Not only in business, but also for individuals, life seems almost impossible without entering into contracts with other individuals or businesses.
No business can survive without creating agreements and contracts with other players in its ecosystem. Not only in business, but also for individuals, life seems almost impossible without entering into contracts with other individuals or businesses. Long story short, whether we are a business or an individual, a lot of extremely important functions of our everyday life depend a lot on contracts.
But, there is a major problem. Almost all contracts we have in the world right now are dumb. This comes from the fact that they don’t do anything until there is a human intervention. No one knows when the contract is starting or ending or what are the penalties and fines if a condition is not met – until a human reads and interprets it. Sometimes the human that reads it and interprets the contract, is required to have special skills of understanding the law or accounting or financials – making it tough for a common man to even understand what the contract implies.
The lack of intelligence in today’s contracts results in three major issues:
1. Penalties and Fines: Most contracts have built in rewards if certain conditions are met and penalties if they are not. No contract will highlight or send out reminders and notifications to the involved parties highlighting the rewards or penalties until a human being reads and interprets it. A lot of parties miss on the conditions in the contract and end up paying hundreds of millions of dollars in fines and penalties.
2. Human Effort: In the current state, a lot of human effort is spent in creating, managing, tracking, interpreting and implementing contracts. All this happens because the contracts we sign and manage need a human to manage them. There are complete departments in organizations that just work on managing contracts. In the end not only does human effort cost money, but is prone to errors. Thus, organizations not only end up spending considerable amount of money, but are still prone to human errors.
3. Law Suites: The worst that can happen while executing a contract is different parties interpreting same clause differently. This might end up in litigation and cause substantial financial and operations overhead damage to the involved parties.
All these issues happen only because of the human involvement in creating, managing and tracking contracts. Until, the contracts become smart and the contract life-cycle intelligent, these issues will keep happening. The world needs contracts, but in a much better form.