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Responding to a Crisis or a Force Majeure Event: Making the Case for AI-Led Contract Intelligence
A force majeure clause allocates the risk of loss if performance is hindered, delayed, or prevented because of an event that the parties could not have anticipated or controlled. It provides a contractual defense, the scope and effect of which will depend on the express terms of a particular contract.
– American Bar Association
A contract is a key document in any transaction, between individuals and/or businesses. Its legal value notwithstanding, a contract safeguards against conflicts and helps mitigate risks. Unforeseen events or catastrophes hardly ever come with a warning. How do organizations safeguard against such risks? Take the example of the ongoing COVID-19 crisis. At the beginning of the pandemic, businesses were completely in the dark as to how the chain of events would turn out and how rapidly every aspect of life as we knew it would change. The term that assumed utmost relevance almost overnight was ‘force majeure’. Any time before the crisis hit, the force majeure clause would probably have been included as a standard templatized clause, without much thought or attention paid to it. This thinking has changed completely now.
Today, organizations are waking up and considering how such a crisis impacts their business and how they can build failsafe measures into their contracts. Enterprises that have adopted smarter contracting techniques, powered by artificial intelligence (AI), have been able to address key questions that arise during such crises.
Asking the Right Questions
The first, and perhaps the most basic, question AI helps to answer is whether a contract includes the appropriate force majeure clause. Second, if the force majeure is invoked, does the contract offer provisions to offset the impact and what are the dependencies? For instance, when employees started working from home during the lockdowns, companies had to interrogate employee contracts to ascertain if data security, privacy clauses or the regulatory obligations were adhered to when employees worked from home.
The third and crucial question that AI should be able to help us answer is regarding fallback measures, such as insurance coverage or business continuity protocols. This is not just limited to force majeure events, but also offers insights into damages that a business can claim, let’s say, due to supplier negligence for failure to renew insurance certificates. Does the contract provision for this? If so, who bears the costs of the damages?
While it is unrealistic to assume that we can ensure business continuity in the face of Black Swan events, we can start working towards creating an AI-led contracting practice that can help us minimize and mitigate risks. In this regard, AI can help us analyze our corpus of commercial contracts to identify opportunities to create redundancies within the supplier base. This can be achieved by breaking down and strategically segmenting onshore, nearshore, and offshore suppliers according to how their contracts demonstrate the ability to pivot during a crisis.
All of this intelligence and more is usually found buried deep within your contracts; so how do you go about uncovering it?
Finding the Right Answers with SirionOne
Black Swan events were one of the key use cases we wanted to help enterprises address when we started building our smarter contracting platform SirionOne’s AI core. We figured that one of the quickest ways we could help businesses answer key contract questions would be to first bolt on to the existing tech stack – comprising CRM, P2P, ERP – and pull in contracts that usually reside in these data silos. The goal is to get every contract in one place so that they can be moved to a centralized contract repository on the cloud. This can be achieved by using SirionOne’s machine vision (advanced OCR) capabilities, which can transform existing and legacy contract documents into easily accessible, machine-readable formats. In turn, it can entirely eliminate the need to trudge through email attachments and bulky files while trying to pull up relevant documents for review. Once contract documents are digitized, SirionOne’s AI engine can extract contract metadata, clauses, and obligations and organize them into predefined taxonomies to enable easy searchability. Specifically, a contract document that has been broken up into its essential components, labeled, and organized can be searched!
Then, it is just a matter of pulling up an active contract, keying in the right terms and reviewing the force majeure clause and business continuity obligations to discover the answers to your questions, whether you are responding to a crisis event or simply thinking of switching suppliers. It is really that simple. Once the digitization process is complete, SirionOne’s contract analytics capabilities can be leveraged to automate the identification of contracts that don’t have a force majeure clause or business continuity obligations baked into them. Armed with this knowledge, businesses can immediately initiate a negotiation process to have the contract amended using SirionOne’s change request function. This is how we help companies manage contracts better.
If you’d like to learn more about how SirionOne can help you respond to a force majeure event and more, drop us a line. We’d love to show you what our platform can do for your business.
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