What if AI could negotiate commercial contracts better than humans?
This is the idea that is being tested by Pactum, a startup that has just raised a $1.15m pre-seed round from an impressive roster of Estonian tech luminaries, including Jaan Tallinn, co-founder of Skype and Kazaa, Taavet Hinrikus, co-founder of TransferWise, Ott Kaukver, chief technical officer of Twilio and Sten Tamkivi, general manager at Skype and chief product officer at Topia.
Here is the pitch: Fortune 500 companies have collectively some 12m supplier contracts that are unmanaged. They may be too small or numerous for them to be looked at in detail by a human negotiator, so everyone is given a standard contract, take it or leave it.
“It is too complicated for humans, if you are marketplace with 3m partners, for example, you can’t tailor contracts,” says Kaspar Korjus, co-founder and chief product officer at Pactum.
The trouble is that unmanaged contracts mean leaving a lot of money on the table — up to 40% of the potential value of a deal can be lost when it is not tailored, according to KPMG research.
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“It is not just about one side getting a better deal,” says Korjus. “Usually both sides have tradeable variables. They may be willing to give a bit on one item to get better terms on another. We can often find a better deal for both parties.”
The idea is that Pactum’s AI chatbot can be set to handle a huge list of suppliers and contractors, asking each of them about their particular needs, and adjusting elements such as price, payment time, cancellation terms.
Korjus adds that, while Pactum was initially worried that people would be unhappy negotiating with a bot, in fact, many users felt it to be more neutral. In human to human negotiations, there is often a suspicion that one side is trying to squeeze the other unfairly, while the chatbot was seen as laying out all the options transparently.
Pactum’s first customer is Limos4, an Estonian chauffeured limousine service, and Korjus says the company has got 10% more value out of its contracts since using the software. Marketplaces (like Airbnb) and companies that run franchises (like McDonalds) are the initial target markets. The company has its headquarters in Mountain View in order to target the US market, but will do its development in Tallinn.
The company so far consists of just Korjus, his brother Kristjan Korjus (formerly at Starship Technologies) as chief technical officer and Martin Rand as chief executive, but following the funding round they plan to build out the team to around 20 people.
Some of these new hires will be negotiation experts who can teach the AI useful strategies. In time, though, Korjus is hoping to rewrite business textbooks by testing out three decades worth of largely academic business theory in real time.
Sadly, this is not a technology that the UK could use to renegotiate trade deals following Brexit, however.
“It can handle many more variables than a human can, but it needs to be a closed system,” says Korjus. “It can’t do something as open-ended as that.”
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