionable insights. However, everyone in an organization mustn’t access this information. That is why businesses must take steps to restrict visibility to avoid unauthorized breaches.

Dock 365 does that with Microsoft’s top-notch security and compliance. The centralized platform ensures that only authorized personnel can access sensitive contract data. Thus, businesses can restrict access to specific departments and teams. It reduces the risk of data breaches and unauthorized changes. User permissions allow companies to control who can view, edit, or delete contracts with user permissions. It adds an extra layer of security to their contract analysis process.

Customizable Dashboard

At a given time, organizations have countless active contracts to review, analyze, and manage. Consequently, involved parties may miss out on critical information and fail to do the needful. However, having the analytical reports instantly accessible at your fingertips can help speed procedures. Organizations can swiftly evaluate the findings and take appropriate action.

Dock 365 allows companies to create a custom contract management dashboard that displays key metrics and provides a snapshot of their contract portfolio. Whether businesses need to track upcoming deadlines, monitor contract performance, or view contract status, a custom dashboard can help you stay on top of your contracts effortlessly.

Conclusion

Contract analysis is the ability to identify risks, opportunities, and patterns within your contracts. Examining active contractual agreements can uncover valuable insights into trends, financial outcomes, and potential threats. Dock 365’s AI-powered contract analysis allows organizations to improve throughout the contract lifecycle. They can anticipate future challenges and optimize their contract management processes for maximum efficiency.

Moreover, organizations can carry out the entire contract lifecycle within a single platform, including drafting, negotiating, reviewing, signing, and renewal. Having all the contract-related processes and information in a single location can go a long way toward improving contract analysis.

Explore all the advanced features of Dock 365 with a live demo today!