As business scales, so does contract volume. And for high-growth businesses, things can turn into chaos extremely quickly without systems in place to regulate this shift. It’s a large reason why unorganized contract data plagues in-house legal teams, causing:
- Lack of visibility
- Inconsistency in terms
- Financial losses and costly mistakes
- Missing contracts and critical data
- Unfulfilled obligations, and more.
Contract data abstraction can help you solve these problems by preparing a summary of all key terms, clauses, dates, and values from your clauses, dramatically reducing the time you spend searching for specific information or language within contracts.
Read on to find out why you need to capture and extract contract metadata, how exactly you should go about contract abstraction, and some best practices for setting up a process.
5 reasons why you need to capture and extract contract metadata
Contract abstraction is crucial if you’re struggling with visibility over contract data at your organization. Here are 5 benefits of contract metadata extraction:
#1 Speed up contract review and search
Often, a business has thousands of historical contracts, and hundreds more in the pipeline. By creating a summary of key metadata from contracts stored in a centralized repository, legal teams can ensure quick and efficient access to relevant information. Legal teams are then able to focus on more high-value tasks instead of digging around for contracts and trying to locate specific terms.
#2 Streamline contract management process
Capturing and extracting contract data is a critical aspect of an efficient contract lifecycle management process. By abstracting key metadata like dates, clauses, and payment terms and organizing it within their contract lifecycle management system, in-house counsels can create a sustainable and repeatable process for contract data management, which helps streamline the entire contract lifecycle from contract creation to renewals and reporting.
Also Read: How to Amplify Legal's Impact via Effective Contract Data Management
#3 Ensure compliance to avoid legal issues
Contract abstraction enables visibility over important contract information such as deliverables and renewals, which helps in-house counsels stay ahead of contract deadlines and steer clear of potential legal issues, compliance risks, hefty fines or penalties, and auto-renewals.
#4 Enhance contract reporting and audit
Contract reporting takes up a huge chunk of time for the modern in-house counsel, especially when contracts and related data are spread all over the place. By capturing key contract data in advance, legal teams can dramatically reduce the time and resources spent on creating reports (such as monthly MIS reports) and stay audit-ready.
#5 Make data-informed decisions
Contracts are an extremely underutilized source of information. Capturing vital contract data can help legal teams derive important insights to influence business strategy and make informed decisions about contract negotiations, risk management, and more.
“Most C-Suite executives bank on data and hard metrics and not word-of-mouth. When you have certain metrics that shed light on how legal teams have contributed to growing the revenue stream of the company, it becomes easier for the GC to make business cases.”
— Gitanjali Pinto Faleiro
General Counsel, Company Secretary & CCO at Greenhill & Co.
Also Read: Using Contract Analytics to Uncover Key Insights: A Guide
5 key types of contract metadata
Contract metadata can can typically be structured into 5 groups:
#1 Contract and counterparty information
This includes general information about the contract and the parties entering into the contract, such as:
- Business entity
- Counterparty name
- Business and counterparty role
- Contract type
- Contact information
- Signatory details
- Related contracts and documents, etc.
#2 Contract lifecycle data
This includes all key dates, clauses, and information related to the contract’s lifecycle, execution, term, and validity, such as:
- Effective date
- Contract term/duration
- Renewal term
- Expiration date
- Notice period
- Terms for renewal, termination, and expiry
- Execution date, etc.
#3 Contract commercials
This type of contract metadata is concerned the commercial aspects of fulfilling the contract, such as:
- Deliverables and obligations
- Payment term
- Payment frequency
- Contract value
- Performance metrics, etc.
#4 Dispute resolution
Data related to dispute resolution is critical for managing risk and compliance. This usually includes:
- Governing law
#5 Liability and indemnity
Visibility over terms of liability and indemnification are important to ensure consistency within contracts, effectively manage risk, and assign responsibility in case of losses or breach. Contract metadata captured here may include:
- Liability cap
- Business/counterparty liability
- Exclusion of limitation of liability
- Indemnifying party, etc.
7 steps for contract metadata extraction
Contract abstraction can feel like a challenging task, especially when faced with hundreds or thousands of historical contracts, but efficient planning and the right tools can help make this task easier. We consulted SpotDraft’s Legal Tech team on how in-house legal counsels can go about extracting critical metadata from their contracts.
Here are 7 steps to follow for abstracting contract metadata at your organization:
#1 Create a repository.
The first step to effective contract data extraction is to list out all your historical contracts and contract types. Create a contract repository, if you don’t have one already, and gather all your contract data in one place. To begin with, this may be a simple spreadsheet that helps you keep tabs on all your contracts. Eventually, you might want to look at a contract management solution to create a single source of truth for all your contracts.
#2 Identify key metadata.
Once you have all your contracts in one place, it’s time to review them and determine the metadata you need to capture across all contract types as well as key metadata specific to different contract types. For example, an organization might want to track information like “Destruction of information” and “Confidentiality Period” for their NDAs.
#3 Decide the method of contract abstraction.
There are a number of options when it comes to capturing and extracting contract data. You could do this manually, contract by contract, or you can use OCR technology and AI to assist you. You could also contract this out to a third-party vendor or enlist the help of your CLM provider.
For example, SpotDraft offers AI extraction for standard key pointers that are stored within the summary of each contract and are linked to key terms. You can also manually enter and edit key contract metadata on the platform.
#4 Establish a standard format.
It’s important to create a standard format or template for extracting contract data and storing it. This may look like an Excel spreadsheet outlining your contract types, file names, and associated contract data or a process for inserting this information directly to your contract repository. This process should be easily repeatable and accessible to anyone dealing with contracts at your organization, so that contract data is captured on a continuous basis.
SpotDraft, for example, allows users to upload or generate contracts and link corresponding metadata with each contract in a summary. Standardization of this process within the organization enables enhanced search via relevant key pointers, allowing for greater visibility.
#5 Perform contract abstraction.
Once you have set a process, it’s time to actually run your contracts for manual or automated contract abstraction. At this step, you (or the vendor you’re working with) must ready extracted contract metadata for first review.
#6 Run consistency checks.
It’s critical that you validate and verify the accuracy of the extracted data before finalizing it, whether that’s stored in a spreadsheet, a project management board, or a dedicated contract management repository. This will help you ensure that all data is accurate and the values for measurement are consistent across contracts. For example, contract terms are measured in years and not months, Jurisdiction and Governing law are congruent, etc.
#7 Collaborate with stakeholders.
Perhaps the most important aspect of creating a system for contract data abstraction is to ensure buy-in from all relevant stakeholders. This is so that data capturing happens for every contract created or executed, and that you don’t have to periodically duplicate this effort to extract data on a large scale again.
Conduct training on your new process for anyone who deals with contract information, and ensure everyone is familiar with your contract repository. If you have a larger team, you may also find it helpful to assign a team member to own this task and ensure adoption.
Best practices for contract abstraction
Before you begin with your contract abstraction process, make sure to keep the following best practices in mind:
- Streamline your contract abstraction process as much as possible, and clearly document it for easy reference.
- Ensure adoption of the new process by training team members and emphasizing the returns expected out of contract abstraction.
- Develop quality measures and ensure review of extracted data for accuracy and consistency, to avoid costly mistakes due to incorrect recording of data.
- Continually take feedback from stakeholders and evaluate the contract abstraction process for areas of improvement.
Turning contract metadata into valuable insights
“You need to tell stakeholders what your team is up to. Otherwise, leverage tools such as CLMs to showcase how your team has contributed to closing deals effectively.”
— Juliette Thirsk
Head of Legal at Peach Payments
Contract metadata is invaluable for evaluating the contract management process and the legal team’s performance against key metrics. Tracking this data and storing it in an accessible repository will provide insights into the contracting process that will help you further streamline how contracts are managed within your organization and create direct business value.
Learn more here: Using Contract Analytics to Uncover Key Insights: A Guide
SpotDraft can help you efficiently manage contract metadata
“I really like SpotDraft’s key pointers feature because it allows us to easily track important business terms that we use extensively to organize our contractual obligations.”
— Leslie Ann L.
Capturing and extracting contract data is often a laborious process that most teams perform manually and usually only when they really need to — which means that contract data remains largely underutilized and in chaos. Forward-looking legal teams know the importance of managing this data to power legal processes and generate value for the business.
If you’re looking for a solution that can help you automate and manage contract data, and a team that is dedicated to helping in-house legal counsels transform their contracting processes, then reach out to SpotDraft for a demo.