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The Evolution of Contracting

Stephen Allen, Vice President of Get Shit Done at Elevate, had the pleasure of hosting a talk with Dr. Roger Strathausen and Elevate’s Rob Couch.

Technology, Process, Content and People

Stephen Allen, Vice President of Get Shit Done at Elevate, had the pleasure of hosting a talk with Dr. Roger Strathausen and Elevate’s Rob Couch. Dr. Roger Strathausen is a business consultant and acting Vice-Chair of the Supervisory Board of the Liquid Legal Institute, a non-profit association committed to promoting digitalisation in the legal industry.   Rob Couch is a managing director of Consulting, focused on the contracting and CLM practice at Elevate. Roger and Rob have put together a white paper Elevate is publishing around contract life cycle management trends, why contract, how to contract, and who owns the contract – a wide-ranging series of thought leadership.

  • [01:15] – The tenet of our white paper surrounds three points:   the evolution of contracting today, technology matters, and AI is the future.
  • [04:40] – There is an evolution of technology occurring within the contracting space.  AI is completely changing the rules related to contracting.
  • [07:30] – Contracting started as a handshake and then transitioned to the lawyers for good reasons – contracting and transactions became more complicated.
  • [09:44] – Technology, templates, and a library of allowed deviations.
  • [11:01] – Today CLM tools have AI as part of the original design, built into the technology use case.
  • [15:16] – Balancing the technical possibility of what can be done with a compelling use case.
  • [18:04] – Smart Contracts have evolved because of AI.
  • [19:19] – What should businesspeople who contract, and lawyers who support them, be doing now?

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Podcast Transcript

Note: This transcript has been adjusted to improve readability. Transcripts are generated using speech recognition software and human transcribers. The context and more than 95% of the actual transcript have been preserved.  We strongly encourage our listeners to listen to the audio.

 

Welcome to the Elevate Together Podcast: Voices of Change in the Business of Law

 

Nicole Giantonio: Hello, this is Nicole Giantonio, the Head of Global Marketing at Elevate. The podcast episode you are about to hear is part of our Expert series. We’re offering an introduction to a white paper we recently published on Contract Lifecycle Management (CLM) and the integration of technology into the contracting process.

 

Stephen Allen: So, this is Stephen Allen; I’m Vice President of Get Sh*t Done at Elevate. I am delighted today to be hosting a talk with Dr. Roger Strathausen and Rob Couch, who have recently put together a white paper that Elevate is publishing around not just the current trends in contract life cycle management, but why contract, how to contract, who owns the contract, indeed, a wide-ranging series of thought leadership. So, gentlemen, I wonder if you could just introduce yourself and give a bit of your background. Roger, if I could start with you?

 

Dr Roger Strathausen: Sure. Thanks, Stephen. I’m an independent business consultant; I’ve got experience from SAP and Accenture. I’m currently acting as the Vice-Chair of the Supervisory Board of the Liquid Legal Institute, a non-profit association committed to promoting digitalisation in the legal industry. I’m happy to support Elevate and have been happy to work with Rob on this white paper.

 

SA: Thank you and Rob?

 

Rob Couch: Rob Couch here, Managing Director of Consulting, focused on the contracting and CLM practice at Elevate. I’ve been focused on contract management for the last 20 plus years. I’ve been doing business process re-engineering for the last 40 years.

 

SA: Thank you, Roger and Rob. So, rather than hear a bunch of stuff from me, I think people will be much keener to hear what are the key subjects that you cover in your white paper. So, I wonder, Roger, if I could start ith you, if you want to outline the core tenet of what the paper discusses, and then maybe with Rob, we can dive into a bit more detail.

 

DS: Yes, of course. I think there are three main points that I took from Rob because most of these ideas in the paper come from Rob, I’m kind of like the writing machine and giving a little bit of external insight into it, but Rob really has been the brain and the person with the experience behind all of this. But in the executive summary, you mentioned three points. First, we call it the ‘Evolution of Contracting.’ We also talked about contracts, but we wanted to show and point out that contracting is a business activity. A lot of stuff around contracts and contracting is currently being done by legal, and that has good reasons. Still, from a historical and also a systematic perspective, we wanted to point out that contracting is, first of all, a business activity. It is one of our upshots and our predictions for the future, that contracting, while currently residing mostly in legal ,will return to being this business activity involving more business people from procurement, from sales, people who want to make deals, you know.. Doing business and for whom contracting is necessary important add-on, but it’s not the centre of things as a legal person may have to look at it.

So, that’s one of the upshots of the paper; I think contracting is about business. Secondly, one important thing that I really learned from Rob is that technology matters. So, we’re looking at full constituents of contracting.  We’re looking at technology, processes, content, and people.  We wanted to show that the time at which a particular contract management solution has been developed is important for what that solution can do because the kind of the technological possibilities at the time of the development will influence the capabilities, even if they add on stuff later. AI is a good example. You have a lot of , CLMS tools out there right now that can do AI, but only very few of them have been designed from the data model and from the beginning with this AI capability in mind, and that determines how they can develop into the future and what they can do.

And the third aspect that Rob and I wanted to point out is that AI is the future. Now, it sounds trivial because that’s what everybody says, but it’s true. It will help us to do more things in the contracting space that are related, again, to the business, like understanding how we can use contracts as digital assets that have value, where we compare many of these contracts and find patterns through AI and things. That will allow us to speed up the process and to be more efficient and more effective, more compliant, and that will be the fourth-generation, which we believe is not yet really there. It’s only about to emerge, but we’ve described the history of the first three generations to make us see and understand how this fourth-generation can and will come about.

…AI is the future. That will allow us to speed up the (contracting) process and to be more efficient and more effective, more compliant, and that will be the fourth-generation…

Dr Roger Strathausen

SA: Thanks, Roger. That was a useful ground setting. Rob, do you want to add anything to that or want to dive into the detail?

 

RC: I think to add to what Roger said, the evolution of the technology within this space cannot be ignored as the impact it is having on the ability for what can be done in the contracting process is great. And this is where AI is going, to completely change the rules related to how contracting is done. The processes that had been controlled by legal, controlled by the attorneys with the education to understand how to do negotiations, how to identify language that can replace another language, can now be incorporated into the technology such that these can be suggested to business people, allowing them to operate within the arrangement that has been set up by legal.

 

SA: Cool. And just on that point, I’ll jump straight to this, because this is always the concern with lawyers, “Are we going to be replaced by the machine?” We saw people that did handwork replaced by machines in the ’70s and ’80s. Is it now people that do brain work who are going to be replaced, or is this machine, to kind of Roger’s earlier point, going to be, to enable people to do more things? So, is it an AI in terms of artificial intelligence, it will replace the intelligence of lawyers artificially, or is it a kind of intelligent assistant that lawyers will help codify or apply and still do the kind of difficult thinking  effectively? And we’ve all been in there as lawyers. Or a lot of the people listening will have been there as lawyers where you get called on a Friday at 7:00 PM. I want to check one more point, is the machine going to enable lawyers? Is it going to be a good thing and enable them to go home early? What’s your view in terms of that evolution that’s yet to come?

 

RC: I think the evolution that’s coming is going to assist in the process, not replace any of the people participating. The lawyers still need to be the ones to construct the content, to identify how that content is related to the business terms and to the arrangement. None of that’s going away. What this is going to help is allowing for business people to process their contracts within the contracting process that they already do today by utilising legal assistance that’s been offered through the computer. As opposed to having to email them or phone them up to get quick responses. This way, the attorneys then can focus their activities and their efforts on other areas that are more critical to the company related to what they’re doing as opposed to transactional work that a computer can handle for them.

 

SA: Right. And that, Roger, brings me back to a point which I loved in the white paper. This is your point that it kind of started as a business activity, and then it was owned by legal and it’s coming back. I just want you to expand on this a bit with a response to some of what Rob has said.  A contract used to be a shake of hands, that’s how business people did a contract, and whether you saw the technology-enabling business people to get back to  that, “Okay, we’ve got a deal done,” and then the deal’s done, rather than, “We think we’ve got a deal done and now somebody’s going to negotiate it and bend it out of shape,” and all those things.

 

DS: Exactly, Stephen. I think that is our positive outlook to the future, that it might come around full circle. It started with, like you said,  the shake of the hands and then went over to the lawyers for good reasons, because things became more complicated and transactions became more complicated. Things go wrong, and you needed security and compliance.  Our hope is that with the help of artificial intelligence, like Rob just said, it will go back to the business people and enable them to do business, maybe not as quickly and easily as before with only a shake of the hand, but as Rob wrote in the paper, with a click of the mouse and maybe some involvement of the legal people.

So we do believe that there is a clear tendency in all the four constituents of contracting, as we call them, technology, process, content, and people, that things become more inclusive, simpler – more standardised, more structured, more modular – that there is a tendency towards inclusion and simplicity, and we do show that in the white paper. We can see that in all four elements, and that supports this kind of return to the business mentality. I do want to add, if I may, one thought to what you Stephen and Rob discussed before, where you said, “Oh, there’s this fear of lawyers  being replaced,” and Rob said, “No, that’s not going to happen, it’s more enabling the business people and that lawyers will have more time to focus on the strategic stuff,” which I think is true. I also do think, though, that there are and there will be some lawyers or paralegals being replaced. I think that we can see that in the industry already having happened, lawyers making deals in the software industry, I know that.

If you support it with technology and you have better templates and can even reduce the negotiation time by having a library of allowed deviations and so on, I am sure that some people will have to let go. And these are individual fates, and they concern us, and I hope that every company will take care of its people as good as possible. On the other hand, this is a normal pattern, a normal development in the business. New technology always changes the business models and affects jobs, and that’s one side of the thing. The other side is that it will always create more jobs than  lost, that is also shown by history. To sum it up, it means that lawyers also will have to change, they will have to adapt, they will have to learn new things and to get along with technology instead of ignoring it or fighting it.

And I don’t know, Rob, if that is something that you’ve seen in your projects or in your dealings with lawyers, but I’m not personally a lawyer, but I can say that some of the lawyers that I know through our association, and those are the open-minded ones, but they’re not always at ease with technology.

 

RC: No, I agree, I mean, while the legal space has been, probably from my experience, the most difficult group within a company to accept and adapt to technology being introduced in what they do. I believe part of the issue has always been the maturity of technology has never been sufficient to address the complexity of what it is that is done in legal because it’s not just data, but they’re dealing with content, the language, and on top of that, you’re dealing with the language of multiple countries. So it’s not always something you can boil  down to just a common data element. And, as a result of that, the technology generations that we talk about in the white paper address these types of issues that are trying to be addressed by these technology tools that have not yet got enough or sufficient base-level capability in the way that they are built. And that’s what we’re starting to see now with AI being brought in. You had earlier vendors who were adding AI into their tool, now what you’ve got is vendors producing CLM tools where AI is part of the original design, and so, therefore, it is being designed against use cases, not just a toolkit that you can use to do AI on your own.

 

SA: Just to pick up on that, and then I want to ask a kind of further question, I suppose the key is, right, that to stay relevant,  and people that just do the job the way they’ve always done it always, are at risk of being overtaken by technology. But if you’re there to evolve how you assist the business with your legal advice, then actually these tools are enablers rather than threats. And on that, we talked a bit about a third and fourth-generation earlier, and I know, Rob, you were just discussing  where the AI is today and where it has been and where it’s going to go. In terms of that cycle, from it’s been  a shake of hands to really probably where we are now, which is quite a complex set of procedures and processes and governance, and the technology (whilst it massively improves that) contributes to some of that technology.  I’d say that some of that complexity to the fourth-generation, which is where I think you’re going to say, “Well, we start to see the downward curve back to simple.”

If I had to force you, how far on that timeline are we, and how far  away, just predictions, from getting into that kind of downward slope into the fourth-generation and back to something that’s more akin to a handshake?

 

RC: I think we’re still a way away. The CLM space is 20 years old. One of the common jokes I make is, 20 years later, the same question is still being asked, “How do I locate my contract?” I think this is where the continuing evolution of technology, and with AI, we are literally children with AI in figuring out these use cases, figuring out how they might want to be. So, what you’re seeing right now, of these initial vendors that are coming out with AI use cases, they’re the first ones. They’re basically, in essence, gathering feedback to figure out how to improve the way they operate, how to improve the usability, the actual adoption of the tool. It’s not just enough that an AI tool can do its work to present a solution or an answer to your problem, but it needs to be done in such a way that it’s usable within the environment in which you operate.

And I think as a result of that, probably over the next 10 years, we’re going to be seeing a continuing evolution of how AI is going to interact with the user because there are further improvements to technology coming. Right now, where we talk about computers, keyboards, mouses, and the technology working in there, we’re also getting AI to listen to us and talk to us. That’s the other change that’s going to be coming; the way that we interact with our computers. And that will continue to cause the evolution of technology in the legal space with regard to how to gather, listen to information that is not data, and therefore react to it and provide a solution to it.

That’s the other change that’s going to be coming; the way that we interact with our computers. And that will continue to cause the evolution of technology in the legal space with regard to how to gather, listen to information that is not data, and therefore react to it and provide a solution to it.

Rob Couch

DS: If I may just add to it, Stephen. One of the things, Rob, that you just said, I think, is something that always fascinates me with new technology, and I think it’s the same with AI. It’s often the case that there is now a technical possibility we can do things, but we don’t know yet what for. It’s like we have the answer, please give me the right question. Give me a use case, give me a problem that I can apply this answer to. I see that a lot with Blockchain. In the financial world, cool enough, there are a lot of use cases. In the contract world, use Blockchain? We thought about it and discussed it a lot, and I’m sure something will be coming, but right now, I don’t see much use of it, and that often happens with new technology. It is just looking for its business problem. And the other thing, Rob, that you mentioned is equally true, it’s the usability and needs to be in the foreground. That will help hopefully with multi-experience with voice interaction and will improve as well.

 

SA: I think that’s a really key and interesting point and one I’ve always felt. And you guys, please chime in and correct me if I’m wrong, smart contracts were entirely mislabeled. They’re not smart contracts; they’re smart fulfilment. When you think about the power of Blockchain, and I love Blockchain technology for this, it is the irreducible validation of something. And that’s incredibly powerful. But it really is not a smart contract in the way that we understand contracting.”

 

DS: It’s just a token transfer, an automatic token transfer, on a database based on an association with the transaction, but it’s not a contract in the sense that anything has been negotiated. On the other hand, the Blockchain people claim it is one of its strengths, it’s because it doesn’t have to be negotiated, cannot be retracted, it cannot be changed, but in our world, in our contract world, I have yet to find a real, meaningful application for it.

 

SA: Yes, the thing I’ve always thought… Sorry, Rob, I’ll let you chime in, is particularly when you’ve got complex agreements.  In the finance world where you’ve got conditions subsequent and conditions precedent, having the fulfilment of those confirmed through Blockchain, as part of a process, would be useful that somebody really has lodged X at the land registry, or someone  has provided an affidavit that’s fit. I agree. I think the problem is really contracting that we’re all talking about here., Negotiation.. There is very rarely a case, even if it’s the commercial people, where there’s not something heavily negotiated; otherwise, you just have standard T’s & C’s, and you just accept them like we have to. And that’s where it’s mislabeled. Sorry, Rob, please.

 

RC: This was a topic that Roger and I were kicking around and doing some additional research on. When we look at the future of technology and how Blockchain is going to play within this. We went back and looked at some of the vendors who were trying to adapt Blockchain into their negotiation process of contracts and so forth. I think where Blockchain is going to have a play in contracting is going to be the end result of what AI does for you during negotiations. So, as we get more into the integration of post-execution, obligation management, compliance of the contracting process is tied back into the back of the system. Whereas Roger mentioned earlier, Blockchain truly applies in the financial world. This is where I think the obligation management section of a contract execution would get managed by Blockchain into those tools there. I think that’s where the play is for Blockchain. The smart contract, as you mentioned, even the concepts around what smart contracts were over the last ten years has continued to evolve because of AI. I think it’s going to continue to evolve even more because AI can address the items that I think Blockchain was trying to address.

 

SA: That’s great. I’ve got one final question for both of you. We’ve looked at where we are today, we’ve looked at where we’ve come from, we’ve looked at where we might go sometime in our future.. In your minds, based on what you learn through putting this white paper together, I’ll ask Rob and then Roger to close out. What is it that both business people who contract and lawyers who support them should be doing now in readiness for the technology that’s not yet with us, but it’s coming?

 

RC: From an AI perspective, the focus is on what it’s going to do. If you’re looking to replace your current CLM with a more salient tool that has AI as part of it, and looking to automate your process, the initial focus should be around your content; the templates that you have today, the playbooks that you have, getting them standardised and harmonised because the one thing that people lose sight of in the deployment of CLM technology is the maintenance of the tool once you’ve gone live. And in order to reduce the maintenance, you need to reduce the complexity of your contract documents, of your templates, of the clauses that make up those templates, and of the playbooks that derive how you’re supposed to treat those clauses. That would be the initial focus of getting prepared for this that I would take.

 

SA: Great, thank you. Roger?

 

DS: Well, being a business consultant, I say what I always say to that question. First, you start with understanding where you are,  look at the mirror, and understand where you want to go. It’s as simple as that, and then you have the technology, and you’re looking how to get there. But I don’t think that, in terms of AI, there is something very specific you have to do business-wise to prepare yourself for it. I think if you’re a good businessperson, you have goals, and you’re using technology to achieve them, and one of these new technologies happens to be AI. We talked about Blockchain. What’s already happening in the contracting space, and being used heavily, is  natural language processing to read unstructured data that’s happening.

What’s happening is predictive analysis for insurance companies or whatever. They learn from previous cases, and they have a high probability to predict whether one client claim is likely to be fraudulent or not, or to predict if going to court will be beneficial for the company or not, or what is a good time to do an early settlement. So, these aspects of AI, I think, apply to the contract space and the Blockchain; we talked about it before, I don’t see that heavily.

And again, to answer your question, how to prepare? Keep an open mind. That’s the most important thing. Keep it open to new possibilities and have a goal. You said that nicely before, Stephen. If you keep doing what you’ve done before, thinking about the lawyers, I think, had that mindset. I’m a state-approved lawyer, I’m protected by my job and by these conditions, and what will happen to me? Lawyers will always be needed. And then what happens is that the value chain that segregated, got cut up into little pieces and things that used to be done by me  as a lawyer, but was not necessarily had to be done by me, are now done by machines, and I lose part of my job and part of my income. It’s smart to keep an open mind, look forward, and as Rob said, look at the content and the playbooks and the clauses that you already have.

 

SA: Roger, thank you very much. Rob, thank you very much. I think my advice to everyone is to pick up on what you said, Roger, to keep an open mind and read the white paper.

 

DS: Everybody should. Well, thank you, Stephen.

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