Generative AI in Contract Management: What You Need to Know

Salesforce’s latest State of IT report found that almost 90% of IT leaders expect generative AI to soon play a prominent role at their organizations. And, its March survey of 500 IT decision makers revealed that most (57%) believe generative AI is a game changer.

Businesses are constantly seeking innovative solutions to optimize their operations. The power of generative AI, which can create new content from scratch, is a prime example of technology's potential to transform various aspects of business processes. One area where generative AI holds immense promise is in contract management (CLM), where it can automate tasks across the contract lifecycle, from drafting to analysis.

Revolutionizing Contract Creation

Traditionally, the creation of contracts has been a labor-intensive and time-consuming endeavor requiring specialized legal expertise.

However, generative AI is changing the game. By training AI systems on vast datasets of contracts, organizations can harness the technology to generate customized contracts that precisely meet their needs.

This automated drafting process not only saves valuable time but also minimizes the risk of human error. The AI system relies on learned patterns to create contracts, enhancing consistency and accuracy.

Enhancing Contract Analysis and Risk Assessment

Generative AI extends its capabilities beyond contract creation to contract analysis and risk assessment. By training AI systems on extensive databases of contracts and their outcomes, organizations can leverage AI to predict potential risks associated with a given contract.

Automated risk assessment tools empower organizations to make informed decisions about their contracts, helping identify and mitigate potential pitfalls before they become critical issues. It's a major advancement in risk management within the contract ecosystem.

Streamlining Contract Negotiations

Contract negotiations often involve complex interactions and strategic decisions. Generative AI can optimize this process by analyzing historical negotiation data and outcomes. The AI system can then suggest effective negotiation strategies, propose alternative clauses, and even predict how the other party may respond.

The outcome?

Faster resolutions, more favorable contract terms, and increased efficiency in negotiations. Generative AI enhances the negotiation process, making it more data-driven and ultimately more successful.

Considerations for Generative AI in Contract Management

Incorporating Generative AI into contract management processes is a transformative endeavor, but it comes with a set of important considerations. These delve into the core aspects that demand attention for successful integration of AI into contract management.

Precision and Reliability:

AI-generated contracts must prioritize accuracy and reliability. Rigorous testing and validation are essential to ensure the consistency of contract content and avoid disputes, financial losses, and damage to reputation.

Legal and Ethical Compliance:

Implementing public generative AI for contracts involves navigating complex legal and ethical considerations. It's imperative to adhere to jurisdiction-specific regulations while upholding ethical standards, including informed consent, transparency, data privacy, and security.

Bias Mitigation and Equity:

AI systems learn from existing data, which can introduce biases. Identifying and correcting biases within AI-generated contracts is crucial to maintain fairness and equality, addressing both legal risks and ethical principles.

Responsibility and Accountability:

While AI systems lack legal personhood, the accountability for their actions rests with the individuals or organizations deploying and maintaining them. Establishing clear lines of responsibility and accountability is essential to effectively manage potential legal and ethical consequences.

Best Practices for Generative AI in Contract Management

1. Establishing Clear Guidelines and Protocols

To effectively work through AI-generated contracts, it is vital to create straightforward guidelines and protocols. These serve as a policy framework for the seamless integration of AI into contract management processes. Within this policy, it is essential to explicitly outline the extent of AI utilization, including specific use cases, inherent limitations and potential risks. Furthermore, define the roles and responsibilities of team members meticulously to ensure a clear understanding of how generative AI-created contracts fit into their existing workflows. These clear guidelines promote consistency, facilitate compliance with legal mandates and help mitigate potential errors and misunderstandings.

2. Collaborating with AI Experts and Technologists

Integrating technical expertise into your legal framework is essential. AI professionals bring the technical acumen necessary for developing and deploying AI systems tailored to your legal operations. Engage AI experts from the project's inception to ensure proper training, validation and optimization of AI models for legal applications. This collaboration bridges the gap between the legal and technical domains, resulting in more efficient and dependable AI contracts.

3. Continuous Learning and Adaptation

In the dynamic landscape of AI's impact on the legal sphere, a commitment to ongoing learning and adaptation is essential. Stay current with the latest AI developments and their implications for the legal industry. Actively participate in training programs, workshops, and relevant conferences focused on AI and legal tech. This ongoing education empowers legal professionals to effectively leverage AI contracts and remain agile in response to the ever-evolving technology landscape.

4. Striking the Balance Between Automation and Human Expertise

Maintaining a balanced approach between automation and human expertise is paramount throughout the contract management journey. As the in-house legal counsel, you are responsible for reviewing generative AI contracts to ensure accuracy, legality, and alignment with specific client needs. Human experts possess domain knowledge, contextual understanding and ethical judgment essential for identifying and resolving complex legal issues that AI systems may overlook. Combining AI automation with human expertise enhances contract quality, safety and ethical considerations in contract management.

To Sum Up

Generative AI is poised to transform contract management, offering benefits like efficient contract creation, improved analysis and risk assessment and streamlined negotiations.

However, it comes with considerations: precision, legal compliance, bias mitigation and accountability. Best practices include clear guidelines, collaboration with AI experts, ongoing learning and balancing automation with human expertise. These practices enable organizations to leverage generative AI effectively while ensuring legal and ethical compliance in contract management.