The Rise of AI in Contract Management: A Conversation with Kami Paulsen

Welcome back to another installment of Contract Heroes! We recorded this episode at the WorldCC Summit in Dallas where we had the opportunity to speak with the Managing Director at Deloitte, Kami Paulsen. Kami got her start in the CLM space 25 years ago and, throughout that time, she has helped organizations across a wide range of industries develop successful CLM strategies.

Our conversation with Kami explores the impact and potential of AI in the contract management industry by drawing on Kami’s own experiences and observations as well as her hopes for the future of the industry. Read or listen along as we discuss how AI can transform legal tasks and the way we carry out CLM implementations.

The Changing Perception of AI in CLM

To kick off the discussion, we asked Kami about common issues or pain points she has noticed among newcomers to the CLM space. She began by explaining that, although AI has been available in legal technology for quite some time, there has been a massive amount of change surrounding how we interact with AI in recent years. AI capabilities used to be more limited, but now we have access to generative AI, which is truly transforming how organizations can manage their contracts.

The drawback is that many organizations, especially larger ones, are still hesitant about the adoption of AI technology. In Kami’s experience, large organizations typically move slower when it comes to implementing new technology, opting instead to take a “wait and see” approach. This is the stance that a lot of companies have chosen to take in regards to the most recent developments in AI and machine learning. There is a great deal of excitement, but at the same time, people are still apprehensive about AI and what it can do.

The Importance of Transparency in Technology

Part of Kami’s solution to the apprehensiveness surrounding AI is technology transparency. People can’t really get excited about something new if they don’t properly understand it, its benefits, and how it works. “The end user has to understand what the tools are doing. It can’t just be magic,” Kami said. 

Vendors, IT departments, and CLM advisors need to make time to explain how the AI functions within a CLM software in order to provide legal and commercial employees with the tools they need to tackle the technology and make the most of it in their organization. Employees may not understand the mathematical equations at play or the way ChatGPT extracts data. This leads them to feel skeptical and unsure how to move forward or make use of the technology.

These feelings of uncertainty and apprehension may be particularly common in organizations that work within highly regulated industries like healthcare or energy. They might fear that the AI could make decisions for them or release private data to entities outside the organization. But, with a clear understanding of how the AI operates and what it is actually capable of accomplishing, those fears should dissipate and eventually be replaced by excitement for how much the technology improves the quality of their work and life.

How AI Transforms the CLM Space

Throughout our conversation, Kami brought up several examples of how AI has begun and will continue to improve the process of contract management. The first example she mentioned comes from layering ChatGPT over an existing contract repository. In doing so, you can completely change the way you obtain data or search results. Rather than conducting linear searches using keywords or specific dates, you can effectively have a conversation with your repository that allows you to refine your search results in real time, saving a huge amount of time and effort.

Another use case for AI and machine learning that Kami pointed out involves streamlining workflows. Connecting different applications together and automating workflows allows those applications to share information with one another, eliminating the need to input data individually across every platform. Again, this can save an immense amount of time that would have been spent on a low-value task and can instead be used for high-level work.

AI has a unique ability to empower employees in commercial departments as well. Oftentimes, it can be difficult to illustrate the value of a CLM tool to sales and procurement employees, especially if the legal department is the one calling for the implementation. However, an effective selling point can be the ability of AI to act as a translator between the commercial departments and legal. Commercial employees can ask the AI to provide explanations of legal jargon in plain language rather than submitting an intake request and waiting for a lawyer to respond. Using this tool, sales and procurement professionals can speed up negotiations and feel more confident making decisions about clauses in agreements.

We also ended up discussing an interesting use case for AI during the implementation process itself. A huge part of CLM implementation is user acceptance testing. Unfortunately, by the time you arrive at the user testing phase, customers may be very fatigued and reluctant to conduct rigorous tests. They would rather finish the implementation and roll out the technology without proper testing. AI may be able to make the testing phases much less tedious by running tests along the way and self-diagnosing the errors, speeding up implementation and taking some of the weight off the end users’ shoulders.

The Future of AI in Legal Technology

Kami predicted that we might start to see a lot of these transformations occurring over the next two years. There is currently a lot of funding being channeled into AI, and we’re already capable of having conversations with our repositories. More advancements probably won’t be too far away. In fact, Kami expects that the “next generation of CLM tools will just be clauses that we can pull from for any contract. The system will be smart enough to know that it’s the NDA, and it’s the preamble.” The time-to-value for these tools will most likely be much faster and the implementation costs much lower.

As with any technology though, incorporating AI in an individual organization should be a gradual process. You can’t expect to capitalize on the full potential of AI functionalities straight out of the box. Organizations need to start small and simple with agreements like NDAs as they build an understanding of how the technology can help them and what they want it to accomplish. Eventually, you can start moving into more complex agreements and even beyond that to build AI into the fabric of your contract management processes.

“Start thinking about how AI can help you build the perfect contract that goes out to the client based on the industry, the vertical, the level of risk, the products being sold – all the things that a human being has to know from their tribal knowledge of the organization,” Kami said. “The tools can help now.”

To hear more from Kami, you can connect with her on LinkedIn or check out her podcast, The CLM Rx. And, for the latest updates on all things legal tech, be sure to stay tuned to the Contract Heroes Podcast!