The story of
Agentic Contracts
&
contract embedded
automation
Legal contracts are the basic framework for modern society. They enable all commerce and finance. A nation’s constitution is simply a contract with its citizens.
The world has digitalized, but despite their significance, legal contracts have not kept pace. They remain largely analogue, leaving participants to manually figure out how to fulfill their obligations. This reliance on manual processes introduces cost, risk, and errors. The World Commerce and Contracting Association estimates that the average company fails to capture nearly 10% of the value of its contracts. Globally, this represents $2.5 trillion of unrealised GDP.
Digital platforms are helping, but not changing, the analogue agreement
Even if these core problems remain, legal contracting is steadily improving. Sophisticated software helps analogue contracts be drafted, reviewed, negotiated and signed. These systems can also take information from analogue contracts and push it into a company’s business systems, such as ERP, CRM, payment, billing and client support platforms.
These capabilities help, but do not change, the analogue nature of the legal contract.
Contract management systems typically require significant investment, limiting their use to large enterprises, and only serve to improve the internal performance of one party. Unfortunately, their counter-party may simply have Post-it notes stuck to a computer monitor. Value generated by a legal relationship depends on how well both parties perform it and complex contract management systems are regularly undermined by counterparties that perform their obligations manually and inaccurately. After all, the number one system for managing legal documents is still the email inbox.
Unilateral contract management systems have the wrong goal
Contract management is holding back a golden age of commerce
Despite being seen as helpful, these contract management systems are actually holding back global commerce by providing a crutch for the analogue agreement to lean on, delaying a transformation that promises a golden age of business and finance. They function like life support for an ill patient, but do not cure the disease.
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Its time to stop asking how to make contracts ‘less bad’. They can and should be a vital tool in creating and capturing business value.
Agentic Contracts are different because they place automation directly inside the legal contract itself, making it part of the overall binding agreement signed between parties. It represents a new class of both legal agreements and business automation. Agentic Contracts sit 'upstream' of current business automation systems, which work on behalf of one party and must be configured (manually, by a contract life cycle management system, or both) based on the signed agreement. Agentic Contracts are bi-lateral, working on behalf of the binding legal relationship and not a particular party’s business systems. It is also indelible and legally certain. Once an Agentic Contract is signed, it takes actions, assures outcomes, and creates records until it has come to term, the parties have agreed to amend or terminate, or a court has ordered its suspension.
Agentic Contracts represent a new set of rails for global business. They ensure that legal relationships function as intended by the participants, allowing them to focus on delivering the core value of their business. They enhance trust, enable fast and accurate business transactions, and remove the friction that often limits commerce or business dealings.
Agentic Contracts create a new set of rails for global commerce.
The capabilities of Agentic Contracts
Agentic Contracts:
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Control payments: Calculate how much is due for payment and receive, process or send those payments
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Handle subjective decisions: Ask individuals such shareholders for the decisions that direct the legal agreement’s subsequent actions
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Organise processes and communication: Remind, receive and relay important documents or notices required in an agreement
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Connect to external data: Connect to external sources, like key interest rates or registries, to trigger next steps or take follow-up action
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Eliminate the operational penalty of bespoke contracts: Agentic Contracts work equally well whether there are 10,000 copies of an agreement or just 1
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Create an indelible, single source of truth: Immutable records create transparency about the state of a legal relationship and collect all records related to a specific agreement in one place, replacing fragmented or ad hoc archives
Agentic Contracts enable business model innovation
Individually, the capabilities of Agentic Contracts add value to any organisation where business success is tied to the performance of legal obligations. When these benefits are combined, it enables innovation within existing business models and unlocks entirely new ones that are not viable using today’s analogue legal architecture.
Agentic Contracts:
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Shared Perspective: Agentic Contracts are designed to be shared between parties, allowing all involved to have the same view and understanding of the contract and its state.
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Trust: As the contract is shared and its clauses self-executing, it fosters trust between the parties. Both sides can be confident that the contract will be executed as agreed, reducing the potential for disputes.
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Mutual Execution: All parties can monitor and validate the execution of clauses in real-time. This collaborative aspect ensures transparency and joint decision-making.
Contract management (CM) tools:
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Single Party Control: CM tools are generally used by one party to manage its contracts, and the system's view and data might not be shared with the other contracting party.
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Focus on Management: The primary goal of CM tools is to streamline the management of contracts for the organisation that owns the tool, without necessarily involving the other party in the process.
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Potential for Discrepancies: As CM tools are unilateral, there could be discrepancies between how one party perceives the contract and its obligations versus the other party.
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The bilateral nature of the Agentic Contracts promotes transparency, trust, and collaboration between contracting parties. In contrast, CM tools are primarily designed for the administrative and managerial needs of a single party.
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CM tools are about the management of analogue contracts throughout their lifecycle. Agentic Contracts are about making contracts active and responsive.