Although it’s a crucial business technology, most individuals have never heard of it.
Contract lifecycle management software, which helps draft, store, search and manage an organization's industrial contracts, is widely utilized by lawyers, procurement and finance departments. Yet despite the technology's regular growth and its pioneering use of artificial intelligence to automate information-intensive legal tasks, the marketplace for this software is usually relatively weak.
The financial value of the contract lifecycle management market has remained relatively low, at around $1.5 billion in 2022, in accordance with a treasure from data company Verified Market Research.
But now this area of ​​legal technology, which might cover the whole lot from supply contracts to non-disclosure agreements to government outsourcing, is in high demand. Users and providers are increasingly aware of the ability of digitization to raised execute contracts and transform them into data-rich digital documents: each features are being strengthened by generative AI.
In recent months, there have been quite a few mergers, acquisitions and partnerships between established legal tech providers and smaller corporations that use advanced AI to draft and manage contracts.
In May, DocuSign, which began as an electronic signature company before diversifying, acquired Lexion, whose products include generative AI-powered contract management software. Around the identical time, Icertis – one other contract management software company – announced a partnership with Evisort, a vendor with a powerful popularity for AI technology. The partnership will involve the combination of their respective technologies.
“I've been in legal tech for 20 years, so I feel like I've seen some consolidation processes – and I feel this one is exclusive,” says Bernadette Bulacan, head of selling at Icertis and an AI expert. She believes that contract management is “having a giant moment” straight away.
Just recently, in June, LexisNexis, a provider of data and software for legal professionals, announced the acquisition of Henchman, a software company specializing in generative AI document creation. And Sirion, one other contract management provider, bought Eigen Technologies. Eigen uses AI to summarize and extract information from contracts, particularly within the financial services sector.
Investors are also showing interest. In May, the private equity firm KKR acquired a majority stake in Agiloft, a provider of contract management software.
The confluence of several technology and market trends has led to this increased interest within the technology.
According to a study published The legal industry is one among the industries most exposed to generative AI – the newest wave of this technology – in accordance with a 2023 study by researchers at Princeton University, the University of Pennsylvania and New York University. As corporations search for digital ways to administer legal contracts, there may be growing interest in integrating generative AI into the software – with human supervision. And that can fuel further growth of the market, experts predict.
“There is a variety of interest in generative AI… and in case you have a look at all of the predictions which might be on the market, the realm that will probably be most affected by it… is the legal field,” argues Zach PosnerManaging partner and co-founder of The LegalTech Fund, a enterprise capital firm that invests in legal tech start-ups.
According to experts, further consolidation is to be expected amongst larger contract management software providers.
“The space itself could be very fragmented,” emphasizes Ajay AgrawalManaging Director and founding father of Sirion. “There are currently around 150 (to) 200 players in the realm of ​​contract lifecycle management alone.”
But corporate lawyers – the shoppers – would relatively have fewer suppliers offering broader technology that meets more of their contract requirements, says Jennifer SchwalbeLegal technology consultant and former managing director of Law firma government-supported initiative to modernize legal services. “When you will have fewer actors doing more things, it's much easier.”
Although contract management is a mature market, the numbers suggest it is just not yet saturated. According to a worldwide study by Thomson Reuters, just over half (55 percent) of corporate legal departments use a contract management system. And most legal departments are within the experimental phase of using generative AI. Experts are convinced that the mix of the 2 technologies will help contract management grow.
“There are still huge greenfield opportunities,” says Posner.
There can be hope that generative, AI-based contract management software can assist lawyers with legal tasks akin to “redlining” – reviewing and making changes to contracts.
Research firm Gartner has found that AI-driven redlining capabilities in contract lifecycle management software are “immature” and should have to be refined before they’re widely available. Still, some argue that the technology is imminent.
“The AI ​​not only identifies what’s mistaken with the contract, nevertheless it flags it and strikes it out similar to a human would … surgically removing a couple of words (or) adding a couple of words,” says Agrawal. He adds that the technology continues to be “leading edge” but predicts it can be more widely adopted early next 12 months.
Feedback from some corporate legal departments is promising. For example, UK engineering consultancy Hoare Lea predicted that the AI-powered CLM software it uses is anticipated to cut back the contract review team's costs by around a 3rd per 12 months over five years.
Since other corporate legal departments are similar savings potential, Posner says they’re asking their contract management providers about their generative AI strategy.
For some providers, acquiring a smaller specialist is the better and faster solution to integrate this technology.
“If you're not an AI-native company, you’ll be able to spend a variety of time constructing this yourself, but you would like money to do it (and the investment funding cycle has been difficult),” Swallow says. “The next smartest thing is to purchase an organization or merge with the corporate.”
Swallow predicts that consolidation amongst contract management corporations will proceed. And as software includes more AI features, she expects lawyers will have the opportunity to refine their judgment, their evaluation of supplier performance and their ability to discover risks and opportunities in contracts. “They might be rather more strategic… less reactive and more proactive,” she says.
