September 20, 2023
By PramataPage Reading Time: 5 minutes
If you ask your legal team what one of their biggest challenges is, the phrase “contract management” will undoubtedly come up. Improving the contract management process, increasing efficiency and finding the right legal tech stack is a top priority for legal operation teams year after year. Yet, many organizations still struggle with years of disorganized contracts and outdated processes. In many cases, contracts live in multiple locations and it’s anyone’s guess as to which one is the most recent version.
As a legal ops professional, “contract chaos” may not directly impact your day-to-day, but it’s a huge barrier to your legal team’s productivity. It costs the company money, whether from spending time inefficiently or paying for unnecessary outsourced legal hours. And it creates risks: the risk of no centralized visibility to contract terms and requests, the risk of missed opportunities to accelerate deals or remove unfavorable terms at renewal – just to name a few.
Even if everyone is resigned to using the current system, regardless of these costs and risks, legal operations should never be satisfied to let bad processes go unquestioned.
Generative AI can be the “assistant” your legal team needs
Another blog about generative AI? Before you tune out, we’re not here to tell you that AI is going to replace your legal team.
The truth is, generative AI has huge potential to transform the way legal teams work, but not because it’ll do real, thoughtful, legal work for them. Instead, generative AI will be the assistant your lawyers always wished they had. A tool that can effortlessly read and summarize large document sets in seconds, or instantly pinpoint parts of a contract that aren’t in line with your company’s playbook. Amplifying each legal team’s capabilities by removing admin work is where generative AI really shines.
While we can’t cover everything in one short article, we’ll touch on three of the ways incorporating generative AI into your contract management process can solve many of the traditional CLM shortfalls.
The Challenges of Traditional CLM
Even with a CLM in place, managing contracts can still be a complex and time-consuming endeavor. Traditional CLMs, even when they incorporate some degree of AI, often suffer from these common limitations:
- Without a central (and clean) repository, the system is trying to pull contract data from fragmented sources, or missing some sources entirely.
- The system isn’t able to effectively analyze contract data in real-time, as each new contract is added.
- The system’s functionality is based on rules, which even with the help of AI, fails to capture the full meaning that lives within contracts.
- Rigid templates and workflows can’t possibly work for the large variety of contracts most organizations deal with.
- The system doesn’t have the ability to understand relationships and hierarchies between different contracts within the same document family, nor does it know how to organize these document families on its own.
- The system focuses on individual documents and not the entire library of contracts or the relationship between different documents.
As you might guess, traditional CLMs with these limitations might be a step in the right direction but they’re hardly a full solution to your legal team’s needs. Moreover, any tasks performed by, or information gleaned from, this type of system still needs a thorough review by a highly trained (and highly paid) legal professional. In some cases, investing in a traditional CLM can create more work than it relieves, which doesn’t delight your legal team or anyone else around the company who feels the ripple effect of difficult contract management.
Generative AI is changing the game
Enter generative AI. And forget, for a moment, the publicly available large language models (LLMs) like Google’s Bard or Microsoft’s Bing, which are impressive but not platforms you should trust with the entirety of your company’s contract data.
Instead, we’re talking about generative AI that exists within your CLM platform and only draws from the contracts and documents you provide it. In this way, the AI lives inside a closed environment, known in technical terms as a sandbox.
How is generative AI different?
Generative AI has the potential to provide unprecedented levels of accuracy and speed for anyone looking to unlock the data within hundreds or thousands of documents. With the right data set and prompts, generative AI can perform a wide variety of detailed contract analyzes that traditional approaches cannot.
Unlike traditional methods, generative AI takes a more flexible approach that centers around learning and simulating human-like language capabilities. This means the models don’t need strict templates and standardized workflows, but rather acquire language skills in an unstructured manner, similar to humans. This revolutionary ability allows legal teams to automate more aspects of their document review process than ever before, all without having to manually create or update templates.
Generative AI can also provide invaluable insights into the risk factors that might otherwise be hidden deep within contracts. It does this by quickly summarizing documents, identifying discrepancies, and analyzing risks from a variety of angles.
By leveraging this technology for your legal team’s needs you can reduce costs while improving accuracy and efficiency across multiple areas of your business. And here’s how!
3 ways generative AI empowers legal teams
All of this sounds great, but you want to know how generative AI will make a concrete difference in your legal team, sales team, procurement team, or others’ processes. Here are just three of the ways generative AI + CLM, when done correctly, can reduce the burden on your legal team and empower them to serve the entire business better.
1. Quickly summarize contracts
Generative AI can be used to quickly review large numbers of documents and pull out key terms, themes, changes over time, etc. This dramatically reduces the time a highly-trained human needs to spend doing the same. With the right prompt, “Summarize the changes across the master and all amendments,” for example, and the right data set, generative AI can provide an accurate answer that would have taken a person hours of reading to obtain.
2. Instantly analyze risk
When provided with your compliance and playbook requirements (in plain English, no less!) generative AI can identify terms and conditions in your contracts that present risk or are entirely noncompliant. Having these risks pinpointed removes the most time-consuming step and allows your legal team to address the risks in order of priority.
3. Assist in contract authoring
Sure, there are plenty of cases when you need an attorney to draft a custom portion of a contract. But there are many more instances when standard language will do the job, as long as it’s compliant with your best practices, industry standards, and your contract playbook. Generative AI can be used to speed up contract drafting by suggesting language based on past agreements and current business objectives. It can also detect discrepancies between existing contracts and your standards, and alert attorneys of potential risks that arise based on contract language.
Limitations of generative AI for legal teams
No discussion of generative AI for legal teams would be complete without touching on the limitations of this groundbreaking technology.
While it can provide a powerful tool for quickly reviewing and summarizing documents, identifying discrepancies, and analyzing risks, it’s also subject to the same biases as humans, particularly when trained on biased or incorrect information. Additionally, generative AI can suffer from “hallucinations” where it produces seemingly factual information that simply isn’t.
Most of the major pitfalls of using generative AI in the legal context can be mitigated by high quality, clean data on the input side and skilled prompt engineering, along with an expert human’s review, on the output side.
A new world of AI-powered contract management
These three capabilities are just scratching the surface of how generative AI can aid legal teams (and, as a result, the rest of the company) work faster, smarter, safer, and for less cost. For a deeper dive into the game-changing ways AI can power a new way of managing contracts, check out The Ultimate GenAI Playbook for Contract Management by Pramata.