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Contract management in enterprises is a key component to driving relationships with business partners, driving business activities, and ensuring compliance with relevant laws and regulations. Contract management relies heavily on manual reviews by legal professionals, which can be time-consuming, error-prone, and costly. New contract management solutions bring smart document analytics, artificial intelligence (AI), and natural language processing (NLP) capabilities to automate some of the activities involved in the contract lifecycle. Generative AI now makes it possible to apply technology to the labor-intensive contract management process.
Watsonx.ai is an IBM cloud-based generative AI platform that uses NLP and machine learning to analyze and understand text-based data, such as contracts. In the context of contract analysis, you can use watsonx.ai to automate the process of extracting and classifying various types of clauses, comparing them with guidance, and generating recommendations for alignment.

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This blog provides an overview of how the watsonx platform can help with the contract management process, improving document analysis and saving time and money.

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Extracting and classifying clauses

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The first step in analyzing contracts by using watsonx.ai is to extract and classify various types of clauses, such as payment terms, delivery terms, warranties, indemnification, and dispute resolution. Watsonx.ai uses NLP techniques to identify and extract specific terms and phrases that are related to various types of clauses, such as payment, delivery, warranty, indemnification, or dispute resolution.

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After the clauses have been extracted, watsonx.ai can then classify them into their respective categories. For example, payment terms can be classified into categories such as payment amount, payment method, payment schedule, and payment conditions. Delivery terms can be classified into categories such as delivery date, delivery location, delivery method, and delivery conditions.
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With watsonx.ai, the extraction relies on the semantic analysis of different topics covered in the contract and provides a more elaborate view of the clauses, going beyond the traditional AI or contract template-based processing that is currently available.

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Comparing clauses with guidance
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The next step in the process is to compare the extracted and classified clauses with any guidance provided for the clause. Guidance can come in the form of legal precedents, industry standards, or regulatory requirements. By comparing the clause with guidance, watsonx.ai can help identify any potential compliance issues or conflicts with relevant laws and regulations.
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With watsonx.ai, this previously manual and time-consuming activity can be automated to augment and accelerate the work. Watsonx.ai also helps in reviewing the guidance documents themselves to identify gaps, areas of improvement, coverage, or elaboration.

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Generating recommendations
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Finally, watsonx.ai can generate recommendations for aligning the clauses with guidance. These recommendations can include suggestions for rewording or reorganizing the clause, adding or removing specific terms or conditions, or including specific language to ensure compliance with relevant laws and regulations.

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A great example of where watsonx.ai can truly transform the contract process is the redlining of the contracts. Watsonx.ai can review contract clauses to identify redline items and automatically generate and execute recommendations to align them to the guidance.

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Summary
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Watsonx.ai has the potential to revolutionize the way you approach contract analysis. By automating the process of extracting and classifying various types of clauses, comparing them with guidance, and generating recommendations for alignment, watsonx.ai can help businesses, legal professionals, and individuals alike save time, reduce costs, and ensure compliance with relevant laws and regulations. As the technology continues to evolve, you can expect to see even more innovative applications of watsonx.ai in contract analysis and beyond.

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