What is Contract AI: Shaping the Future of Law

What is Contract AI and What is AI-Based Contract Management?

Contract artificial intelligence (AI) employs advanced techniques beyond traditional machine learning (ML), incorporating natural language processing (NLP), deep learning, and large language models (LLMs) to significantly enhance the efficiency and accuracy of drafting, reviewing, tracking, and analyzing legal agreements. The underlying algorithms in contract AI are meticulously trained on vast datasets of legal documents. This training involves identifying intricate patterns and behaviors within agreements, enabling the AI to grasp the complexities of legal language and discern key terms and clauses. As a result, contract AI automates numerous repetitive tasks throughout the contract lifecycle management (CLM) process, including extracting and structuring contract data, identifying and flagging critical terms, and ensuring compliance with legal standards. The integration of generative AI, particularly LLMs, has revolutionized the field by allowing for the rapid generation of contract drafts and the swift identification of potential risks. These models, trained on extensive corpora of legal texts, can produce high-quality drafts that conform to specific legal standards and client requirements in mere seconds. Additionally, they perform sophisticated risk analysis, highlighting clauses that may pose legal or financial threats. Current contract AI technology also offers robust analytical capabilities, leveraging predictive analytics and advanced data visualization tools to provide insights into contract performance, identify trends, and suggest improvements. This helps organizations mitigate risks, optimize contract terms, and enhance overall contract management strategies.

How Does AI Contract Management Software Work?

In terms of contracting efficiency and accuracy, AI automates the entire contract lifecycle using ML techniques and natural language processing (NLP). It builds and standardizes templates and streamlines the contract creation process; it automatically delivers agreements to stakeholders for review and sends out a notification whenever they are finished; and it sets reminders for contract expiration and renewal dates and flags problematic clauses within agreements to help resolve any issues before contract signature.

How is AI Changing Contract Management?

As for its inherent strategic value, contract AI is an ideal tool for rapid contract search and analysis. It protects stakeholders from legal issues and contract breach risks by helping to extract, identify, and validate data in agreements. The integration of generative AI into contract management is revolutionizing the way contracts are created, managed, and analyzed. This transformation is driven by the capabilities of generative AI to automate and enhance various aspects of contract management, from drafting and analysis to risk assessment and compliance monitoring.

Contract Drafting

Let’s start with contract drafting. AI tools (whether they’re more traditional or the newer generative AI tools) can accelerate the contract drafting process by generating initial drafts based on predefined templates or past agreements. This not only minimizes manual efforts but also speeds up the entire process, allowing legal teams to focus on more strategic tasks. Furthermore, properly trained and managed AI can analyze contract language for risks using advanced algorithms, proactively detecting and mitigating issues early in the contract lifecycle.

Data Extraction and Management

Data extraction and management is enhanced by AI-powered solutions, which can extract more than 90% of the data from contracts in real-time (more than humans working alone can), leading to significant reductions in the time and effort required for data management. This includes extracting key variables such as clauses, dates, and parties involved, which allow organizations to manage their contracts more effectively by having easy access to critical information. By automating data extraction, organizations can avoid the tedious manual scanning of contracts, reducing errors and inefficiencies in the process.

Risk Mitigation and Prediction

Risk mitigation and prediction is another area where AI — and particularly, GenAI — is revolutionizing legal work. With tools that analyze contracts to identify potential risks by examining clauses, terms, and conditions, computers can help with a proactive approach to risk management. These advances enable organizations to address issues before they escalate, ensuring compliance and minimizing legal liabilities. The ability of generative AI to predict potential risks associated with contracts is a game-changer, providing organizations with the tools to make informed decisions and safeguard their interests.

Productivity enhancements

Productivity enhancements abound as well. AI technology streamlines contract management workflows, ensuring that contracts move efficiently through their lifecycle. By automating tasks such as assigning work and tracking progress, AI improves collaboration among stakeholders and minimizes bottlenecks and delays. This not only saves time but also improves productivity, allowing organizations to manage their contracts more effectively and focus on strategic initiatives.

Centralized Contract Repositories

With respect to improving contract management and contract visibility, existing tools enable organizations to centralize and digitize their contract repositories, providing easy access to contracts and associated information. Now, by adding generative AI-powered search capabilities, finding specific contract terms or documents becomes effortless, enhancing contract visibility. And of course, it’s always nice to have a helping hand when you just can’t find the right word for that difficult clause.

The Benefits of AI Contract Management

As for the benefits of using contract AI, think significant time savings in contract processes, and the reduction of manual tasks and human error, as well as improved productivity and cost-effectiveness. By automating tedious, time-consuming tasks, such as drafting, finding, summarizing, and updating agreements, contract AI boosts productivity—from days and hours to minutes and seconds. It also prevents the need for contract managers to do this work manually and, as an added bonus, allows more time for higher-level, strategic work. Ultimately, faster contract turnaround time and far fewer human errors translate to lower costs for the business.

Application of Contract AI Software

There are a number of AI-powered contract management tools that each add value to the business. When choosing between contract management platforms, it is important to understand their respective capabilities:

Contract Drafting and Organization

As mentioned above, AI for contract drafting generates agreements based on inputs in just seconds. In addition to automating the drafting stage of the contract lifecycle, such contracting software can be tailored to individual business needs and use cases. However, its full value is limited to the contract drafting phase; it does not offer functionality to support contract negotiations, signage, storage, and tracking, for example. ContractPodAI’s Leah Draft uses advanced AI to ensure that every legal document meets the highest standards of accuracy and compliance. The feature is powered by algorithms that understand all of the legal nuances. This allows the feature to accelerate contract creation, completing this work in minutes instead of hours while remaining meticulous about every agreement. More specifically, Leah leverages advanced, pre-trained large language models. Whatever the type of agreement or performance that is required, it promises speed and scalability. It has the added benefit of being precise and compliant during drafting and other contracting stages, having undergone rigorous training and testing. Leah can be used for other legal use cases, as each of its models comes pre-configured with additional frameworks and capabilities, or they can be customized according to more unique legal needs.

Smart Contract Review to Extract Insights From Contract Data

AI for contract review facilitates the review of agreements by automatically finding, extracting, and flagging key contract data points and deviations. Its functionality also extends to contract intelligence and analysis: AI evaluates risk within an agreement and pinpoints areas of concern, which is especially beneficial during the negotiation stage of the contract lifecycle. However, as highly useful as this contracting software is, it does not offer full, end-to-end functionality that is often needed for today’s contract management. This means users have to move back and forth between different contracting tools to collaborate on and negotiate agreements, for example. ContractPodAi’s Leah Extract dives into agreements, quickly finding exactly what is needed. The feature automatically extracts key terms, clauses, and data, pulling the contract information that matters most. It then intelligently analyzes agreements and turns its findings into easy-to-understand charts and visuals. Leah Redline reviews contracts with unprecedented speed and precision. It also learns individual user preferences, becoming more intuitive and aligned with each new agreement.

Comprehensive AI-Enabled Contract Management Solutions

Over and above contract drafting, review, and analysis, comprehensive, AI-enabled contract management solutions support all stages of the contract lifecycle. In addition to allowing contracting teams to use AI to draft and review agreements, an all-in-one contracting solution allows them to collaborate on contracts in real-time, all in one place; automate approval workflows for more risky agreements; make queries to instantly find key contract data points; and easily and securely sign agreements using eSignatures. What’s more, it automates reminders around important contract dates and produces full reports to identify potential contract bottlenecks—and, therefore, prevent them. In other words, comprehensive contract AI makes every aspect of contracting much more efficient and effective. ContractPodAi’s end-to-end contract lifecycle management automates everything from contract creation and analysis to enterprise-wide business processes, such as sales, procurement, and other critical functions. Together, its features streamline operations and safeguard the business by supporting more proactive risk mitigation and ensuring contract compliance across all departments.

Contract AI Challenges and Considerations

Naturally, the more AI is used in contracting, the more companies need to ensure data privacy and security. After all, agreements hold numerous amounts of personal data and, therefore, are considered sensitive business documents. So, contract management solutions (CMS) embedded with contract AI need to be designed with privacy in mind. That means the software needs to be SOC2 Type 2- and GDPR-compliant and that customer data is not used to train aggregated models. Strategically integrating contract AI with existing systems and workflows is another matter. Companies need to establish a secure and seamless integration to facilitate various types of workflows, such as those for contract review, analysis, or compliance tracking. But that entails defining key performance indicators (KPIs) according to business objectives, training contracting teams to effectively use AI, establishing protocols for AI-assisted decision-making, and emphasizing the combination of artificial and human intelligence. That also involves evaluating AI performance regularly and evolving contract management processes over time. It is only through this strategic integration that AI can be a change agent when it comes to contract efficacy and informed decision-making.

Contract AI and Contract Lifecycle Management Tools Will Continue to Gain Popularity

AI for contract management has already transformed contract management. And AI capabilities will only continue to evolve, leading to even more exciting developments and innovations in the world of contracting. As contracts become even more AI-based, they will likely become more based on routinized, standardized templates. Still, with the support of AI, whose analytic abilities mirror the highly-developed skills of their human counterparts, legal and other professionals will more easily modify agreements, as needed, to suit their specific contracting needs. They will be able to handle vast amounts of contracts and more swiftly take action on them. And with contract AI performing the due diligence and busy work, contract managers will have much more time for critical and creative work, and be more available for other legal matters. In other words, AI in contract management will not only save lots of time but also allow for legal work that people actually want to do.

What to Consider When Choosing AI-based Contract Management Software

To get the full value of AI in contract management, legal teams would do well to consider their company’s unique contracting needs before evaluating the AI-based contract software on the market. Whether the current contract management is manual or automated, a proper assessment will uncover all of the inefficiencies in processes and guide a contract software implementation strategy. When moving to a new contract management platform, it is important to define clear goals. This will inform the selection of contracting software. Getting buy-in from employees and training them is essential, too. Everyone in the legal and other departments needs to be comfortable with the adoption of new contracting software. And they need to be confident in using contract AI within the system. After all, such technology works best—and is used to its fullest potential—if everyone is on the proverbial same page. As mentioned above, ContractPodAi’s contract management platform—powered by Leah—helps legal professionals, along with their sales, procurement, and other counterparts. Think the rapid assembly of contracts and the more accurate review of agreement terms, as well as deeper contractual insights and higher-level, strategic decision-making.

Conclusion

Clearly, then, contract AI is a real game-changer in the legal industry. The software’s primary value is its alleviation of time-consuming, repetitive tasks and its enablement of higher-level strategic initiatives. All this while still protecting the organization’s bottom line and its customers’ legal information, which goes a long way in boosting competitiveness, compliance, and overall profitability. So, are you ready to adopt and implement contract AI for your day-to-day management process? ContractPodAi helps legal departments easily capture, process, and execute agreements, as well as gain reliable insights into their contracting. If you want to know more about our AI contract management solution, contact us today and request a demo.