Recently, we’ve seen contract management transform from static, paper-based contracts into powerful business assets. This change has been brought about through the application of today’s technologies, including cloud, decision analytics, and artificial intelligence (AI).

Applying AI to contracts transforms documents into live contracts that users can interact with, and enhances contract management processes and capabilities. Some of the benefits of AI-powered contract management that have been identified include:

• Processing of third-party contracts faster while reducing risk and improving contract performance
• Consistency in negotiating the best possible terms and outcomes with a given counterparty
• Ensure compliance with third-party terms and clauses, even for third-party contracts

Contracts are no strangers to the rail industry. Both freight and passenger railroad corporations function in a highly-regulated, complex environment. Anything from real estate leasing to interline agreements and labor unions governing duty hours impact a railroad’s decision-making, revenue, and level of risk. Lapses in agreements or warranties can have catastrophic consequences, which the opportunities when it comes to intelligently managing contracts all the more worth pursuing.

Using cloud to accelerate contract processes and execution

When a railroad migrates their contracts from paper-based folders to the cloud, they not only make contracts more accessible to users within the organization through safe sharing, but also benefit from a secure, scalable, and cost-effective repository that enables them to manage a multitude of contracts and integrate information with critical business systems and processes. Users will access a single source of truth for both historical and current contracts. Cloud-based storage also protects against future risks since it gives you centralized management of contract clauses and templates to respond to market changes and remain compliant. With this, you can proactively monitor performance against contractual obligations.

Where AI enters the contract management picture

As you can imagine, railroad enterprise contracts translate into a wealth of data, currencies of contract types, templates, and clauses. Instead of wadding through the data, searching for a lost contract or a now obsolete clause, AI-powered contract management provides in-depth search capabilities, powerful data validation mapped to semantic definitions, and valuable risk assessments.

Have you heard of OCR? This refers to optical character recognition, the electronic conversions of images of text (typed, handwritten, or printed) into machine-encoded text. Many of today’s contract lifecycle management (CLM) solutions offer OCR migration capabilities, where contracts can be digitalized with tagging of crucial contractual data, capturing meta-data and critical contract data points associated with each contract data processing for later locating through an electronic search. End users can then edit, format, and search the document as it was created directly on Microsoft Word. This gives you faster retrieval, sorting, and searching for contracts as well as faster digitalization of contracts, and replaces the days of time-consuming efforts in migrating paper-based contracts into a central contract repository.

AI capabilities for the rail market: Addressing risks, promising rewards

1. Compliance risks

Another potential risks for railroads involve ever-changing regulatory rules and regulations, which may render an existing contract non-compliant. railroads are forced to adapt to changing business rules by and create new contracts or clauses or modify existing contracts, to mitigate this risk. the real opportunity here is to first identify changes that pose non-compliance risk early on. AI-infused contract review and risk assessments are a viable solution. When modifications to clause libraries are made, intelligent risk assessments and contract reviews help you identify business risks and compliance problems.

Example: A prime example of mitigating compliance risks would be in the case of changing FRA, FTA, Department of Transportation, or labor union rules for Hours of Service. Railroads are obligated to comply with HoS rules, which regulated how many consecutive on-duty hours an employee can work before taking a break. To avoid non-compliance, railroads have the opportunity to, first, import regulatory requirements into contract templates, and, second, leverage AI-infused contract risk assessments processes to identify compliance problems as a result of modifications to clause libraries early on.

2. Revenue risks

We’ve mentioned potential revenue loss or missed commercial opportunities a few times above. It’s a lack of integration between contracts and other business systems that hinders the enforcement of terms which are contingent on external, market forces—like fuel prices or changes in labor rates. How to capture these changes before there is a compounded risk? AI capabilities conduct risk assessments and reviews of third-party contractual agreements with an extended supply chain, like brokers, logistics providers, and original equipment manufacturers (OEM).

Example: Pre-approved list of standard products, services, and pricing associated with, say, fuel prices. These lists are maintained in the CRCM platform to accelerate contracting by business users. Integration with external systems like price masters to capture changes in commercial factors like price increases, factors that can negatively impact profitability if left uncaptured. These price changes can then be incorporate in real-time into contracts. Not only does this increase compliance but it also avoids the risk of revenue impact. Digital sourcing and procurement apps are one way to ensure standardization of this process, where the process is simplified with full visibility into procurement events.

3. Procurement risks

On the procurement side of the business, there is a risk of deviating from agreement terms, or pricing and other contractual obligations. If you’re on the buy-side—in charge of procuring equipment like locomotives or railcars—you’ll know that purchase terms are captured across many, many contracts. Identifying those contractual obligations is, suffice it to say, challenging. Or, a parameter in a contract may be modified or changed, which may deem one or more of another contract non-compliant. Contract risk management capabilities are one way to assess risk whenever a contract is modified, including interdependencies assessments to check the impact of changes in one or more allied contracts.

Example: Public sector organizations are government-run, and, because of this, there is an increased level of visibility during the procurement process. There is a set format to the procurement process: First, a tender is floated, then bids are accepted and negotiated, and each private vendor weighed based on a pre-set points system. This process must be strictly followed, or a procurement contract becomes non-compliant. AI-powered contract reviews are one way to proactively highlight any potential anomalies in the process and ensure 100% compliance for public-private procurement processes.

4. Identify business performance risks

Because of the inherent complexities of the supply chain and the regulatory guidelines that have a significant impact on contract management, railroads are on the lookout to avoid business-related risks resulting from changing business scenarios. How can you get an edge? Assess performance with an external vendor through vendor agreements? How to respond quickly and make changes proactively.

Example: Take the example of a projected shipment that turns out to be less than forecasted or predicted. To compensate, you may have to adjust the price points. Or if you procure a different number of railcars from a leasing company that what was forecasted when you agreed-upon the contracts, how do you pivot and ask for better rates? AI-powered risk assessment and impact analysis are your best bets to first identify changes in external data or scenarios to increase profitability through the data-driven decision making and optimize the value of your contractual relationships.

How can we solve for your risks?

Some of these opportunities for risk may be hitting home, as could some of the opportunities for reward. The complexities of contracts are best solved within a cloud-based, agile CLM solution that provides the accessibility and level of insight you need to effectively manage your contracts across the contract lifecycle.

As a rail technology partner, CloudMoyo brings years of experience working with Class I, II, and short line and regional railroads to develop digitalization roadmaps and implement cloud-based solutions. CloudMoyo Contract Management (CRCM) is an Azure cloud-based solution that can help you digitally transform your contractual relationships and mitigate the risk we’ve identified here. You can get in touch with us here to learn more about CRCM for your organization.