The markets we operate in are rapidly changing – consumers are expecting more value from less time, and we must ensure that we stay ahead of the curve. Contract creation is no different. As seen in Artificial Lawyer’s post, there is a need for a shift in the paradigm. Currently, the process is incredibly labour-intensive, involving many exchanges between parties, edits to templates, and no real-time collaboration. Contract renewal is often forgotten or delayed due to the lack of automated triggers. As other business processes become automated, so must the contract management process. We need to spend more time on creative, high-value thinking while machines take care of the monotonous tasks.
What is the current contract process? A Word template is edited to meet the specific requirements. Negotiation then begins via redlines, tracked changes, and email. The edited contract comes back to the first party for review. This cycle can repeat many times between many stakeholders to reach agreement. The contract is then finalised in PDF form and sent to parties for signature.
The Innovative Present
New solutions for contract automation are able to distinguish between data that changes and data stays the same. The input of variables which change repeatedly – such as dates and price – can be automated and configured within software. Solutions which allow for real-time editing and collaboration allow authors to direct the many parties to a link or document where all changes are tracked automatically and comments can be left for easy communication and sign-off. Gone are the days of sending documents back and forth with complicated redlines.
The future, however, holds even more promise. Blockchain technology will create space for smart and Ricardian contracts. The blockchain (in simple terms) is a distributed and decentralized network consiting of ‘blocks’ and ‘chains’ of data. A smart contract executes itself. Written within the lines of code, the terms and conditions of the agreement between the buyer and seller exist on the blockchain.The code controls the execution, and transactions are trackable and irreversible. While a smart contract is executed based on a pro-forma set of instructions defined by parties, a Ricardian contract records all the details of the agreement in a machine-readable format. A Ricardian contract is both machine readable and human readable. It combines both aspects of legal agreements and automated execution functionality by having a plain-text agreement readable by humans and a structured data agreement readable and executable by machine.
Business is changing, and the legal industry needs to adapt and innovate. New solutions allow us to create and edit contracts in a collaborative and real-time environment, saving time and money. Beyond that, technologies such as blockchain hold the promise of machine-readable contracts. Although it may take many years to permeate within popular business practice, the payoff will be reduced risk reduced loss of data and increased efficiency to maintain contractual agreements. The future of contracts ensures one version of the truth, agreed upon by all parties, at all times.