Contract management is an arduous task, which becomes increasingly complex (and equally important) as the size of the organisation increases. It has been estimated that inefficient contract management can lead to losses amounting anywhere between 5% to 40% of the deal value, pending circumstances.
With the adoption of AI, the procedures involved in contract management are being improved in the following ways:
A. Better Tools
By making a move to AI contract review software, the identification of contracts is streamlined and performed based on pattern recognition involving key variables. In simpler words, contracts can be organised based on renewal dates or clauses or parties or even languages.
Moreover, AI can be further utilised to rapidly sort contracts in a database to flag those that meet specific criteria – this is a mighty useful tool when undertaking due diligence.
An indirect benefit of using AI in contract management and contract review is the resultant consistency in the way terms are defined, drafted, and appropriated across contracts. With a ready reference for every clause, drafting new clauses is a straightforward exercise, and any modifications can be consistently applied across the firm.
Furthermore, as contract drafting becomes more of a processing exercise than a mental one, the quality of contracts is improved across the board as AI can identify subpar clauses as well as mitigate the probability of human error during the drafting stage.
C. Shift in Dynamics of Legal Roles
With the advent of technology in any field, processes which are manual or repetitive tend to be either automated or eliminated. Similarly, the usage of AI in the legal sector will transform the roles of lawyers and paralegals by shifting their focus from contract management (even drafting) to tactical input-oriented tasks. The legal industry will undergo a paradigm shift in how legal professionals expend their energies – negotiation skills, risk assessment, relationship management, business development, and legal counsel will come to the fore as KPIs.
Moreover, firms will gradually become more agile as the legal department will become leaner, but there would be significantly better utilisation of the talent.
D. Speed, Accuracy, and Scalability in Contract Review
An underlying characteristic of AI in contract management is the implementation of natural language processing (NLP) within its ranks, i.e. questions can be asked to a technology interface in the same way how questions are asked to another human. The queries formulated by lawyers can be interpreted to either identify specific clauses or assist in the discovery of potential red flags based upon user actions – the best part, this is done at instant speeds, 100% accuracy, and at scale.
To put into context, traditional due diligence typically requires documentation review by human eyes. At the same time, research suggests that only 50%-85% of what one is looking for is found. On the contrary, Imprima’s AI Smart Review tool reviews just 10% of the documentation to find at least 95% of search reference.
The tool itself is also incredibly easy to use. All that the user is required to do is to enter a query, be it a few keywords, a paragraph, or a particular clause, and then the AI will work its magic by interpreting precisely the nature of the query, and, subsequently, producing the requisite documents/clauses.
The legal sector has frequently debated as being a dinosaur in motion – working in silos, and often impervious to change. With the adoption of AI in contract review, onerous tasks will be automated, which will allow legal professionals to focus on bringing intellectual value to the deal-making – a win-win situation.