It’s an important business technology, yet most people have never heard of it.
Contract lifecycle management software — which helps draft, store, search and manage a company’s commercial agreements — is widely used by lawyers as well as procurement and finance departments. But despite the technology’s steady growth and the groundbreaking use of artificial intelligence to automate information-intensive legal tasks, the market for the software has generally kept a low profile.
According to an estimate by data firm Verified Market Research, the financial value of the contract lifecycle management market has remained relatively small, at approximately $1.5 billion in 2022.
Now, however, this area of legal technology, which can handle everything from supply agreements to non-disclosure agreements and government outsourcing, is in high demand. Users and providers are increasingly aware of the power of digitalization to better execute contracts and turn them into data-rich digital documents: both aspects will be enhanced by generative AI.
Recent months have seen a flurry of mergers, acquisitions and partnerships between established legal technology providers and smaller firms using advanced AI to draft and manage contracts.
In May, DocuSign, which started as an electronic signature company before diversifying, acquired Lexion, whose products include generative AI-powered contract management software. Around the same time, Icertis — another contract management software company — said it would partner with Evisort, a vendor with a strong reputation for AI technology. The partnership will involve the integration of their respective technologies.
“I’ve been in legal technology for 20 years and I feel like I’ve seen some consolidation trajectories — and I think this trajectory is unique,” says Bernadette Bulacan, marketing manager at Icertis and an AI expert. She believes contract management is “having a moment.”
More recently, in June, LexisNexis, a provider of information and software for legal professionals, said it would acquire Henchman, a software company specializing in generative AI document drafting. And Sirion, another contract management provider, acquired Eigen Technologies. Eigen uses AI to summarize and extract information from contracts, primarily in the financial services industry.
Investors are also interested. In May, private equity firm KKR acquired a majority stake in Agiloft, a supplier of contract management software.
The confluence of several technological and market trends has led to increased interest in the technology.
Legal services is one of the most “exposed” industries to generative AI, the latest wave of the technology, according to a study published in 2023 by researchers from Princeton University, the University of Pennsylvania and New York University. As companies look for digital routes to manage legal contracts, interest in incorporating generative AI into software, under human supervision, is growing. And that will fuel further growth in the market, experts predict.
“There’s a lot of interest in generative AI… and if you look at all the predictions out there, the vertical that’s going to be impacted the most by this… is the legal industry,” argues Zach Posner, managing partner and co-founder of The LegalTech Fund, a venture capital firm that invests in legal technology startups.
Experts expect further consolidation to occur around larger contract management software vendors.
“The space itself is very fragmented,” points out Ajay Agrawal, CEO and founder of Sirion. “Right now, there are about 150 [to] 200 players just in [contract lifecycle management].”
But corporate lawyers — the clients — would prefer fewer vendors offering broader technology that meets more of their contractual needs, says Jennifer Swallow, a legal technology consultant and former CEO of LawtechUK, a government-backed initiative to modernize legal services. “If you have fewer players doing more things, it’s much easier.”
While contract management is a mature market, it’s not yet saturated, figures show. Just over half (55 percent) of corporate legal departments use a contract management system, according to global research from Thomson Reuters. And most legal departments are in the experimental phase of using generative AI. Experts believe that combining the two technologies will help contract management expand.
“There’s still a huge opportunity for a new company,” Posner says.
There are also expectations that generative AI-based contract management software could help lawyers with legal tasks such as ‘redlining’ – reviewing contracts and making changes.
Research firm Gartner has noted that AI-driven redlining capabilities in contract lifecycle management software are “immature” and may require minor tweaking before they are widely available. Still, some argue the technology is imminent.
“The AI will not only detect what is wrong with the contract, but it will also flag and mark it, just like a human would.[would]. . . by surgically removing a few words [or] “add a few words,” Agrawal says. He adds that the technology is still “cutting edge,” but predicts it will be more widely used early next year.
Feedback from some corporate legal departments has been promising. For example, Hoare Lea, a UK engineering firm, has predicted that the AI-driven CLM software it uses should reduce the cost of its contract review team by around a third per year, over five years.
Posner says other legal departments are eyeing similar potential savings and are asking their contract management vendors about their generative AI strategy.
For some suppliers, it is easier and faster to implement this technology by hiring a smaller specialist.
“If you’re not an AI-native company, you can spend a lot of time trying to build it yourself, but you need money to do that [and the investment] “The financing cycle has been tough,” Swallow says. “The best alternative is to buy a company or merge with the company.”
Swallow predicts consolidation among contract management firms will continue. And as software incorporates more AI capabilities, she thinks lawyers will be able to refine their judgment, their analysis of vendor performance, and their ability to spot risks and opportunities in contracts. “You can be much more strategic … less reactive, more proactive,” she says.