Introducing artificial intelligence to contract management can save lawyers significant amounts of time and shift legal teams' focus from labor-intensive tasks to more strategic roles. Initially, AI served as a basic question-answering tool. By 2024, it’s evolved to facilitate advanced contract reviews and intelligent legal tasks.

Companies and law firms adopt AI to stay competitive, enhance efficiency, and elevate their business operations.

As part of these efforts, AI improves contract lifecycle management in various ways, which we will discuss below.

What is AI Contract Management?

AI contract management uses AI to streamline and optimize every stage of the contract lifecycle, from drafting to execution and beyond. It can provide actionable insights and automate data extraction and contract reviews. 

AI-powered contract management relies on several innovative technologies designed to be user-friendly, scalable, accurate, and customizable:

• Natural Language Processing (NLP): This technology enables AI to understand human language and perform tasks similarly to humans.
• Machine Learning (ML): ML enables context-aware analyses of contracts.
• Computer Vision: This technology supports various contract formats and files.
• Knowledge Graphs: These graphs interpret and organize contract information for efficient searching.
• Predictive Analytics: This feature identifies patterns in historical data to suggest potential contract outcomes.
• Robotic Process Automation (RPA): RPA automates tedious tasks such as data entry, deadline tracking, and status updates.
• Blockchain: This technology ensures the integrity and authenticity of contracts.

As users input more data, AI contract management software’s responses become increasingly accurate and relevant with continuous improvements, helping to achieve more significant benefits with each use.

Is AI Powered Contract Management Better Than Traditional Contract Management?

AI contract management can outperform traditional methods in contract creation, review, and regulatory compliance. For instance, AI can identify issues that human reviewers might overlook, such as:

• Missing clauses
• Deviations from the standard language
• Inconsistent terms and conditions
• Risky provisions 
• Conflicting dates
• Ambiguous phrasing
• Discrepancies between negotiated terms and pre-approved templates
• Regulatory compliance issues
• Jurisdictional requirement issues

AI algorithms enhance contract management by reducing errors, improving consistency, and speeding up review processes. AI tools often require an initial subscription investment and may have a learning curve, causing lawyers to hesitate to adopt new technologies. Familiarity and control lead some firms to continue using traditional contract management methods.

However, adopting new technologies is now a key differentiator in many industries, including law. Embracing AI can help firms stay competitive and improve efficiency.

Key Components of AI-Powered Contract Management

Let’s take a closer look at how AI-powered contract management relies on several technologies that enable algorithms to think, communicate, and operate like humans based on knowledge and relevant experience.

Natural Language Processing (NLP)

In AI contract management, NLP allows algorithms to identify, extract, and analyze essential contract information, such as clauses, terms, and obligations. NLP ensures that algorithms can read and understand contract content while comparing it to a vast database of legal knowledge. This process enables AI to identify risks and suggest improvements.

A key aspect of NLP is text generation, which makes the process collaborative and responsive. AI can draft improved versions of contracts or fill in missing sections, as instructed. NLP is a core technology for effective AI contract review, streamlining one of the most time-consuming stages in the contract lifecycle.

Machine Learning Algorithms

Machine learning algorithms enhance the speed and intelligence of AI contract management. These algorithms can analyze thousands of contracts to identify patterns in risk management, helping legal teams anticipate potential disputes before they arise.

AI can facilitate contract risk assessment, but lawyers remain in control and must validate AI suggestions. In top legal tools like Spellbook, algorithms can explain why their suggestions are relevant and accurate.

Data Analytics and Insights

Data-driven decision-making is a leading business trend that uses statistical methods to uncover hidden trends, patterns, and correlations in contracts. Data analytics automatically identifies these hidden insights. 

For example, AI can quickly pinpoint the weakest points in a contract and highlight the most beneficial terms for each party. These instantly available, intelligent insights enable legal teams to save time, reduce costs, and improve contract negotiations beyond what humans could achieve alone.

As a leading legal AI tool for transactional lawyers, Spellbook excels at delivering insights that help lawyers make more informed decisions during negotiations through several distinctive features:

• Identifying Risky Clauses: Spellbook can quickly spot ambiguous and potentially risky language or clauses.
• Optimizing Payment Terms: It analyzes historical payment terms in vendor contracts and suggests adjustments that have proven beneficial in past agreements.
• Standardizing Favorable Clauses: Users can easily extract clauses from their library that were successful in other agreements.
• Highlighting Compliance Issues: Spellbook automatically scans documents for clauses that may not meet industry regulations. It compares them against industry norms, which is particularly useful in regulated industries like pharmaceuticals for adhering to strict FDA regulations.

How to Implement AI in Contract Management

Adopting new technologies is beneficial, especially AI tools that simplify workflows. If you have yet to adopt AI for essential tasks like contract management, consider these strategies:

• Choose the Right AI tool: Select AI tools based on reviews and features that align with your needs and goals. Compare the performance of general-purpose tools with those designed specifically for legal use.
• Use a Contract Playbook: If your chosen AI supports it, create a contract playbook to streamline management. Build a playbook with pre-approved template clauses you can reuse.
• Integrate AI with Existing Systems: Use custom APIs or middleware solutions to integrate AI into your current contract management system.
• Test AI Performance: Experiment with the AI tool’s features to assess its performance and explore additional benefits it can offer.
• Ensure Compliance and Oversight: Maintain compliance with regulatory requirements and industry guidelines by implementing human oversight of AI systems.

Why Spellbook?

For efficient and accurate contract management with less manual effort, Spellbook offers several functions:

• Automated Contract Drafting: Generate contracts from templates or create them from scratch. With Spellbook's custom library, you can insert pre-approved clauses into new contracts, reducing the need to rewrite or reconsider terms from scratch.
• Clause and Language Suggestions: Accept, reject, or customize instant clause and language suggestions to meet client needs.
• Faster Redlining and Review: Automated review and redlining features cut down manual review time.
• Risk Identification: Identify unfavorable terms, ambiguous language, or clauses that could lead to disputes and costly legal issues.
• Industry Benchmarking: Compare contracts to industry norms and ensure compliance across jurisdictions.
• Integration with Microsoft Word: Spellbook easily integrates with Microsoft Word for seamless use.

One of the easiest ways to see Spellbook’s advantages is to use it for contracts that require consistency and efficiency, especially if you frequently deal with similar agreement types. Spellbook offers a risk-free trial period, allowing you to enhance your contract management without upfront commitment. During this time, Spellbook’s support team can help you maximize the tool’s potential, optimizing every step from drafting and reviewing to finalizing contracts.

Key Takeaways

Some law firms continue to use traditional contract management methods because they offer control and familiarity. However, advanced legal AI tools with specialized features for the early stages of the contract lifecycle are more efficient and result in fewer errors.

If you are interested in using AI contract management to enhance your legal services, keep these points in mind:

• AI can automate every stage of contract creation, from drafting through approval, speeding up the review and negotiation processes.
• Because of its enhanced efficiency, AI-enhanced contract management provides firms with a significant competitive advantage.
• Tools such as Spellbook offer automated drafting, risk identification, and industry benchmarking, helping legal teams optimize contract negotiations and reduce costly errors.

Frequently Asked Questions

Can AI Improve Contract Accuracy?

Yes, AI enhances contract accuracy by analyzing and refining contract language while identifying critical clauses. Additionally, AI can detect issues that humans might overlook, reducing the risk of errors and disputes.

Is AI Contract Management Cost Effective?

Integrating AI contract management into your daily routine requires time and dollar investments. However, a careful analysis of long-term benefits—such as reduced manual labor and operational costs—shows that AI contract management can be more cost-effective than traditional methods. Plus, lawyers can reallocate saved hours to more valuable work to boost AI’s cost-effectiveness.

Does AI Help in Contract Negotiation?

AI helps in contract negotiation by enabling lawyers to review, redline, and draft agreements quickly. By automating routine tasks, AI enables negotiators to focus on their critical negotiation skills and develop stronger strategies. AI in legal-specific tools can also identify key negotiation points in a contract and suggest stronger arguments. Spellbook can compare contracts against industry benchmarks and automatically highlight problematic areas.