How Lawyers Can Best Work with AI in Contracts
On November 7, Luminance announced that one of its artificial intelligence (AI) modules negotiated an entire contract with another AI module for the first time without any human involvement.
Yes, you read that correctly: an entire contract was hammered out from inception to final approval without involving even a tenth of a billable hour. Humans only stepped in to sign and execute the contract, which several AI modules hashed out after learning negotiation and drafting practices.
While this successful dress rehearsal shows the promise and looming threat AI can have for attorneys, there are still too many risks associated with the technology that developers must sort out. If left to their own devices, AI-powered tools can arrive at solutions that are not based in fact, creating costly issues for negotiating parties. Flaws in the machine learning processes that train AI programs can also cause them to run “off-script” in how they broker deals, hurting a company’s positions.
Therefore, don’t sweat. We’re not in Blade Runner territory just yet.
Legal teams must still rely on their internal talent and outside partners to steer AI through their contract discussions. They should leverage the technology’s best traits — including pattern recognition, summarizations and clause playbook construction — to safely and securely automate rote work. Simultaneously, lawyers should control for hallucinated results and mitigate any fallout.
Legal teams must still rely on their internal talent and outside partners to steer AI through their contract discussions. They should leverage the technology’s best traits — including pattern recognition, summarizations and clause playbook construction — to safely and securely automate rote work. Simultaneously, lawyers should control for hallucinated results and mitigate any fallout.
With that said, present-generation AI offers opportunities to improve how attorneys draft and negotiate agreements. Here is how generative AI, large language models (LLMs) and other AI programs can help lawyers simplify their contract work.
What artificial intelligence brings to the table
1. It can review contractual terms and generate easy-to-review rights summaries
Master Service Agreements (MSAs) can often run for hundreds of pages, replete with convoluted terms and surreptitious loopholes. Non-disclosure agreements can also feature vague wording around whether information is “confidential” and how parties should treat it. Trained AI modules can crawl through voluminous documents to flag essential language and ferret out unfavorable conditions that should be renegotiated to reduce compliance risks. These tools can also leverage LLMs to strip the legalese from copious contracts, distilling them into scannable rights summaries for in-house counsel to vet and pass along to corporate leaders.
2. It can organize clause libraries, negotiation playbooks and fallback clauses for negotiation teams to rely on
Most standardized contracts contain similar structures, clauses and terminologies — as well as flourishes and preferred language unique to each company. AI’s pattern recognition capabilities could detect clause variances and unfavorable terms. Modules can even organize “libraries” of an organization’s preferred clauses, ranging from readymade forum selection and arbitration provisions to non-compete parameters. Therefore, when an organization negotiates its working agreements, counsel can ask AI to proffer preferential language during the first rounds of review before sharing middle-ground clause options. Doing so can facilitate speedy negotiations and limit an in-house lawyer’s involvement to necessary discussions.
3. It can sync information with CLM systems, enterprise software, legislative databases and more to create alerts and uncover cost- and risk-saving opportunities
Companies can also sync their AI programs with contract lifecycle management, billing programs and matter management software (we’re looking at you, Elite 3E) to revamp how lawyers track milestones, renewals and key performance dates. With this information, companies can ensure ongoing compliance and fast-track execution and renegotiation strategies. It can also canvass public and proprietary regulatory databases to summarize compliance obligations and assess if existing agreements are outdated. The technology can even generate reports, forecast KPIs and identify cost burdens arising from contractual conditions. This data can guide outside and in-house counsel on how they should renegotiate agreements to please the C-Suite. For firms with data in disparate locations, AI-powered chatbots can close the gap to collect, summarize, organize and deliver important data points to guide negotiations.
4. It can optimize processes and automate approvals
AI’s benefits aren’t limited to improving and expediting contract drafting. They extend to managing the talent creating them.
Once trained, AI programs can analyze work output and forecast how to improve operational efficiencies. Common bottlenecks? Modules can suggest how to remove them or reduce their impact. Frequent delays in reviews and approvals? Programs can flex their pattern recognition strengths to identify the people and processes holding things up. It doesn’t end there, either. Trained AI programs can speed up reviews and approvals by judging whether contract changes from other parties meet or exceed the company’s requirements, saving lawyers and in-house counsel precious review time.
The risks AI technology presents – and how lawyers can work around them
Yes, AI can simplify convoluted contracting for legal teams. But if left unchecked, it can lead lawyers away.
Why? Current AI iterations could “hallucinate” when churning out contract language and recommendations. Therefore, there will always be a risk of creative fabrication in the data and responses lawyers review. The dangers of trusting AI could make reality for lawyers anything but augmented; attorneys could confront malpractice claims from clients if firms do not double-check AI-generated work product. In-house departments may also face unforeseen costs and liabilities that could outweigh projected AI investment gains.
There’s also a confidentiality problem to consider. Any personal data, sensitive documents and proprietary information legal teams plug into AI programs, especially publicly-accessible tools such as ChatGPT, could be reviewed and stored by the AI provider’s staff. This setup could frustrate attorney-client confidentiality and create malpractice liability for firms. While feeding confidential client data into internally-developed AI programs would still present data breach risks, lawyers must line up the right IT personnel or outside consultants to manage their AI tech stack and troubleshoot confidentiality issues.
AI, of course, has a ways to go. When deployed strategically and checked by lawyers, AI can make contract work more efficient and cost-effective if legal teams follow a few bedrock principles. If lawyers are interested in testing the AI waters, they should keep these tenets in mind to ensure they get the most out of their experience:
- Reserve AI for routine, high-volume work — and pull in lawyers to hammer out detailed, legal- and relationship-intensive tasks. Work falling into the latter category can include negotiations with other parties, legislation forecasting and the like.
- Leverage AI for drafting standard clauses based on prior templates — but bring in outside or in-house counsel to address customized language and make judgment calls based on emerging legal developments.
- Consider AI modules for first-pass review and to redline preliminary and obvious problems — but have lawyers double-check AI’s handiwork for missed nuances and issues.
- Use AI to generate rights summaries, map out milestones and export important renewal deadlines to firmwide programs — but have lawyers and coordinators double-check the results for accuracy.
- Let AI synthesize data from the firm’s tech stack to run preliminary contract cost analysis for renegotiation opportunities — but leave the complex negotiations addressing them for lawyers.
Looking forward with AI and contracts
AI is already impacting how lawyers approach contracting. But don’t get too distracted by Luminance’s breakthrough demo. While it does signal progress and how AI could upend the legal profession, lawyers are still indispensable to contract work given AI’s weaknesses.
Fortunately, a formula exists that helps lawyers and AI work together. All legal teams should do is let AI run with the rote, high-volume work behind contracts, and let human lawyers manage and negotiate the finer details. The end result? A working partnership that helps lawyers have a productive, fruitful relationship with AI.