A data decomposition-based hierarchical classification method for multi-label classification of contractual obligations for the purpose of their governance

Abstract

Contract governance ensures that the agreed outcomes between customers and vendors are fulfilled. Information Technology (IT) outsourcing organizations enter thousands of contractual relationships each month leading to a high volume of business-critical contractual text that must be reviewed and deciphered for effective governance. The key to effective governance of contracts is a model that facilitates assigning ownership of the obligations to the right departments in an organization and allocating their accountability to the right stakeholders. For this, the contractual obligations need to be identified and classified so that details such as actions to be taken by departments in an organization and their ownership as per a given clause are brought out for the purpose of governance. In this paper, we present our work on automated extraction and classification of obligations present in Software Engineering (SE) contracts for the purpose of contracts governance. We propose a novel data decomposition-based hierarchical classification method for a multi-label classification of contractual obligations. We conducted experiments for a fine-grained automated classification of more than 55,000 statements from 50 large real-life SE contract documents received from a large vendor organization into 152 governance-specific classes. The results indicate that the proposed method can bring about a 7–8% improvement in accuracies when compared to state-of-the-art classification baselines such as BERT, RoBERTa, and generative models such as GPT-2.