Can an AI tool like ChatGPT manage the complexities of contract redlining or does it only scratch the surface of what lawyers need?

Redlining is essential for lawyers. It involves edits, revisions, and additions that significantly impact a contract's success. In the past, lawyers corrected contracts with a red pen to mark changes—hence the term “redlining.” Today, they rely on software to speed up contract review and approval processes. 

ChatGPT can assist legal professionals during contract review by identifying sections that need attention, pinpointing weaknesses, and suggesting improvements in language and style. In this article, we’ll explore how effective ChatGPT is for detailed contract redlining and whether better alternatives are available.

Why Introduce AI to Contract Redlining?

Redlining contracts takes a lot of time in small to midsize law firms. Many lawyers spend most of their day on this task. To address this, AI has emerged to streamline workflows and boost efficiency in contract redlining.

Large companies and law firms that handle numerous contracts daily seek technology to automate the redlining process and reduce approval times. Introducing AI to routine tasks like redlining and document review in law offices of all sizes can lead to significant cost savings. By reducing review and negotiation hours, lawyers gain more time to focus on high-value tasks. Key benefits of using AI for contract redlining include:

• AI can automatically identify risks associated with terms.
• AI checks the accuracy of legal language to reduce errors.
• AI improves consistency by applying rules and standards uniformly.

How Accurate is ChatGPT in Redlining Contracts?

ChatGPT works quickly and efficiently to detect clauses that need changes, but it may overlook important sections and issues in contracts. Tasks ChatGPT does best include:

• Checking agreement structure
• Identifying key terms
• Flagging ambiguity, inconsistency, and simple mistakes
• Basic contract revisions
• Analyzing simpler contracts

Compliance Problems

Redlining contracts often involves many changes and rounds of revisions, which can become chaotic. Manual compliance checks are tedious and prone to errors. Compliance protects parties from legal disputes and helps to ensure enforceable clauses. Non-compliant clauses can delay approvals and lead to negative legal consequences.

Despite its broad knowledge base, ChatGPT cannot reliably inspect contracts for compliance with regulations, laws, and guidelines. It may even create fictional laws or regulations that do not exist to support its suggestions.

To automate compliance checks during complex redlining, consider using a legal-specific AI tool like Spellbook. This tool automatically tracks changes and compares contract terms against industry standards and legal benchmarks, helping lawyers identify discrepancies and non-compliant clauses that could pose legal risks.

Advanced Ways to Use ChatGPT for Redlining Contracts

To effectively use ChatGPT for contract redlining, you must create a customized AI assistant tailored to your specific needs. This process requires additional tools such as the OpenAI API, Microsoft Word API, and Natural Language Processing (NLP) libraries to adapt ChatGPT for legal applications. To make a practical ChatGPT assistant specialized in contract redlining, firms must:

1. Choose the Right Model: Select the ChatGPT-4 model, which is currently the fastest and supports various file types.
2. Implement OpenAI's API: Use this API to identify contract clauses, key terms, and sections that require redlining.
3. Optional OCR Integration: If you need to work with scanned legal documents, consider implementing Optical Character Recognition (OCR) to convert them into editable text.
4. Utilize the Word API: This enables access to redlining features such as tracking changes, extracting clauses, and version control.
5. Train Your Model: Upload datasets related to contract and transactional law to improve the model's accuracy and relevance.

Limitations of ChatGPT in Redlining Contracts 

While ChatGPT is a powerful AI tool for generating text and managing basic tasks, it has significant limitations in contract redlining. Redlining is a crucial part of a transactional lawyer's job, requiring in-depth legal knowledge and strategic skills—areas where ChatGPT often falls short.

Potential Inaccuracies and Misunderstandings of the Legal Context

ChatGPT may struggle with industry-specific terminology, synonyms, and correctly interpreting legal contexts. For instance, it might interpret "consideration" as its general definition rather than as the legal term that describes the benefits each party receives in a contract. ChatGPT may confuse "assignment," which involves transferring contract rights, with "novation," which replaces one party with another. 

Misunderstandings like these can lead to confusion about the rights and responsibilities outlined in the contract, resulting in inaccurate redlining suggestions. Such inaccuracies can affect the enforceability of contract provisions, increasing the risk of disputes and financial losses. 

Dependence on the Quality of Input Data

ChatGPT is not applicable for redlining contracts filled with errors, inconsistent formatting, or numerous mistakes. Its redlining suggestions will likely be irrelevant because it cannot fully understand a poorly written contract.

To make the most of ChatGPT in contract redlining, follow these guidelines:

• Use Standard Templates: Work with basic contracts that follow preapproved, standard templates and use legally sound terminology.
• Ensure Accuracy: Make sure the contract contains accurate, updated, and verified information.
• Eliminate Inconsistencies: Remove any inconsistencies before starting the redlining process.
• Clarify Key Details: Clearly define contract terms, names, dates, and applicable legal standards.

Necessity for Human Oversight and Verification

AI improves efficiency in contract redlining, but human oversight is essential to ensure accuracy and strategic alignment. Because redlining plays a critical role in contract negotiations, even minor revisions can lead to significant legal consequences.

Reasons human involvement is crucial for interpreting legal context, balancing risks, and ensuring fairness include:

• Complex Legal Interpretations: Humans can grasp the implications of suggested changes and how they affect the entire contract.
• Strategic Negotiations: Lawyers excel at balancing legal risks with business goals to achieve favorable outcomes.
• Ethical Considerations: Lawyers can assess the fairness of proposed changes to maintain balance in the contract and ensure they fulfill their ethical responsibilities.
• Risk Mitigation: Lawyer verification helps to ensure that every change is defensible in court and compliant with legal standards.

Operation Mode

Many lawyers work with several Word documents open simultaneously, along with additional tabs for communication, regulatory research, and data retrieval. Adding yet another tab for contract redlining in ChatGPT adds to the chaos. However, a tool like Spellbook lets you integrate AI assistance directly into MS Word, which works on the same screen lawyers use to edit documents.

While the ChatGPT platform offers advantages for various professionals, it may not cater specifically to lawyers accustomed to redlining in MS Word. However, legal professionals can benefit from tools that integrate seamlessly with their existing workflow, such as Spellbook, which provides practical features as soon as they open a contract.

You can sign up for a Spellbook trial to evaluate its redlining capabilities in MS Word and compare them with ChatGPT's methods across different types of content.

How Spellbook Overcomes ChatGPT’s Limitations

Spellbook addresses many challenges lawyers face when using general-purpose tools such as ChatGPT for legal tasks. As a legal-specific tool, Spellbook recognizes that redlining involves more than just generating language.

With Spellbook, redlining involves in-depth legal interpretations, precision, change tracking, and regulatory compliance verification. Unlike ChatGPT, which does not track approved or rejected modifications, you can use Spellbook to create exception tables that summarize all changes made during negotiations and redlining. This feature is crucial for maintaining accountability and tracking negotiation history.

Spellbook enhances the redlining process with:

• Integrated Microsoft Word Redlining: Spellbook automates the redlining process, tracking changes and adding comments in the familiar MS Word environment under your name after you accept its suggestions.
• Legal Expertise: Spellbook analyzes contracts for language and style, considering the legal context and implications of each clause and identifying potential clauses that may be missing.
• Enhanced Compliance: With automated compliance monitoring, Spellbook helps to ensure that every change adheres to relevant legal and jurisdictional requirements.
• Template Generation: In addition to redlining, Spellbook offers tools for generating contract templates. This reduces the need for extensive redlining and saves valuable time for lawyers.

Key Takeaways

ChatGPT is a powerful tool for initial contract reviews. However, to make it the preferred AI software for improving the contract redlining process, you need to upgrade ChatGPT with industry-specific features and legal training. In its current form, ChatGPT has several limitations when it comes to contract redlining, including:

• Limited Accuracy: ChatGPT struggles to understand legal language accurately.
• Irrelevant Responses: Confusing terms and differences between contract versions can cause ChatGPT to produce irrelevant responses.
• Third-Party Platform: Lawyers use ChatGPT as a separate tool rather than one that integrates with their existing systems.
• Lack of Version Control: It does not offer collaboration features or version control.
• Data Quality Dependence: Its effectiveness relies heavily on the quality of the data it can access and the prompts lawyers enter.

You can enhance ChatGPT's practical features by building a dedicated assistant for contract redlining. If this seems too complex or technical, consider using AI tools specifically designed for lawyers and their unique challenges, such as Spellbook.

Frequently Asked Questions

Can ChatGPT Integrate into Existing Legal Workflows?

Yes, you can integrate ChatGPT into existing legal workflows, but installation methods and several steps are required to ensure seamless integration. Often, advanced IT support is required to avoid issues and fully benefit from the integration.

Can ChatGPT Accurately Identify Contractual Issues During Redlining?

ChatGPT's accuracy in contract review is inconsistent. It depends on factors such as the quality and conventional structure of the contract, the simplicity of the language used, and the legal context. The risk of inaccurate reviews increases with the complexity of the contract.

Can ChatGPT Completely Replace Human Legal Professionals in Redlining Contracts?

No, ChatGPT cannot replace human legal professionals in redlining contracts. It lacks the personal judgment needed for complex negotiation points, as well as empathy, expertise, experience, and an understanding of client needs. Instead of replacing lawyers, ChatGPT can serve as a complementary tool that helps reduce the time lawyers spend on initial reviews of basic contracts.