Artificial intelligence is changing contract review, making transactional tasks more efficient. One big question for transactional lawyers is how effective a general-purpose tool like ChatGPT is in reviewing contracts. Are specialized legal AI solutions such as Spellbook better?

Let’s compare ChatGPT's benefits and limitations with specialized legal AI tools to help you decide how AI can improve your legal practice.

Capabilities of ChatGPT in Reviewing Contracts

AI tools now play a vital role in many areas of legal practice, primarily focusing on automation.

However, advanced solutions like AI-powered contract management, review, and drafting allow for more complex applications. AI speeds up and improves the accuracy of contract generation, redlining, and generally all steps before signing a contract. 

ChatGPT offers several features that enhance contract review:

• Natural language understanding: Helps ChatGPT partially comprehend legal terminology.
• Section drafting: Generates potential modifications to agreement sections.
• Information extraction: Identifies and extracts key contract points.
• Text summarization: Summarizes contracts for quicker comprehension.
• Pattern identification: Recognizes repeating clauses and flags inconsistencies.
• Question answering: Gives human-like answers to users’ questions.

However, ChatGPT's limited ability to fully understand complex legal language makes it less reliable for thorough contract reviews.

Advantages of Using ChatGPT for Contract Review

Integrating AI tools such as ChatGPT into contract reviews offers notable benefits, including a streamlined review process, faster deal-closing, cost reduction, and improved accessibility. Here’s a breakdown of these advantages:

Speed

ChatGPT can quickly extract sections related to payment terms, termination clauses, or confidentiality provisions. Instead of spending time reading each line, it completes this task in seconds, significantly reducing the time needed to review each contract.

On the other hand, a specialized AI tool like Spellbook enables users to review multiple sections of a single contract simultaneously, enabling multitasking and boosting efficiency.

Efficiency

ChatGPT quickly flags contract sections that need clarification, helping reduce risks associated with the contract by improving the language.

Spellbook enhances the efficiency of the contract review process while offering additional benefits. These include general reviews, automatic compliance checks, automatic redlining, and the ability to compare contracts against industry benchmarks.

Consistency

ChatGPT analyzes contracts based on user prompts, which can vary significantly. ChatGPT often offers different versions of clauses and contracts each time it is prompted. This variety can inspire lawyers when they need new content but lacks consistency. 

Spellbook’s automated drafting features ensure uniformity in structure and language across all documents. Comparing contracts against industry benchmarks using Spellbook ensures contracts maintain consistent legal standards. 

Cost-Effectiveness

ChatGPT-assisted reviews help lower costs by minimizing the time required to review basic legal agreements. This efficiency allows lawyers to focus on more profitable tasks in their practices.

Spellbook is specifically designed for legal professionals, and its focus on transactional law ensures more accurate and relevant outputs. Unlike a generalized tool like ChatGPT, it’s designed to understand and contextualize complex contracts using legal databases. This reduces the time spent manually editing or correcting generic AI outputs, leading to cost savings in legal work.

Accessibility

Traditionally, expensive technologies primarily served large law firms. However, ChatGPT makes advanced technology accessible to everyone, potentially enhancing legal service delivery for all firms.

Spellbook is particularly well-suited for solo practitioners, as well as small and mid-sized legal teams. Its powerful contract drafting and review tools are user-friendly and integrate seamlessly into daily workflows. 

Spellbook is designed to be affordable and easy to use, unlike more costly and complex legal tech solutions. It helps smaller practices save time by automating tasks such as contract drafting, redlining, and compliance checks, granting smaller firms the same efficiencies and capabilities as larger firms without requiring a hefty budget or extensive technical expertise.

Limitations of Using ChatGPT for Contract Review

ChatGPT abilities have shown to be ineffective for reviewing contracts with subtle legal nuances. For example, cases that involve indemnity clauses and jurisdiction-specific terms may need a deeper legal understanding, which ChatGPT lacks. Additional challenges in relying on ChatGPT for contract review include:

• The potential for incorrect responses
• Incomplete reviews due to ChatGPT’s inability to understand the contract completely
• Data handling and storage concerns
• Data input reliability and accuracy
• Lack of transparency into how ChatGPT works and accountability for its output

Accuracy Issues

When assessing the accuracy of ChatGPT-assisted reviews, the complexity of legal language stands out as a major issue.

If ChatGPT cannot understand all the potential issues in a contract’s terms and conditions, the rights and responsibilities of the parties, and other clauses in a legal context, its reviews will be incomplete. AI may overlook issues that need further attention, clarification, deletion, or modification.

ChatGPT sometimes generates text that seems legally valid but may contain inaccuracies because it lacks a deep understanding of legal concepts and may use outdated information. This limitation significantly hampers ChatGPT's ability to evaluate compliance with the latest legal standards across various jurisdictions.

Lack of Contextual Understanding

ChatGPT's foundation consists of various texts, including books, codes, articles, and a wide range of publicly available sources. This diversity helps it understand broad inputs, but it does not cover all legal terms. It understands general legal information, but ChatGPT can misinterpret or overlook the nuances of legal language in various contexts and contracts.

In contrast, Spellbook is trained on billions of lines of legal text to grasp various jurisdictions, standards, legal implications, contractual terms, regulations, laws, and historical contexts. The developers of Spellbook incorporate multiple legal sources to enhance Spellbook’s understanding of legal language across various contracts and agreements. And prompting behind the scenes ensures legal focus and relevance. 

Data Privacy Concerns

ChatGPT retains the right to share the information you provide with its human trainers, who monitor and improve the tool. While ChatGPT's data handling can improve its responses, it may compromise client confidentiality, which is critical for legal professionals.

In contrast, Spellbook does not use your documents for training and maintains Zero Data Retention agreements with its partners, ensuring your information always remains private.

Dependence on Quality Input

ChatGPT may struggle to grasp the context and nuances of a contract that contains errors, ambiguities, or inconsistencies. This can result in less accurate or valuable interpretations, making generated recommendations of limited use. To obtain more reliable outputs, providing clear and well-structured input is essential.

Spellbook is specifically trained to produce high-quality outputs that comply with legal standards. Even with flawed inputs, Spellbook is able to understand the context of a contract and produce usable, meaningful output.

Regulatory and Ethical Constraints

Liability and legal responsibility for ChatGPT's contract reviews are significant ethical considerations. Although regulations governing AI are still developing, more states are adopting general principles that emphasize compliance with lawyers’ professional conduct rules and ethical codes. 

Spellbook keeps updated on the latest rulings and ethical factors, ensuring that any use of Spellbook complies with legal and ethical standards in any jurisdiction.

Integration with Microsoft Word

ChatGPT is a separate tool that isn’t directly integrated with MS Word or Google Docs. This means you need to switch between different windows to apply ChatGPT's contract suggestions, slowing the review process. This multiple-window workflow may lead to more mistakes than when using a user-friendly, straightforward application. 

Legal-focused AI, like Spellbook, will typically live where lawyers already work, such as the familiar MS Word environment, providing easy-to-use contract review features on the same screen as the contract they’re working on.

How Spellbook Overcomes These Issues to Avoid Legal Implications

Spellbook outperforms ChatGPT in evaluating all elements of contracts, including clauses, implications of contract terms, and negotiation points from the perspective of the chosen contracting parties during a review. The tool offers several strengths in contract reviews that make it more reliable than ChatGPT:

• Legal expertise: While ChatGPT provides general language processing, Spellbook specializes in transactional law and has a more in-depth understanding of legal nuances.
• Automatic redlining and clause management: Spellbook users can easily track changes and compare contract versions, ensuring consistency across multiple complex legal edits.
• Customization with contract playbooks: Unlike ChatGPT, Spellbook enables firms to integrate their contract playbooks, ensuring each review adheres to preferred terms, negotiation strategies, and compliance standards.
• Benchmarking and compliance checks: Spellbook can automatically compare contracts against industry benchmarks and flag potential risks and compliance issues.
• Seamless integration with MS Word: Spellbook integrates directly with Microsoft Word, letting lawyers and contract specialists work with the tools they are familiar with.
• Multiple reviews and collaboration: Spellbook facilitates numerous reviews of the same contract, enhancing collaboration.

Key Takeaways

ChatGPT can be a beneficial tool for the contract review process, but its limitations should be kept in mind. While it cut one real estate firm’s time for initial contract reviews by up to 50%, there are still many questions about its accuracy, responsibility, and data handling. Plus, to effectively use ChatGPT for contract analysis, it must first be extensively trained.

The effectiveness and usability of ChatGPT depend on its training algorithms and data, the contract's quality, and the language's complexity. For more reliable contract reviews that are ready to use without training, consider tools designed specifically for legal professionals, such as Spellbook, which expands benefits and addresses limitations.

Frequently Asked Questions

How Secure Are Data ChatGPT Processes?

AI systems like ChatGPT implement various security measures to protect data. These measures include encryption during transmission and storage, user access controls, security audits, and vulnerability management. However, ChatGPT’s free version provides less transparency in data handling than the premium version. Additionally, ChatGPT may use your data for training and improvements.

Are There Any Regulatory Restrictions on Using AI for Contract Review?

Regulatory restrictions on AI-assisted contract reviews include data privacy laws such as GDPR and CCPA, which ensure confidentiality and proper handling of sensitive information. Lawyers and legal professionals must also follow professional and ethical conduct rules when using AI tools. Furthermore, industry-specific regulations require contracts to comply with laws governing particular sectors, including AI integration and dispute resolution provisions.

Can ChatGPT Identify All Key Clauses in a Contract?

ChatGPT can extract key clauses from contracts. It recognizes patterns but may struggle with ambiguous language, complex terms, and unconventional clauses, which can lead to missed provisions.