A Pramata Article
How Contract AI is Transforming the Procurement Process
Think Contract AI is just for legal teams? Think again! When the entire business has access to the data locked inside your contracts, it impacts everyone—and Procurement is no exception. Keep reading to learn how procurement teams can benefit from Enterprise Grade Contract AI that actually works.
The evolution of procurement
Today’s procurement teams are no longer just back-office purchasing departments. They’ve evolved into strategic business partners with direct impact on an organization’s profitability and operational efficiency. With this expanded role comes increased complexity, particularly in managing vendor relationships and their associated contracts.
As organizations grow, their vendor contracts multiply exponentially. Each new vendor means more contracts, more amendments, and more renewal dates to track. For procurement teams using manual processes or traditional systems, this creates a perfect storm of challenges that inevitably leads to costly oversights.
Common contract management pain points for procurement teams
Most procurement professionals will recognize these all-too-common scenarios:
The wild goose chase for current contracts
When trying to determine the terms of a current agreement, procurement teams often dig through dozens—sometimes hundreds—of files across multiple systems to piece together which version is actually in effect. This problem becomes exponentially worse after mergers and acquisitions. Procurement teams end up wasting valuable resources on what should be simple information retrieval.xx
Accidental auto-renewals
There’s nothing worse for procurement than authorizing payment for something no one wants or needs. Yet this happens frequently when contracts automatically renew without proper oversight. Companies typically manage hundreds of vendor contracts, each with unique renewal terms. Missing a termination window can lock an organization into another year or more of unwanted services, often at higher prices.
The enforcement gap
Service level agreements (SLAs) and vendor obligations are only meaningful if they’re enforced. But with numerous vendors, procurement teams struggle to track who promised what and by when. Without easy access to specific terms within contracts, Procurement can’t take effective action when vendors underperform. This creates a cycle where vendors face no consequences, stakeholders grow frustrated, and the company pays full price for subpar service.
Vendor sprawl
“Procurement creep” leads organizations to suffer from sprawling vendor landscapes and inconsistent contract terms. The symptoms are easy to spot: redundant products and services, missed opportunities for volume discounts, inconsistent pricing, and mounting administrative overhead. Without centralized visibility across the entire contract portfolio, procurement teams can’t easily identify where the organization is paying multiple vendors for identical services.
Contract AI: A new approach
Many procurement teams have either tried to manage contracts through procurement systems or turned to traditional contract management systems to address these challenges, only to discover they don’t live up to their promises. Even with these systems in place, organizations can often struggle with the same issues.
Contract AI represents a fundamentally different approach. Unlike traditional contract management systems that function as little more than digital filing cabinets, Contract AI goes beyond simple document storage to understand the content, context, and relationships between contracts, amendments, and other contractual documents.
For procurement teams, Contract AI transforms static contract files into actionable intelligence. It identifies data patterns across thousands of contracts, spotting duplicate vendors or redundant services. It alerts teams to upcoming deadlines, extracts key obligations, and provides instant answers to questions—all without requiring manual data entry or maintenance.
Three must-haves for effective Contract AI
Not all AI is created equal. True Contract AI isn’t merely feeding your contracts to a popular, commercially available large language model (LLM). Instead, delivering real value for procurement teams means Contract AI has to include three essential components:
1. Automated contract cleansing
You’ve likely heard of “garbage in; garbage out.” The phrase has never been more true than when dealing with generative AI. To solve the problem, and provide Contract AI that truly serves the business, the first critical step is file cleansing. And more than that, automated file cleansing that doesn’t put the burden of this task on users. This involves identifying and removing duplicates, converting all file types to searchable PDFs using optical character recognition (OCR), merging and splitting files when needed, detecting out-of-scope documents, and identifying missing signature pages. Without this foundation, everything that follows will be compromised.
2. Intelligent organization
Once cleansed, contracts must be organized to reflect their real-world relationships. Contract AI should create clear document family hierarchies, understand relationships between master agreements and amendments, maintain order of precedence, and track the history of changes. This organization ensures that when you ask a question about a contract, you get information based on all relevant documents.
3. Accurate data extraction
With clean and organized contracts, it’s time to unlock the insights hidden within each one—and even more so, within the relationships and patterns across multiple contracts. To work for procurement teams, the system must tag all clause variations appropriately, extract legal, operational, and financial terms, derive accurate renewal dates, and maintain data accuracy without manual intervention. This structured data powers the insights and alerts that make Contract AI valuable.
Contract AI in action for procurement teams
One of the biggest reasons you want a CLM is to wrangle renewals, right? So what’s the point when you keep missing them? Whether you’re missing vendors on auto-renew or missing revenue opportunities within your commercial contracts, not having reliable visibility into contract costs you money:
- Centralized contract knowledge: The ability to find exactly what you're looking for in seconds, not hours. Trust that you're viewing the most current version of any agreement and see how amendments have modified the original terms.
- Renewal management: Access to dashboards of upcoming renewals with accurate dates that account for amendments. Provide termination notices for services no longer needed and target renewals for renegotiation.
- Vendor performance monitoring: The ability to compare actual vendor performance with contractual obligations, identify penalty clauses, and build data-backed cases for credits or remediation when vendors underperform.
- Streamlined approvals: The power to create comprehensive playbooks, automatically compare new contracts against standards, and automate approval of previously approved terms for similar contracts.
- Vendor consolidation: Being able to identify overlapping vendors, spot multiple contracts that could be consolidated, compare pricing across vendors for similar services, and calculate potential savings from consolidation initiatives.
- Automated three-way matching: The capability to automatically compare invoices and POs to contract terms, flag pricing discrepancies, identify missed discounts, and verify service levels before approving payment.
Beyond basic AI: The importance of legal and contract expertise
While many vendors claim to offer AI-powered contract solutions, the reality is that most fall short. Broad, multipurpose AI models lack the specialized training necessary to understand the nuances of contract language.
Effective Contract AI combines sophisticated technology with contract expertise. It’s trained specifically on contract documents by legal experts who understand the complexities of contract language and the critical importance of accuracy.
Dive deeper into Contract AI for procurement teams
To learn even more about how purpose-built Contract AI is transforming procurement operations, and to discover how your procurement team can leverage Contract AI to deliver greater strategic value, download our comprehensive guide: “The Procurement Team’s Guide to Contract AI.”
If you’re ready to see how Contract AI can work at your organization, contact Pramata today for a custom demo of our Enterprise Grade Contract AI that actually works.