What is the Contract Abstraction process, and why should you automate it?
In an age where information is key to achieving a competitive edge, businesses are striving to simplify ever-increasing quantities of data to allow them to draw out critical strategic insights.
One particularly challenging area is the management of contracts. Keeping track of business-critical information across hundreds of unique contractual documents is a time-consuming process. If vital deadlines or compliance requirements are hidden in densely worded legalese rather than communicated effectively across your business, this can expose your business to unnecessary risk.
Enter contract abstraction – a transformative process that promises to reshape the way businesses handle their contract-related data, reducing risk and improving efficiency by making key contractual terms easily accessible.
What is contract abstraction?
Contract abstraction, or lease abstraction, is the process of summarizing and extracting the key data points, clauses, obligations, and terms from contractual documents and presenting them in a consistent, concise format.
Instead of trawling through hundreds of pages to understand the specifics of a contract, a contract abstract allows the reader to quickly and easily understand the essence of a contract from a single-page summary.
Why is contract abstraction important?
Contracts form the backbone of most business transactions. However, legal jargon can be hard for non-specialists to decipher, and this combined with a lack of consistency around structure can make it challenging to stay on top of a business’s contractual obligations to various stakeholders.
Contract abstraction offers a number of benefits:
- Improves Efficiency: contract abstracts allow businesses to swiftly refer to the key terms of a contract, rather than having to pore over numerous lengthy documents. An abstract also makes it easy to compare similar terms across multiple contracts, streamlining analysis, speeding up decision making and saving time.
- Enhances Risk Management: with liabilities and obligations clearly set out in contract abstracts, businesses can gauge their risk profile more effectively. By increasing transparency of contractual terms such as key deadlines, penalties or break clauses, businesses can plan effectively with a full understanding of their obligations.
- Facilitates Compliance: by increasing transparency around the standards businesses are contractually obligated to achieve, contract abstracts can improve awareness of the commitments the business has made, particularly amongst team members who don’t have the time or specialist knowledge to understand a full contract document, reducing the risk of noncompliance.
Why should you automate contract abstraction?
Manually reviewing contracts and creating abstracts is a time-consuming process which eats into team resources. As a laborious, detail-heavy task it’s also prone to human error, with a risk of serious consequences if an incorrect abstract is used as the basis for an important business decision.
Automating the contract abstraction process can provide:
- Consistency: while the wording of similar contract stipulations can vary significantly, automation ensures that clauses are formatted and worded consistently within contract abstracts for easy comparison.
- Speed: AI-powered platforms can process contracts at speeds humans can’t match, freeing up days or even weeks of resource time to devote to the more complex parts of the process, such as analysing contract data for insights.
- Accuracy: AI’s error rate is typically much lower than that of a human being, and AI tools can also provide clear referencing back to the original document for complete confidence.
- Scalability: Automated tools can handle sudden surges in contract volume without compromising quality, ensuring your team are able to cope with periods of growth without falling behind.
When should you use contract abstraction?
Contract abstraction should be used whenever there’s a need to quickly understand contractual terms without delving into the exact wording of the document. This could include times when you need to get an overview of a large number of contracts, or where you need to make contractual data easily digestible for team members without legal experience.
Times when contract abstraction could be particularly useful include:
- Mergers and Acquisitions: Gaining a birds-eye view of a business’s obligations and assets.
- Compliance Checks: Reviewing compliance obligations to ensure adherence across your business.
- Portfolio Management: Allowing easy comparison of similar clauses across a large number of uniquely worded contracts.
What is the contract abstraction process?
Implementing a robust contract abstraction process is vital for success. With a systematic approach, you can ensure that contract documents are reviewed thoroughly, and that the abstracted data is consistent and accurate.
- Create a unique format: Before diving into the contract, it’s important to decide on a consistent format or template for abstraction. This means identifying the key pieces of information to be abstracted, such as contract start and expiry dates, break clauses or renewal dates, delivery timelines, cost information, any compliance or quality stipulations, and the penalties associated with noncompliance. Your contract abstraction template will be unique to your business, and could even be tailored to a specific objective, for example a compliance audit or due diligence ahead of an acquisition.
- Abstract the information: The key data points can be extracted and summarized into the contract abstract format. Ideally, this should include a reference back to the original location of the abstracted information in the contract document, so that it’s easy to check the exact contractual wording in future if required.
- Analyse and review the data: The data is then in a structured format to review and assess so that the context of any abstracted clauses/information is fully understood and action can be taken to avoid risk, reduce costs and focus on strategically improving the business.
FAQs about the contract abstraction process
- Is manual contract abstraction obsolete? No. The complexity and variability of contractual documents means there’ll probably always be a need for human intervention in the contract abstraction process. However, automation can significantly streamline the process, eliminating simple, repetitive tasks and freeing up time for your team to focus on higher-value work.
- How accurate is AI-powered abstraction? MRI Contract Intelligence’s proprietary AI algorithm has been trained on thousands of different document types for a high level of accuracy. It delivers better results than manual abstraction on average in a fraction of the time. MRI Contract Intelligence also creates direct links to the source information, so you can instantly refer back to the original wording to verify details where required.
- Can I train the AI to recognize specific terms unique to my industry? Absolutely! Like any modern AI platform, MRI Contract Intelligence offers customization features, allowing you to tailor the abstraction process to your business’s specific needs.
Boost your efficiency and eliminate errors with our automated contract abstraction software
As your business grows, so will its contract portfolio. Keeping on top of your contractual obligations is essential to maintaining compliance and making sound strategic decisions, and manual review processes can quickly become cumbersome and ineffective.
Powered by advanced AI algorithms, MRI Contract Intelligence ensures that you never miss a beat in your contract abstraction process. Our lease abstraction software’s powerful machine learning technology offers unparalleled speed, accuracy, and consistency, helping you achieve full visibility of your contractual commitments whilst saving time and money.
For more information on how MRI Software’s AI-powered tools can help your business achieve greater levels of efficiency, visit our resources page.
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