What is Automated Contract Review?

What is Automated Contract Review?
by Sarvarth Misra

Thanks to legal technology’s incredible growth, McKinsey Global Institute says that at least a quarter of lawyers’ existing work can now be automated. And this is especially true for the painstaking review of agreements.

Generally speaking, automated contract review is a process that sees legal and contracting teams using legal tech to go over and remediate agreements. This allows them to perform contract reviews quicker than carrying out the same task manually.

Here is a helpful breakdown of human and automated contract review, artificial intelligence (AI), the benefits of contract automation, and the smart legal platforms on the market.

Automated vs Human Contract Review

Human Contract Review

Traditional or human contract review is a structured process in which legal and contracting professionals go over a draft agreement to ensure that it encompasses what has been agreed to and that its terms align with organizations’ own policies. So, the almost entirely manual process involves lots of reading and writing.

The reading and writing processes involve focusing on the terms of the contract, whether commercial or employment, etc.; creating a flowchart — or contact checklist — to define the areas in an agreement that need checking; redlining the changes that need to be made to the contract, and adding comments to the legal document, to better explain positions to the counterparty.AI and automation allow legal and contracting teams to operate far more efficiently and effectively, there are significant differences between AI and automated systems.

The problem with these manual processes is the use of so-called legalese in contracts. The clause language used to describe standard terms varies greatly — sometimes in hundreds of thousands of ways — from contract to contract. That is why contract review tasks take significant time and contract review costs are subsequently driven up. That is why many companies have a playbook, which contains the standard or preferred contract language and even a pre-agreed fallback position if a standard position is rejected. (But that can be a completely manual process, too.)

The reading and writing processes are then followed by negotiation when the document is transferred back and forth between two or more parties. At this stage, concessions by all sides are made to narrow the gap between the parties and come to an agreement. Typically, the negotiation process can take between five and ten iterations — each requiring thorough review coupled with the actual negotiation.

This is why human contract review and negotiation is a rather slow and error-prone process, affecting deal velocity and slowing down sales overall.

Automated Contract Review

Automated contract review is a streamlined process, in which AI and machine learning (ML) are applied to agreements to assess particular contract patterns and apply the same pattern to every such category of agreements. It involves AI putting together previous agreements it would have seen and highlighted the standard or important aspects of the agreement that needs to be reviewed. What takes fully functioning AI less than a minute to perform takes a human reviewer at least an hour to do.

Moving forward, both AI and ML will be the ‘standard’ of the legal and corporate world. Nevertheless, the longevity of both AI and ML depends on human involvement, especially during its nascent stages. And AI and ML will never be 100 percent complete, given that there will always be new legal practices, processes, and developments. So, legal and contracting professionals would do well to invest in a combination of human and automated contract reviews. They should also ensure contract review solutions include practices that see AI and ML going through various standardized contracts — during their learning period — and develop more self-reliant AI models.

AI & Contract Automation

As mentioned in a previous blog post, AI technology is really a set of algorithms working closely together and accomplishing human-set goals. AI is tasked with solving contract-related problems that are too complex for the human brain. This makes AI systems think exactly like humans but quicker and more analytically. However, the application of the technology involves more than deploying enterprise software or even building data pipelines, understanding algorithms, and experimenting with the same. It sometimes requires ‘rearchitecting’ operating models altogether.

As we explained in another blog post, contract automation is the use of legal tech to automate repetitive, tedious tasks and processes like contract review — or those that are increasingly difficult to perform. It involves no or minimal human intervention.

Although both AI and automation allow legal and contracting teams to operate far more efficiently and effectively, there are significant differences between AI and automated systems. Whereas AI is developed to resemble human thinking, speech, and action — seeking out patterns, learning from experiences, and selecting appropriate responses to given situations — automation is manually configured to follow pre-programmed rules and orders. (It is possible, however, for automated systems to be entirely AI-based.)

In other words, AI learns and evolves without the contexts that human programming generally provides. And automation requires a little more hand-holding, at the outset, but can carry out its primary functions without human intervention thereafter.

Benefits of Contract Review Automation

Contracts are the proverbial ‘lifeblood’ of the business and critical to organizations’ success. Therefore, there is a number of reasons to automate your contract review process today.Automated contract review is a streamlined process, in which AI and machine learning are applied to agreements to assess particular contract patterns.

  • Streamlined contract review — First and foremost, an automation tool streamlines the tedious, time-consuming, and expensive process of contract review. This saves both time and money for your organization.
  • Electronic contracting process — Automated contract review replaces the longstanding, paper-based process with an electronic process, preventing agreements from getting compromised, misplaced, or lost, and delays or ‘desk-time’ tied to traditional routing and approvals.
  • Contract tracking capabilities — An automated process makes it easier to review and track multiple versions of contracts, preventing revision tracking difficulties and duplicated work. This means that all contract versions are better maintained and controlled.
  • Contract repository — Automated contract review happens in a central repository, which holds and protects final, executed agreements and related documents — along with their revision history. A repository puts an end to inadvertent changes after the signature phase. It also helps you create and store preferred clauses and language that can be accessed during later contract reviews.

Given that automation shortens contract review time and quickly surfaces non-complaint language, you are able to drive better contract performance and reduce contractual risk, while empowering legal and contracting teams and pursuing higher-value, strategic work.

Smart Legal Platforms & Contract Automation

ContractPodAi’s One Legal Platform helps teams quickly review and summarize higher volumes of contracts and huge amounts of legal data. Embedded with — and enhanced by — AI, natural language processing (NLP), and deep learning, ContractPodAi Cloud includes a powerful Contract Risk and Compliance feature (CR&C). This digital tool compares key clauses against playbooks of preferred contract terms and identifies non-compliant language, before assigning a risk score to specific clauses and the entire agreement. Additionally, the system includes a smart contract repository — or single system of record. This keeps your agreements in one, secure place, facilitating contract review and negotiations even further.

Do you want to leverage the analytic power of AI technology, to automate and streamline contract review? Do you need to manage risk more proactively? You can read all about ContractPodAi’s Automated Contract Review here. Or contact us today and schedule a demo. We enjoy discussing automated contract review — and how we make contract management far more efficient and effective.

Sarvarth Misra

 Sarvarth Misra
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