How Artificial Intelligence For Contract Negotiations Impacts Companies

Using artificial intelligence for contract negotiations may sound futuristic, but the future is here - and it's transforming the way deals are made.

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January 14, 2019
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Many companies negotiate countless contracts a year, ranging from facilities rentals, technology licenses, sales, employment, or strategic partnerships. One of the biggest challenges, companies face in negotiating contracts is that they span such a wide variety of topics. Even the best trained negotiators may struggle when parsing through a contract that is outside of their purview. Not to mention, the technical jargon required for certain contracts can confuse negotiators into overlooking or misunderstanding information. Due to the sheer number and diversity of these contracts, many companies are losing value on every deal. However, the development of artificial intelligence is proving to be a boon for these firms, by finding faster and more efficient ways to navigate a contract negotiation.

Information Extraction, Storage, and Analysis

There is a wealth of hard data cached in the lines of a negotiated contract, including dates, timelines, prices, and returns. Rather than leaving it up to a human to dissect the clauses, businesses can implement an AI system to extract information. Better yet, machine learning systems have the ability to detect and interpret patterns in data that would take humans much longer to recognize By correlating various pieces of data, the system may be able to identify particular points of inefficiency or value loss so that future contracts can be improved upon. For example, for a retailer that has many brick-and-mortar storefronts, a contract management tool could analyze a variety of rental contracts to identify average price per square foot, efficiency of space, sales per zip code, etc., in order to make future recommendations on negotiation goals. For this reason, negotiation training role play exercises should include point scoring to enable buyers and sellers to better inform their decisions in order to assessing the value of their offers. Whether negotiators are trading money, time, products, services, ideas, quality or anything else, having the right metrics at your fingertips tremendously aids negotiators in making optimal high profit decisions.

Data Permanence and Transparency

Many believe that the future of AI is inextricably linked to the blockchain. The blockchain is an indelible digital record system that can be applied in a variety of ways to make systems more transparent. A smart contract, or a contract embedded onto the blockchain, is one of the foremost applications spurring the development of blockchain platforms. One aspect of the things that make blockchain popular is the fact that it abolishes a system of having to trust your negotiation counterpart. The need for trust is eliminated since transparency is maximized. Rather than just having to take another company’s word at face value, a blockchain system holds them accountable, regardless of whether or not they were trying to pull a fast one. By using the blockchain to manage contracts, all aspects of the contract are housed in a way that can’t be altered, falsified, or lost. Additionally, any violation of contract clauses can automatically trigger sanctions, rather than one party having to chase after the other.

Value Assessment

One of the most important negotiation skills a negotiator can learn is how to calculate the actual economic value of proposed bargains and their alternatives in order to assess what will be gained and lost in a transaction. An AI system can be programmed to respond to a set of assumptions as well as a data set of past performance to predict value and calculate these figures in a more precise way than their human counterparts. Using machine learning, this system could continue to update its model in real-time with new data as it is recorded. For example, if a firm loses money on a contract because they committed to a delivery timeline that put a strain on their resources, the AI system would learn immediately not to accept a contract with those terms in the future. In this case, using AI in the negotiation contract phase is helpful for two reasons. For one, it eliminates the need for lengthy and leggy processes whereby data analysts cull data and try to make sense of it. Also, the data analysts themselves are not typically the ones doing the negotiating; when the data passes hands from the analyst to the negotiator, the interpretation can be fumbled, or flat-out ignored. If two AI-based bots are negotiating with each other, they will automatically optimize to the best possible value for both sides, banishing any misinterpretation of the data. The Negotiation Experts believe this is the future of business negotiation.

Organization

AI software tools can analyze an incredible volume of data to make predictions about new information. Because of this, AI-based contract management software has the ability to identify different types of contracts (i.e. procurement vs sales) and organize this information clearly into a preferred database. These databases can be customized based on your company’s specific contract needs.

Recruitment and HR Management

Contract management and analysis is important not just for external contracts, but for internal employment contract management and recruitment as well. HR and recruiting costs can drive bloated overhead costs in otherwise lean operations. Allowing AI to comb through large databases of job applicants erases the need for a human resources representative to do so manually. If the candidate found makes it through the interview stages, AI software is again critical in ensuring the right contract clauses are emphasized for your company. For example, and AI tool may be able to run an analysis of lifetime value of all employees and see that employees who are offered more vacation time generate a higher economic value for the company than those who are given bigger bonuses. In this case, your employment negotiator can emphasis this benefit over others. This information can then benefit managers in assessing the value and promotability of colleagues making their way up the ranks in their annual reviews and contract negotiation time.

Conclusion

The automation of data analysis and contract negotiation does not eliminate the need for skill in the negotiation process; it simply arms companies with the best information and tools possible to make smarter negotiation choices. Trained negotiators will still be required to build relationships and represent their firm’s interests in a skillful way. However, with AI-based contract negotiation software, negotiators can carry out their duties with a deepened sense of confidence that they have access to the most critical information and the best analysis.