It’s an important business technology, but most people have never heard of it.
Contract lifecycle management software – which helps design, store, search and manage a company’s business contracts – is widely used by legal professionals as well as procurement and finance departments. But despite the technology’s continued growth and its pioneering use of artificial intelligence to automate information-intensive legal tasks, the software market generally has a low profile.
The financial value of the contract lifecycle management market has remained relatively small, estimated at around $1.5 billion in 2022 by data firm Verified Market Research.
But now, this area of legal technology, which can handle anything from supplier agreements to non-disclosure agreements and government outsourcing, is in high demand. Users and suppliers are increasingly aware of the power of digitization to better fulfill contracts and transform them into data-rich digital documents: both aspects will be enhanced by generative artificial intelligence.
Recent months have seen a flurry of mergers, acquisitions and partnerships between established legal technology vendors and smaller companies that use advanced artificial intelligence to design and manage contracts.
In May, DocuSign, which started as an electronic signature company before diversifying, bought Lexion, whose products include contract management software using generative AI. Around the same time, Icertis – another contract management software company – said it would work with Evisort, a vendor with a strong reputation for AI. The partnership will involve the integration of their respective technologies.
“I’ve been in legal tech for two decades, so I feel like I’ve seen several consolidation trajectories—and I think this one is unique,” says Bernadette Bulacan, Icertis marketing manager and AI expert. He feels contract management is “having a moment”.
Recently, in June, LexisNexis, a provider of information and software for legal professionals, said it would buy Henchman, a software company specializing in generative AI document drafting. And Sirion, another contract management vendor, bought Eigen Technologies. Eigen uses AI to summarize and extract information from contracts, particularly in financial services.
Investors are also interested. In May, private equity firm KKR took a majority stake in Agiloft, a supplier of contract management software.
The convergence of several technological and market trends has caused this increased interest in the technology.
According to a study published in 2023 by researchers from Princeton University, the University of Pennsylvania and New York University, legal services is one of the industries most “exposed” to generative artificial intelligence – the latest wave of the technology. As companies look for digital ways to manage legal contracts, there is growing interest in incorporating generative artificial intelligence into software – under human supervision. And this will support further market growth, experts predict.
“There is a lot of interest in generative AI. . . and if you look at all the predictions out there, the number one vertical that’s going to be affected by this. . . is legal,” argues Zach Posner, managing partner and co-founder of The LegalTech Fund, a venture capital firm that invests in legal tech startups.
Expect further consolidation around larger contract management software vendors, experts say.
“The space itself is very fragmented,” points out Ajay Agrawal, CEO and founder of Sirion. “At the moment there are about 150 of them [to] 200 players came [contract lifecycle management].”
But corporate lawyers – the customers – would prefer to have fewer suppliers offering a wider range of technology to better suit their contractual needs, says Jennifer Swallow, a legal technology consultant and former chief executive of LawtechUK, a government-backed initiative to help modernize legal services. “If you have fewer players doing more things, then it’s a lot easier.”
Although contract management is a mature market, it is not yet saturated, the numbers suggest. Just over half (55 percent) of corporate legal departments use a contract management system, according to a Thomson Reuters global survey. And most legal departments are in the experimental phase of using generative artificial intelligence. Experts believe that the combination of the two technologies will help expand contract management.
“There’s still a huge greenfield opportunity,” says Posner.
There is also hope that generative AI-based contract management software will be able to help lawyers with legal tasks such as “redlining” – reviewing contracts and making adjustments.
Research firm Gartner noted that AI-driven redlining features in contract lifecycle management software are “immature” and may require fine-tuning before being widely available. Still, some say the technology is on its way out.
“Artificial intelligence will not only detect what is wrong with the contract, but will also mark it and mark it exactly as[would]. . . by surgically removing a few words [or] adds a few words,” says Agrawal. He adds that the technology remains “cutting edge” but predicts it will become more widely used early next year.
Feedback from some corporate legal departments has been promising. For example, Hoare Lea, a UK engineering consultancy, has predicted that the AI-powered CLM software it uses should reduce the costs of its contract review team by around one-third a year over five years.
As other in-house legal departments eye similar potential savings, Posner says, they are asking their contract management vendors about their strategy for generative AI.
For some contractors, an easier and faster way to incorporate this technology is to hire a smaller specialist.
“If you’re not a native AI business, it can take a lot of time to try to build it yourself, but you need money to do that. [and the investment] the funding cycle was difficult,” says Swallow. “The next best thing is to buy or merge with a business.”
Swallow predicts that consolidation among contract management companies will continue. And as the software includes more AI capabilities, he believes lawyers will be able to fine-tune their judgment, analysis of contractor performance, and ability to spot risks and opportunities in contracts. “You can be much more strategic. . . less reactive, more proactive,” he says.