A summary of the problems that arise from the contract gap and recent industry trends that influence the work of Accord Project.
An extract from the book, An Introduction to Computable Contracts. Support the work of the Accord Project by ordering your copy.
Today, most contracts are drafted as word-processed documents and then either signed on paper, or signed electronically. However the key provisions and data-points within the word-processed text are challenging for machines to extract reliably, and the underlying logic of the contract is even more of a challenge for machines to automate. This means that significant overhead falls on manual human processes to manage, perform, and enforce the contractual terms.
This leads to numerous well-documented inefficiencies in contract management. The IACCM estimates that approximately 9% of the value of all contracts is lost due to inefficient management of contract data.
Most companies manage their contracts as documents (either physical or digital). Laborious human review and oversight is required to answer basic questions about contractual rights and obligations, related issues, such as regulatory compliance, and the other data captured within the contract text. This is costly and time-consuming.
In addition, the lack of a digital representation of the contract (text, data, and logic) makes it challenging to:
- Share contract details with interested third-parties (counterparties to the contract, auditors, or dispute resolution bodies).
- Send contract data to downstream enterprise systems: customer relationship management, human resources, enterprise resource planning, finance etc.
- Get real-time visibility into all the obligations the enterprise has entered into.
- Search, report on, and run analytics across groups of contracts (e.g. with a particular party or parties, expiring between certain dates, for common products sold to customers in a particular geography/jurisdiction).
👁 Read more about the Contract Gap and Contract Value Leakage
Shifting Legal Landscape
The legal world is changing and Legal Tech is a billion dollar industry. The modern lawyer has to be at home in the digital world. Law Schools now teach courses in coding for lawyers, computational law, blockchain, and artificial intelligence. Legal Hackers is a worldwide movement uniting lawyers across the world in a shared passion for law and technology. Lawyers need to move beyond the written word on paper and there is a growing body of publications that describe this transition, including “Smart Legal Contracts: Computable Law in Theory and Practice” co-authored by Peter Hunn (co-founder of Accord Project).
Accord Project is far from alone in working in the Smart Legal Contracts/Computable Contracts domain, and other notable communities are hosted at Stanford CodeX and MIT.
In November 2021, the Law Commission of England and Wales concluded that the current legal framework in England and Wales is sufficiently robust and adaptable to be able to facilitate and support the use of smart legal contracts. This legal clarity confirms that smart contracts are legally binding and enforceable agreements, and also sets out the rules for creating, executing and interpreting smart contracts.
👁 Read our blog post for more details on the legal status of smart legal contracts and this video for their differences with smart contracts.
There is also a growing community of legal technology companies and communities promoting the use of digital and standardized contracts for document assembly, drafting, review and negotiation.
Notable examples include, oneNDA, Common Paper, Common Form, Standard Draft, and Docassemble.
These companies and communities (as well as others) are reimagining the contract; not as a word processing document, but as a dynamic digital artefact that is standardized using expert community consensus to provide a shared product benefiting from scaled adoption and that is natively machine-readable. In fact, some of them use the very same tools for distribution of artefacts, such as Git version control, that are used by software communities.
The shift to standardization is a theme similar to industrialization, in which common and relatively low-level building blocks achieve industry acceptance, for example, as has been seen with IETF, W3C, and other organisations.