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Picture yourself in a room full of haystacks. The room is dimly lit, and the weather outside is getting darker. Already short on time, your goal is to sift through these piles of haystacks and find a handful of tiny needles.

Unless you’re Clark Kent, you reckon this would take forever.

For legal teams in large organizations, this scenario is all too familiar. They face the responsibility of reviewing hundreds and thousands of contracts, line by line, against an extensive checklist. Their sacred goal? To identify risky clauses, resolve them, and ensure that clarity and compliance are maintained throughout the organization's contractual agreements.

Doing this manually would be arduous, time-consuming, inefficient, and risky. There’s a high chance of burning out, missing risky clauses, and overlooking compliance errors that could land your company in a tight spot!

But thanks to Artificial Intelligence (AI), you no longer have to go through all that hassle.

Using AI contract review software is like finding needles in haystacks with a 15 kHz metal detector. With this super-powered assistant, you can rapidly comb through all the jargon in your contracts, identify risks, establish clarity, and ensure compliance across the board.

This guide explores exactly how AI contract review software works, the concerns around it, and best practices for its implementation.

How is AI used in the legal world? 

There are a number of important use cases for AI tools in the context of legal work.

From document reviews to examining existing case law and including citations, artificial intelligence is a total game-changer.

#1 Contract drafting 

Contract drafting is one of the most important tasks AI can take off the plates of not only legal teams but also professionals working in sales, HR, and procurement roles.

Thanks to advancements in AI-driven legal tech (particularly the integration of generative AI), teams can use pre-built templates and integrations with other software solutions, such as their CRM, to automatically author agreements.

Also read: The Future of Legal Documents: What’s an AI Contract Generator?

#2 Legal research 

AI can also assist legal teams, whether working in-house or at a legal practice, with the extensive research requirements that pop up as they prepare for cases.

Legal AI can pore over existing case law and judge’s rulings, look for precedents to support your claim, and even assist in deposition prep by anticipating how the opposing party may pursue a case, given previous judgments.

#3 Contract reviews

Perhaps the most important of all tasks that AI can perform in the legal context is the review of contract documents.

A good AI-powered CLM platform can review lengthy contract documents, spot non-compliance issues, highlight key clauses and responsibilities, and even summarize an agreement and answer questions in plain English.

Since this is such an important use of AI for legal documents, let’s dive a little further, starting with the problems that come with reviewing documents the old-fashioned way:

The challenges and limitations of manual contract review

The challenges and limitations of manual contract review

Contract review is a critical component of the contract lifecycle management process. Legal teams and stakeholders run contracts through a review process in a bid to ensure that every clause, language, and deliverable is aligned with the expectations of all parties and that every risk is resolved proactively.

Doing this manually comes with many challenges and limitations, especially for organizations with an ever-increasing volume of contracts. We've discussed some of them below.

#1 It is time-consuming

“If you try to read a complex contract carefully, from front to back, and expect to understand it on just the first read-through, that’s wishful thinking (and potentially very messy).”

~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: How to Read a Contract

Manual contract review involves a lot of daunting, repetitive processes. Imagine having to comb through 100s of clauses, contract after contract. It would take forever to go through your entire workload.

Because it takes up all your time, manual contract review restricts you from completing other important contract management tasks, slowing down the entire workflow. This spells low productivity and inefficiency and prevents your organization from closing more deals.

#2 The chances of errors are high

When you review your first couple of contracts, you'll probably feel focused and mentally energetic. But as you run through the next hour doing the same thing 100 times over, your brain begins to get fatigued. Your focus becomes shaky, and it wouldn't take long before you realize you must've missed something.

Even the most meticulous reviewers can make mistakes, overlook critical clauses, or misinterpret contractual language when subjected to hours of manual labor. These errors can result in getting stuck with unfavorable terms, misunderstandings, disputes, and even litigations.

#3 You may struggle to scale your contract volumes

Given the time it takes to inspect each document manually, how many contracts does your team review in a month?

Now, is it possible to double that amount without overloading your current workforce? I imagine it isn't. As the number of contracts increases, it becomes increasingly difficult for a limited number of individuals to review them within reasonable timeframes. 

This limitation can hinder business growth and expansion, particularly for organizations dealing with a high volume of contracts or those operating in fast-paced industries.

#4 There is no standardization

With manual contract review, you solely rely on physical and mental capabilities. It is impossible to introduce any standardized procedure to accelerate the review process. The best you can do is create a checklist of things to look out for. Still, it only does a little to cut the strenuous process of reading entire documents repeatedly!

Moreover, every reviewer has a unique way of interpreting things. So they'll often approach contract reviews differently. The lack of standardization associated with manual processes can result in inconsistencies in the review process and result in different outcomes for similar contracts. This can introduce a considerable level of subjectivity and increase the likelihood of errors or omissions.

Also read: How to Standardize a Contract in 7 Easy Steps

#5 Access to insights and analytics may be difficult

Alongside identifying risks and establishing contract compliance, contract review also involves exploring data to identify patterns and areas of opportunities. 

With manual review processes, it is quite arduous diving into a giant pile of contracts to explore crucial data for optimizing contract processes. Because of this, organizations are unable to consistently make data-driven decisions around contract management processes.

Also read: How to Use Contract Analytics Software to Uncover Insights

#6 There's a constant risk of unintentional non-compliance and regulatory violations

Jurisdictional and industrial policies are constantly evolving, and organizations must ensure they're operating within the boundaries of these regulations.

Legal teams must review every contract to ensure that every instance of non-compliance or potential regulatory violation is detected and resolved. Manually doing this across multiple contracts is difficult enough. But it gets worse in fast-paced industries, where you deal with constant policy changes and need to update every applicable contract all the time.

Apart from inadvertently failing to recognize an instance of non-compliance in your contracts, you could be caught up in other activities and fail to keep track of every industry or jurisdictional policy change. This puts your company at risk of penalties and reputational damages.

“While it doesn’t always get the love it deserves, a robust compliance function is an important part of risk-reduction at companies of any size. As such, in-house lawyers should get behind the creation of a compliance group if there isn’t one or enhance the existing one whether it sits in the legal department or not.”

~
Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Building a Strong Compliance Department
Also read: The Perfect Contract Review Checklist - SpotDraft

How AI revolutionizes contract review

How AI revolutionizes contract review

AI leverages large volumes of data to learn about processes, recognize patterns, and simulate human intelligence. Its exposure to data gives it the fuel it needs to perform tasks with superhuman speed, accuracy, and efficiency.

The application of AI has gone viral in multiple industries, with many businesses increasingly adopting it into their processes. Contract review is not exempted, and in this section, we’ll discuss some of the importance of using AI for this naturally daunting process.

#1 It improves speed and efficiency

AI contract review software is capable of processing large volumes of contracts in a fraction of the time it would take a human reviewer. Its algorithms can quickly analyze and extract key information from contracts, enabling faster turnaround times and increased productivity.

#2 Accuracy and standardization become easy to achieve

Using machine learning algorithms, AI contract review software can learn from previously reviewed documents, identify patterns, and follow predefined rules to evaluate future contracts. 

This ensures that contracts are reviewed using the same set of standards and reduces discrepancies, errors, and omissions in the assessment process.

#3 You can scale your contract volumes

A typical Fortune 1000 business handles at least 20,000 contracts at any time. Manually managing these is practically impossible. But with AI, it is a walk in the park.

AI contract review software allows you to onboard contracts at scale without compromising on quality. This scalability allows you to hit new deal-closing milestones without the fear of overwhelming your workforce.

#4 Compliance and risk mitigation get easier

AI systems can be trained to recognize specific clauses, terms, or legal requirements. It then automatically scans your documents to identify potential instances of non-compliance. This can be done in half the time it would take a manual reviewer.

Tracking and implementing regulatory changes is also very practical with AI contract review software since it makes it easy to identify and modify clauses that are impacted by these updated policies.

Also read: Tracking Contract Compliance—Best Practices + Tools
Also read: Generative AI for Contract Management: Best Practices to Ensure Safety

#5 You reduce operating costs

Manual review requires multiple human experts, especially when working with contracts at high volumes. However, the task of your 100+ team members can be completed more efficiently by a single AI contract review software.

This reduces running costs for contract management processes, allowing your legal teams to focus on more strategic and higher-value activities.

What types of legal teams use AI? 

AI is increasingly becoming a part of day-to-day work life in the legal world.

Law firms are using tools to perform case research, analyze documents on behalf of their clients, and even draft client communications like emails and memorandums.

Internal legal teams use AI for many of the same tasks, including initiating the review and redlining processes.

For instance, using SpotDraft VerifAI, a legal team could quickly analyze a proposed contract, and have the platform highlight their most critical responsibilities or note any clauses that would fail to comply with the company’s policies.

VerifAI can even add comments to those clauses and suggest more appropriate wording.

See VerifAI in action

Different AI technologies used in contract review

Different AI technologies used in contract review

AI contract review technologies can come in different packages, but their goals are essentially the same. This section will describe some of the most common AI technologies that are utilized in contract review processes.

#1 Optical character recognition (OCR)

OCR is a tech innovation that enables computers to recognize and extract text from scanned documents, images, or physical papers. This is particularly helpful in contract review when physical documents or PDFs are shared between contracting parties.

First, the documents are scanned or uploaded into the contract review system. Afterward, the OCR module analyzes the scanned image or uploaded document to identify textual content.

The detected texts are verified and converted into machine-readable formats, after which the system extracts essential details like names, dates, addresses, financial figures, and other relevant contract terms. The extracted text and data can be integrated into other contract review tools to enable further analysis.

#2 Intelligent contract analytics

Intelligent contract analytics leverages Natural Language Processing (NLP) and Machine Learning (ML) algorithms to understand and analyze the content of contracts. It enables AI systems to interpret complex legal language, identify key clauses, and extract relevant information such as parties' names, effective dates, payment terms, obligations, and more. 

Intelligent contract analytics can help in assessing risks, compliance issues, and other potential contract anomalies.

#3 Contract management software with AI capabilities

Modern Contract Lifecycle Management (CLM) tools often infuse AI into their systems to streamline contract review processes.

SpotDraft AI, for instance, combines the capabilities of OCR and intelligent contract analytics to make review processes more productive. It allows you to convert any document into a contract template, compare batches of contracts to identify hidden patterns, and implement redlines more efficiently. This AI module is a subset of SpotDraft, a fully-fledged CLM that helps you automate various tasks throughout your contract lifecycle. 

By combining robust native functionalities with AI, CLMs empower business teams to create, review, negotiate, execute, and track contracts more productively.

Also read: Contract Management Software—Essential Features Checklist

Common concerns related to AI in contract review

Common concerns related to AI in contract review

While AI has been a groundbreaking innovation in contract review, there has been a series of skepticism around it. From data security to ethical and legal implications, many industry experts continue to peer into what would appear to be potential trade-offs for using AI in contract review processes.

Here we will discuss a few of these concerns as well as steps you can take to address them.

#1 Data security and privacy

“Most organizations are realizing that they should have a policy in place for AI adoption, because, otherwise, there's a risk of customer data or confidential data being put into the public tooling.”

~
Ken Priore, ex-Director of Privacy, Atlassian
Mastering the Intersection of Law, Technology

Contract documents often contain sensitive and confidential information about individuals, companies, or organizations. AI systems require access to these documents to analyze and extract relevant information. However, this access raises concerns about the security and privacy of sensitive data.

To address data security concerns, it is crucial to implement security measures like content encryption, access controls, and secure data storage to safeguard contract documents. 

Organizations should also establish clear data handling policies and protocols to protect sensitive information appropriately throughout the contract review process. 

Additionally, companies should prioritize compliance with relevant data protection regulations, such as GDPR, HIPAA, and SOC-2.

#2 Potential biases in AI algorithms

AI systems are trained using vast amounts of data, including historical contracts and legal precedents. If the training data contains biases or reflects existing inequalities, the AI algorithms may inadvertently perpetuate or amplify these biases during the contract review process.

Biases can manifest in various ways. For example, AI algorithms may favor certain contractual provisions or interpret clauses differently based on biased patterns in the training data. This can result in inconsistent or unfair contract assessments.

Addressing biases in AI algorithms requires careful attention and ongoing monitoring. It is essential to carefully curate and diversify training data to minimize biases and ensure representation from different perspectives. Regular audits and evaluations of the AI contract review software's outputs can help identify and correct any emerging biases.

#3 Legal liability and accountability

AI systems used in contract review raise questions about legal liability and accountability. If an AI system makes an error or overlooks important details in a contract, it can have significant consequences for the parties involved. Determining who is responsible for such errors, whether it is the AI developer, the organization using the AI, or both, can be complex and may require legal clarification.

To mitigate these concerns, organizations should consider implementing robust quality assurance measures and conducting thorough testing and validation of AI contract review software before deployment. It is vital to establish clear protocols for human oversight and intervention, ensuring that human experts are involved in reviewing and verifying the outputs generated by the system.

#4 Cost and ROI considerations 

Implementing AI for contract review involves upfront costs, from acquiring the AI contract review software to ongoing maintenance. There is a concern about the ROI and whether the benefits derived from using AI outweigh the costs.

Organizations must evaluate the benefits of implementing AI for contract review against the costs involved. Conducting a thorough cost-benefit analysis, including the expected efficiency gains, improved accuracy, risk mitigation, and compliance benefits, can help determine the ROI of adopting AI for contract review.

Moreover, AI-powered CLMs like SpotDraft offer customized pricing, allowing organizations to use its functionalities within their budget. That way, they reap the benefits of AI while keeping costs within comfortable boundaries.

What tools are available for legal AI support?

These are some of our favorite AI-powered tools for drafting, reviewing, and editing legal documents.

Also read: How Contract AI Can Revolutionize Your Workflows

#1 SpotDraft VerifAI 

VerifAI by SpotDraft is an AI-powered contract review solution designed specifically for Word users.

It’s available as a Microsoft Word Add-in, helping you review agreements without leaving the platform you’re already familiar with.

VerifAI can help you with a slew of tasks:

  • ​​Instantly highlighting non-compliance and key risks
  • Identifying source references for each guideline in the contract
  • Providing explanations on why guidelines have or have not been met
  • Drafting summaries of contracts
  • Answering questions posed in plain English
  • Suggesting language to incorporate your position into the contract 
  • Adding comments explaining changes for the counterparty or reviewer
See VerifAI in action

#2 CoCounsel 

CoCounsel is built by legal research firm Casetext and is designed to assist with important legal ops tasks:

  • Contract analysis and other legal document reviews
  • Deposition preparation
  • Contract redlining

It’s powered by GPT-4, meaning CoCounsel has some strong conversational functionality.

You can ask a question in plain English—“What does our risk exposure look like if we sign this contract?”—and CoCounsel will scan the document and provide easily readable answers.

#3 Latch 

Latch is an AI tool built for drafting contracts.

Like VerifAI, it’s available as a Microsoft Word Add-in. Using generative AI, Latch allows your team to draft, review, and edit agreements in Word.

#4 PatentPal 

PatentPal is an AI platform specifically designed for drafting patent applications using generative AI.

It can help you draft applications and answer questions on patent application forms using the information you provide about your new product.

Also read: The Value of Using an AI Legal Assistant

Best practices for implementing an AI contract review software

Best practices for implementing an AI contract review software

AI has the potential to revolutionize the way your organization reviews contracts, dramatically cutting turnaround times and accelerating execution processes. However, to use it to its maximum capabilities, your implementation process must be subjected to adequate research and strategic planning.

Here are some best practices to put into consideration.

#1 Clearly define your goals for adopting AI in contract review 

Defining your needs and goals sets the tone and provides a clear direction for the implementation procedure. It also helps you determine what metrics to look out for while evaluating the success of the AI adoption.

For instance, your goal may be to cut down contract review TAT by 50% or to improve compliance by 100%. With these goals already established, you can better communicate with your stakeholders and vendors to get the necessary support and implement the AI contract review software in a way that helps you achieve your objectives.

#2 Get key stakeholders on board

Identify stakeholders who will be affected by or have influence over the implementation of the AI contract review software. These stakeholders may include legal teams, contract managers, compliance officers, sales teams, senior management, etc.

Let them know about the need for an AI contract review solution, address their concerns, and highlight what the teams and the organization stand to gain from the implementation.

Getting key stakeholders involved in the process ensures you have the right amount of support to progress and complete the plan.

#3 Identify the right solution for your goals

Your ideal AI contract review solution should not only help you achieve your goals but also fit within your budget.

To get the best value for your investment, you should prioritize systems that, alongside streamlining contract review, can also help you revolutionize every other facet of your contract lifecycle management.

SpotDraft AI is designed to help you conduct reviews 7x faster but also comes packed with a variety of other AI tools to help you create and negotiate contracts more productively. Moreover, the AI is part of a more extensive suite of tools in the SpotDraft ecosystem, designed to collectively give you the best contract management experience. These tools include a central repository, contract templates, a collaborative editor, analytics tools, and more.

Furthermore, SpotDraft is structured to fit within your budget, offering bespoke pricing that matches your usage requirements. That way, you're not only achieving your goals but also doing so without draining your resources.

Also read: CLM Assessment Guide—How to Choose a Solution That Actually Works for You

#4 Use AI as a support tool, not a replacement

“When you implement new technology or processes and tell your team that you’re going to take 40% of what they do and do it in a way that's way faster and more effective, the automatic reaction is, ‘You're taking my job.’

In that case, I help my team understand that we’re just doing this to become the creative and innovative in-house lawyers we can be while co-leading business. The simplest piece of advice I could give to anybody, in business or otherwise, is to create that headspace; Take a step back, open your mind to the possibility of doing things in a more modern and effective way.”

~
David Lancelot, ex-VP Global Head of Legal, eBay Classifieds
Embracing Legal’s Role as Business Co-Leaders

Ensure you do not get carried away by the speed and efficiency of AI-powered systems. Human expertise and guidance will always be mission-critical to maximizing the potential of AI.

While AI contract review tools excel at processing vast amounts of data and performing rule-based analysis, they may not capture the full context and nuances human experts can identify. Human expertise is essential for interpreting complex legal language, assessing the broader business implications, and making judgment calls based on experience and legal knowledge.

#5 Monitor and evaluate the outcomes of your implementation

Create a schedule for evaluating the performance of the AI contract review tool during the implementation phase and beyond. Consider the goals you already outlined and determine whether or not the implementation has helped you achieve them.

Solicit feedback from your contract management team or legal experts who interact with the software regularly. They can identify errors or areas where the AI may struggle, providing valuable feedback for further improvements.

Frequently asked questions 

#1 Can AI write legal documents?

Yes, there are a number of AI-powered tools that can support the authoring of legal documents such as contracts.

Many even come with pre-drafted templates. Over time, your AI platform can learn from the changes you make to documents like contracts, becoming more like a personal legal assistant than a simple drafting tool.

Some solutions, like SpotDraft VerifAI, can also assist with document analysis and contract reviews.

#2 Can ChatGPT help with legal documents?

Yes, ChatGPT does have capabilities to assist with legal documents. For instance, you can copy and paste the wording from a contract into ChatGPT and ask it to summarize the agreement.

However, it's important to note that ChatGPT is not built specifically for the legal use case. It’s not designed to provide legal advice, and it can’t add comments to the agreement or such changes to clauses based on your internal policies.

#3 Is there an AI tool for lawyers?

There are plenty of AI tools for lawyers. There are AI-powered research tools, contract authoring solutions, and even contract review software you can access as a Microsoft Word Add-in, like SpotDraft VerifAI.

Finding the needle in the haystack

Contract review processes entail sifting through an extensive collection of clauses and terms to identify potential risks and address any concerns. Finding these elements can be tricky and time-consuming sometimes, like finding a needle in a haystack.

But the advent of AI has opened the door to a lot of possibilities, and thanks to its capabilities, contract review has become more efficient and sophisticated. It is like a high-powered metal detector, capable of finding needles through a pile of haystacks!

That said, while AI is far more efficient, fast, and accurate than humans, human expertise and knowledge of the broader business implications of contracts can never be replaced.

Want to see how VerifAI can revolutionize your contract review processes?

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