The financial toll of Covid-19 has been devastating for universities. But institutions have been struggling long before the coronavirus pandemic tore through higher education budgets, and the sector is now at a turning point.
Deep state cuts in funding, declining enrollment rates and plummeting net tuition revenues have all contributed to the alarming downward trend. And now, with the added pressures of the pandemic, uncertainty around the financial future of universities is at an all-time high.
The World Economic Forum (WEF) is clear in its appraisal; the current global crisis represents a massive economic hit to higher education, and major players are not exempt. According to the WEF, the University of Michigan predicts a pandemic-induced loss of up to $1 billion by the end of 2020.
All higher education institutions are scrambling to find new ways to weather the storm, including how to create a better learning environment and support faculty while operating more efficiently.
Offices of General Counsel (OGC) are also under pressure to deliver legal services under greater financial oversight while policies, priorities, and activities are rapidly shifting.
Successful Colleges Harness AI and Automation
Universities have been harnessing AI and automation as a means to offload time-consuming, yet rote academic and administrative tasks long before the pandemic.
For example, Georgia Tech developed an AI-driven chatbot as a teaching assistant (TA). With a 97% success rate, the AI-driven TA was programmed with a high volume of questions that get repeatedly asked. The master’s students were unaware the chatbot TA wasn’t a human when first introduced, and it “freed up the human teaching assistants to do more meaningful work.”
The University of Michigan has also developed multiple automated platforms as learning enhancement tools. ECoach provides personalized homework support for students in the large, introductory STEM courses. In addition, Michigan launched its M-Write platform in 2017, which automates peer review of students’ writing to help them better grasp complicated STEM and social science concepts.
Uncertainty around the financial future of universities is at an all-time high
It is only natural that universities have so far focused on supporting student learning. The early success colleges have had with automation positions them well to meet the urgent pandemic-triggered priorities of finding effective distance learning platforms. But for all universities, the solutions sought to relieve short-term pressure can offer critical lessons for broader, long-term results.
Prof. Mohan Sawhney, Associate Dean, Digital Innovation at Northwestern University’s Kellogg School of Management, believes that universities can lean into this new framework, where innovative technology performs substantive tasks to improve a broader scope of operations.
“I look at automation in two buckets,” says Prof. Sawhney. “One is what I would call the instructional technology stack, and the second is the enterprise technology stack. The former includes the tools designed to support and enhance learning in and outside the classroom. This stack has received a lot of attention since the pandemic, for obvious reasons. However, the enterprise technology stack is integral to the way a university runs. Think of classic enterprise systems such as ERP software that helps manage business workflows, or CRM systems that manage alumni, admissions, and donor relations. These applications support critical administrative functions but get far less attention. Northwestern University, for example, handles an immense variety of vendors, consultants, and contractors.”
All of whom require contracts.
“Exactly. This isn’t a muscle that gets as much exercise as the instructional technology stack. However, if you don’t pay attention to enterprise automation tools, then you’re not going to be able to support the efficient day to day running of a university, and it can have a direct and often damaging effect on its mission, particularly a research university.”
Presumably, because of the multitude of sponsored research agreements.
“Yes, and I’ll give you an example. A few years ago, we had a research project on innovation sponsored by the Nordic Council of Ministers. It took me a year and a half to get the contract signed. Why? Countless rounds of approval, the formatting, understanding what the office of sponsored research needed from the sponsor, and I as the end customer didn’t have the best understanding of the mechanism of these types of contracts. It just took forever. In fact, it came to a point where Northwestern received the grant money and wanted to return it, because the contract was going to lapse! So, it can be an extremely painful process. The precedents and rules of engagement are not always defined and there is no standardization. As an end user of sponsored research grants, I can say that it’s a pretty painful process.”
Research Universities Are Big Business
Universities may be nonprofit entities, but they are also large, complex organizations. And like any for-profit company they have significant backoffice management needs. As labs for potentially lucrative discoveries and innovations, universities have a high-value revenue stream through sponsored research. These programs represent crucial opportunities for directing revenue and prestige to the university.
The University of Chicago, for example, brought in $604 million in sponsored research revenue for FY 2020, and that was a YOY decline. Northwestern, which has seen its research growth rising steadily over the past few years, had an 11% YOY increase in research funding, for a total of $886 million in 2020.
Of course, sponsored research translates into a host of agreements necessitated by a single grant or program. Even small universities have a monstrously large volume of contracts to draft, negotiate, and route through approvals and signage.
The National Association of Educational Procurement estimates that universities spend 25% of their budget on goods and services, making procurement second only to labor in running costs. This spending represents a huge number of vendors and vendor contracts. A large part of the procurement budget isn’t spent on the goods or services, but on transactional costs. In addition to these costs, manual contract management increases the inconsistencies among contracts and introduces risk to the university.
Copying and pasting from other contracts, or even static contract templates may save a little time on the front-end of contracting, but creates great exposure to high costs and liability disasters on the back-end.
Prof. Sawhney maintains that the hazards of manual contract review are magnified for sponsored research; the wrong wording in a clinical trial agreement can be catastrophic.
“When you are contracting for sponsored research, particularly in fields like medicine or engineering, there are very strict regulatory and reporting requirements,” he says. “If you think about a clinical trial agreement, you can’t make a mistake, because mistakes cost lives. Mistakes create penalties. Besides the fact that manual processes are more costly, they are also more error prone. So the value proposition of contract automation is not only in the enhancement of productivity, but also in the reduction of errors. For example, assume you’re filing your taxes. Now, the tax code is complex; it involves a host of preparations, return processing, collections, and appeals. It’s much more efficient to use an algorithm or software that automates a bunch of checks and accurately processes the information for you. That’s why we don’t do our taxes manually. It’s the same rationale for clinical trial agreements, especially of a sensitive nature.”
In addition to errors, protracted contract negotiations between the university and a research sponsor can result in lost opportunities. The current global crisis has been a major catalyst for offices of sponsored programs to find new ways of operating more cost-efficiently, just like any business unit at a company.
What about the financial implications, the pandemic has placed significant cost pressures on universities. For example, Northwestern announced a 10% tuition discount, but you’re not charging students for room and board and still supporting the dorms.
“Correct. Our executive education revenues are also in decline. These plunging revenues represent a shortfall that most universities are projected to have in the coming years, as well as a strict mandate to do more with less. At Northwestern, we already have a 10% cost cutting directive across the board, and correspondingly, a hiring freeze. So, how do you do more with less? That’s the value proposition of automation. The pandemic has made automation more urgent because of the cost reduction imperative.”
Contract Automation is the Solution for Universities
Contract automation provides quantifiable benefits for both routine and intricate contracts. Vendor contracts are comparable to the large, introductory courses; a high proportion of the questions asked are the same issues over and over. That’s why Georgia Tech’s AI TA was so successful, it accurately processed the bulk of questions, allowing humans more time to address the unique or complicated ones.
Correspondingly, if vendor contracts are the introductory courses, then research agreements are the graduate seminars. While there are common issues that always come up, they also have to grapple with more complicated, yet more enriching challenges.
Directors of sponsored research increasingly want to know what routine contracting can be done within their office and how much support they can expect from the OGC for more complicated contracts.
Given the ongoing crisis and sheer volume of contracts an average university has to manage, using an automated AI solution can ensure contract consistency and speed up contract closure. Because the OGC can embed its institutional knowledge and contract requirements into the platform, it can distribute the power to draft and close future-proof contracts out to other university offices.
By improving quality assurance through enforced contract consistency, contract automation can empower offices of sponsored research to complete more contracting in-house.
“The value proposition of contract automation is not only in the enhancement of productivity, but also in the reduction of errors”
However, even within the world of sponsored research, some agreements are smaller and more routine than others. By specifying predefined legal policies into a contract automation engine, offices of sponsored research can move more quickly on the smaller research grants that don’t present complicated legal issues, confident that they’re complying with OGC risk management requirements. And, since the OGC no longer has to be directly involved in the contracts for smaller programs, both the OGC and office of sponsored research can scale their operations to bring in the multimillion-dollar sponsored research projects that have the highest potential for commercialization, and the highest prestige factor.
“Making sure you have an airtight contract that meets audit and is not subject to second guessing and liability is a huge peace of mind,” Prof. Sawhney concludes. “In my experience, every time you send in a sponsored research agreement, you’re walking on eggshells and waiting for something to go wrong. There are times when you might even consider saying ‘no’ to a grant, just because you know the contracting process is going to be too much of a headache. Contract automation provides the antidote, the aspirin, to that headache and frees up faculty to focus on the research, not the contract.”
The Pandemic is a Clarifying Event for Universities
The University of Michigan is one of three ‘Big Ten’ universities already using the LawGeex AI contract automation platform to streamline and enhance their contracting.
It’s easier than it sounds; legal departments embed internal legal policies for various contracts into the LawGeex platform. With LawGeex integrated into the intake process, it auto-reviews, redlines, and revises each contract to comply with OGC policies. LawGeex AI continuously reviews pre-signature contracts in real-time, protecting the university against risks that may get introduced through the negotiation process.
Rightsourcing legal work by leveraging automation can play a vital role in cutting the costs surrounding sponsored research, while also improving contract consistency, and timelines.
“Contract automation provides the antidote, the aspirin, to that headache and frees up faculty to focus on the research, not the contract”
Universities are buckling under multiple financial demands and facing daunting challenges to long-established business models. While it is crucial to ensure that the academic mission is vigorously safeguarded, it’s important to remember that universities are not only institutions of learning, they are businesses. As such, they have complicated business processes that need to run efficiently to survive.
The pandemic will prove a clarifying event. Some universities will weather the storm better than others; those that have been proactively innovating are in a good position to continue on that path through advanced AI and automation tools. Other institutions that want to survive this period of major transformation will have to play catch up. Some will; some won’t.