Leveraging AI for Smarter Contract Lifecycle Management
Table of contents
- AI in contract lifecycle management: enhancing efficiency and reducing risk
- The growing impact of AI in contract management
- Key applications of AI in contract management
- Addressing the challenges: trust and data security
- The role of human oversight in AI-driven contract management
- Conclusion: the future of AI in contract lifecycle management
As Artificial Intelligence continues to revolutionize various industries, its potential in contract management is becoming increasingly apparent. From automating routine tasks to providing deeper insights, AI is transforming how legal and finance teams handle contracts. However, organizations must navigate challenges like trust, data security, and algorithmic bias to fully leverage AI’s power. In this article, we explore the benefits, applications, and considerations for integrating AI into contract management systems.
AI in contract lifecycle management: enhancing efficiency and reducing risk
Artificial intelligence is rapidly transforming the landscape of contract analysis, offering unprecedented opportunities for organizations to increase efficiency, reduce risk, and gain deeper insights into their contract management processes. While 88% of survey respondents recognize AI’s revolutionary potential, they also acknowledge the importance of careful implementation and human oversight, as showed in our Agreement Intelligence Market Report. This dual perspective reflects the significant advantages AI brings to contract lifecycle management (CLM), along with the need for responsible deployment to avoid potential pitfalls.
The growing impact of AI in contract management
AI is increasingly seen as a game-changer in the field of contract management. “I want AI,” says Lia Denise Costa, Legal Counsel at Worten, echoing the enthusiasm surrounding AI’s capabilities. Giada Tolazzi, Legal Operations at Satispay, highlights AI’s effectiveness in managing contract lifecycles: “It works very well.” One of the key applications driving AI’s impact is automated data extraction. AI can quickly and accurately extract key information from business contracts—such as parties involved, lifecycle dates, dollar amounts, and contract types—saving countless hours of manual data entry.
Key applications of AI in contract management
However, the benefits of AI extend far beyond data extraction. AI is also being deployed in various other contract management tasks, including:
- Clause Identification: AI automatically identifies and classifies key clauses, such as termination, liability limitations, and payment terms, which are essential for effective contract review and management.
- Risk Scoring: AI can assess the risk level of contracts based on predefined criteria and historical data, enabling organizations to identify and mitigate potential risks proactively.
- Anomaly Detection: AI systems can detect unusual or problematic contract clauses and terms that deviate from standard practices or pre-approved templates, ensuring consistency and compliance.
- Compliance Monitoring: AI helps ensure contracts comply with relevant regulations and internal policies, reducing the risk of non-compliance.
By automating these tasks, AI significantly improves efficiency, allowing legal and finance professionals to focus on higher-value activities. AI’s ability to process large volumes of contract data in a fraction of the time it would take humans results in substantial time savings and enhanced productivity.
Addressing the challenges: trust and data security
Despite these advantages, the enthusiasm surrounding AI in CLM is tempered by concerns over data security, algorithmic bias, and the accuracy of AI-generated insights. As Hannah Lane, Contract Specialist at Phia Group, points out, “I don’t trust AI for analyzing agreements.” This sentiment stems from the recognition that AI, while powerful, is not infallible. AI algorithms can perpetuate biases present in the data they are trained on, potentially leading to biased or discriminatory outcomes. Furthermore, the “black box” nature of some AI models makes it difficult to understand why certain decisions or recommendations were made, which can hinder trust in the system.
The role of human oversight in AI-driven contract management
Pepe Carr, General Counsel at Sand Technologies, provides a balanced perspective on AI’s role: “If your learning model can raise their hand and say, ‘I don’t know what this is, please take a look,’ then you are off to reduce legal headcount.” This highlights the importance of “human-in-the-loop” systems, where AI assists legal professionals by flagging potential issues for review but does not make final decisions autonomously. This approach allows AI to augment human judgment rather than replace it entirely.
Tammy Carroll, Contract and Strategy Manager at OneCare Vermont, reinforces this point, stating, “You still need a human.” AI should be viewed as a tool that enhances human decision-making, not as a replacement for human expertise. Organizations must remain vigilant about data security, actively address potential biases, and ensure human oversight to ensure that AI is deployed responsibly and effectively in contract lifecycle management.
Conclusion: the future of AI in contract lifecycle management
In conclusion, AI offers transformative potential for contract management, from automating routine tasks to providing deeper insights into contract performance. However, to fully unlock its value, organizations must adopt AI solutions thoughtfully, with a clear understanding of the risks and the importance of human oversight. By combining AI’s strengths with human expertise, businesses can optimize their contract processes, reduce risk, and make more informed, data-driven decisions.
