AI Contract Review: The Complete Buyer’s Guide

Contract reviews can be one of the most  time-consuming and tedious aspects of contract lifecycle management (CLM). The use of artificial intelligence (AI) in contract management software is changing the game when it comes to searching and extracting information directly from your agreements.

In this comprehensive guide, you’ll learn how to easily integrate AI tools into your contract review processes — streamlining your contract reviews and saving you time.

What is AI contract review?

AI contract review is the use of trained artificial intelligence to search, analyze, and review legal documents. It uses specialized AI that’s been trained on legal documents to search contracts and analyze them at a fraction of the time a legal professional can. 

Here’s a step-by-step overview of what a time-consuming manual review process might look like.

1. You receive a contract. Depending on whether it’s a paper printout, an MS Word doc, or a PDF, you may have to scan it or open it in a specific software program.
2. You or your in-house legal team spend hours looking through the contract searching for any inconsistencies or identifying potential compliance issues.
3. After hours of review, you make your notes for suggestions or changes and send the contract back to the sender for their review of those changes.
4. When you’ve finally arrived at an approved version, you send the final file to the signer, and wait days or weeks for them to sign and return the file to you.
5. You make a note on your calendar to circle back with the signer when it’s time to renew or renegotiate the contract.

This manual contract review process is time-consuming and tiresome, and it’s work that can only be done by those with a certain level of legal expertise. In contrast, AI contract review is faster and more efficient. It’s not the same as a lawyer, by any means. 

But AI contract review can do the tedious and mentally-taxing work of contract review with ease — freeing you up to focus on building relationships and growing your business. 

For example, an AI contract review would look more like this:

1. You receive a contract, and drop the file straight into your CLM tool. 
2. It takes a fraction of the time, 30% less time in some cases, for AI to search, compare, and check for any inconsistencies between contracts, helping mitigate potential compliance issues.
3. After a much faster and more efficient review, you make your notes for suggestions or changes directly in the file itself and send notifications for stakeholders and other parties to review the changes.
4. The sender applies their final approval and e-signature in the same live document, saving thousands of dollars in labor hours. 
5. AI-extracted data helps you set automatic deadline reminders, so you’re notified about upcoming lifecycle dates and can plan renewals and renegotiations in advance. 

How does AI help with contract review?

To understand how AI can efficiently search and analyze a document, we first need to understand how it learns. 

Optical character recognition (OCR)

Optical character recognition (OCR) takes text from a scanned or digital document and transforms it into a format that the AI can understand. OCR is most commonly used in contract management software as a way to make PDFs easily searchable for names, dates, and terms. 

Machine learning and large language models (LLM)

Machine learning and large learning models use large volumes of datasets to train AI. By examining thousands of pages of legal documents, the AI learns key terms and phrases that tend to frequently show up in contracts. From there, it predicts patterns and flags inconsistencies that it finds within those contracts. 

This can be a big benefit when it comes to contract reviews in general, but especially when it comes to compliance, as that’s more time you have to review those inconsistencies and address them if needed.

Natural language processing (NLP) 

More than simply reading and recognizing patterns, NLP gives AI the ability to read, analyze, and make suggestions based on relevant data that’s been learned over time. With NLP, AI can now summarize complex legal issues, freeing up valuable time for legal professionals to focus on business-critical activities.

AI’s ability to continually learn and improve is an important feature of AI contract review. It won’t replace an entire legal team, but it can certainly assist in some key aspects of contract review such as: 

Contract comparison

If your company is tasked with managing a large number of contracts, then you know how many labor hours go into contract review. Imagine the time that could be saved by not needing an expert to examine every single contract for simple inconsistencies such as misspelled names or incorrect dollar amounts. 

AI contract review can search multiple contracts for discrepancies in a fraction of the time. It not only saves money on work hours, but it also frees up your team for more cross-functional work that offers more value.

Data extraction

AI can help you extract basic key data from contracts such as names or dates. By extracting this information, you can quickly organize contracts by vendor or dates to make them easier to locate later. This sort of contract administration can take a tremendous amount of time when done manually. 

With AI contract review, you can find and analyze pertinent data quickly and efficiently. This saves time and helps streamline the review process, but it also helps with accuracy.  

Benefits of AI contract review

Contract review is a necessary part of any contract lifecycle. AI contract review has many benefits that manual review just can’t offer. Here are a few.

Cost savings

The more your business grows, the more legal experts you need to hire to handle the volume of contracts you’re processing. Unless you adopt AI contract review software, which can reduce the number of hours spent on document review, and enable people in Operations and Procurement to handle more non-negotiated contracts.

Improved accuracy and reduced errors

Contract review is tedious work. Mistakes can happen even with the most careful and capable professionals. Because AI isn’t prone to the same mental fatigue as people, it can review documents with greater accuracy and fewer errors. This improved accuracy means your teams  won’t miss a renewal date or skip over an important clause.

Time savings

More contracts should be a good thing. More contracts means more revenue. Unfortunately, more contract reviews can create backlogs and slower turnaround times. With AI-powered contract management software, you can review more documents in less time, shortening your turnaround times and boosting efficiency for your entire review process by as much as 80%.

Enhanced contract risk management

When it comes to contract risks, AI is a powerhouse of useful features. It can help speed up your review process by looking for basic key terms, helping decrease turnaround times and giving you more opportunities to close deals. It can also assist you in recognizing potential discrepancies between contracts, shining a light on possible compliance issues. Because these features make contract review faster and less error-prone, you’ll also boost efficiency and accuracy.

Better data insights and analytics

Since contract review AI is looking at large datasets of legal documents in a short amount of time, it can detect patterns that might otherwise go unnoticed by a single individual looking at multiple documents over several months. 

Patterns pertaining to termination dates, pricing adjustments, or conditions can prove useful when making important financial or legal decisions as those factors can impact negotiations. Of course this data should always be examined by a legal professional, but AI can help reveal vital information, like a gradual increase in cost over time, that human eyes alone might miss.

Challenges and considerations with AI contract review

While contract review AI has many benefits, those benefits come with some challenges. It’s important to be aware of these challenges if you’re thinking about adopting a more AI-forward approach to your contract review process. Some issues to consider include:

Quality of data analysis

The amount of data you can collect with AI is virtually limitless. The quality of the data analysis, however, can be hit or miss. Although AI can process information much faster than a human, it can’t always calculate the quality of that information — namely if it’s accurate or not. 

While this is less of an issue with straightforward data points like names and dates, it can become a bigger concern with phrases and clauses. Legal terminology and clauses can be more complex and easier for an AI to misinterpret. You’ll still want to have a legal expert review the more potentially complicated aspects of a contract rather than relying solely on AI. 

AI limitations and potential errors

While AI learns continuously, it can only pull data within the scope it’s been given. Even with data extraction such as names and dates, it’s possible that the information you ask the AI to extract is beyond its scope. 

AI-extracted data can also contain errors — like misspelling a name or mixing up a date with an unclear format (i.e. day/month/year or month/day/year). Additionally, if there is more than one date range in a contract, it might give you the incorrect dates.

As you use the AI, pay attention to what it does well and what it doesn’t. If you notice there’s an area where it’s less reliable, create steps to manually review those areas and work those into your timeline.

Legal and ethical implications

Recently concerns regarding privacy with AI and sensitive information being leaked have emerged. Since third-party AI chatbots store data on servers operating outside your company, you can’t permanently delete, or fully control who has access to, your data once it’s out there. To mitigate legal risks, don’t choose an AI that trains and stores your data with a third-party LLM. 

Human-in-the-loop approach

There are several reasons why AI has yet to replace legal professionals, and why humans are still in the loop when it comes to contract reviews. 

• AI’s lack of discernment when it comes to quality and accuracy of data
• The ethical and legal implications of involving AI in reviews
• The value that an experienced professional brings to contract review 

AI is fast, but humans have broader experiences. AI contract review should ideally incorporate  both AI efficiency and human expertise.

Overcoming resistance to change

Even the most capable team of professionals can feel nervous or uneasy about adopting new systems or technology. In fact, it’s often the most capable people who worry about new technology disrupting their well-established processes. Support from leadership will play an important role as you onboard a new system and processes. Offer training for your team to get more comfortable using AI. Choose a platform with continued customer support, as that can make the change adoption process less painful as well.

How to implement AI contract review in your organization

Does it seem like AI contract review is something your organization could benefit from? If so, the next step is implementation and integration. Let’s explore what the implementation process might look like. 

Choose the right AI tool 

Know what your contract review needs are in terms of type and volume. Choose a platform that offers ongoing support and training for your team. Think about scalability, where your organization is headed, and which software can help you get there. Consider data privacy and how the platform is taking steps to protect your data. Cost is another factor as it should be a positive ROI for your organization. 

Integrate AI into existing workflows

Find your pain points with contract review in terms of time or human error and begin integrating in those areas. Be clear with your team about what your goals are for integrating AI into their workflows. Start small by using AI to help in your review of certain contracts until the process is fully fleshed out. 

Finally, by choosing the right AI contract analysis tool that looks and feels similar to what your team is already used to, you’ll make it easier for them to integrate AI into their existing contract review processes–saving time and reducing change fatigue. 

Train employees on AI contract review

Provide hands-on training yourself or through support from your AI platform. Help your team understand the functionality and limitations of the AI tool they’re using. They should also understand how to recognize potential errors in AI outputs. Provide steps that your team can follow to offer feedback and make improvements to the process. 

Track ROI and other key performance metrics

A simple way to measure return on investment (ROI) on AI contract review is work hours. How much time and money are you saving by letting AI do the time-consuming tedious work for you? You might be surprised how much time is being spent on administrative tasks that AI can do much more quickly and accurately. Furthermore, with quicker turnaround times you could find that your business relationships are improved as well. 

Future trends and developments in AI contract review

What AI is capable of today may look very different in a year or two. Even if you’re already using AI as part of your contract review process, it’s likely that you’ll be using it for more and more assistance in the not-too-distant future.

Advancements in AI contract review technology

While the current AI contract review functionality is helpful, it’s still limited in terms of what it can reliably accomplish. Looking forward, the possibilities could include things like:

• Quick summation of aggregated financial information based on dollar amounts found in your contracts to assist with contract negotiations
• More flexibility for contract automation to assist with analyzing larger volumes of data across different platforms (sales, legal, procurement etc.) and integrating them for broader use across departments
• AI-powered customizable reports, more intelligent summarizing of data across large volumes of contracts, and integration with ERP systems to enable data in contracts to inform budgets and risk forecasts
• Useful predictions about expected expenses vs. actual expenses to make building realistic budgets easier over time

Integrations with other technologies

In the future, you can look for AI options that will work with contract management as well as enterprise resource planning (ERP) platforms to pull financial data from contracts and assist in building reports to make financial processes and contract negotiations more efficient.

The role of AI in contract drafting

As it stands now, certain AIs are technically capable of drafting a contract, although you still wouldn’t want to blindly trust an AI to draft your contracts as you can’t be sure of their accuracy. What’s more likely, is that humans will continue to draft contracts with the help of AI. Through the use of key word prompts, AI will be able to assist you in drafting contracts from scratch.

Impact of AI on the legal profession

While AI contract review has made some impressive strides, and continues to do so, it still has considerable limitations. Thus far, the impact of AI on legal professionals has largely been based on the amount of data extraction it can do — allowing them to allocate their time to more business-critical tasks.

Comparison of AI contract review platforms

Luminance AI

Luminance AI offers advanced NLP capabilities, strong integration, and a wide range of features such as risk assessment and data analytics.

Pros:

• More advanced NLP capabilities for accurate contract data analysis
• Strong integration with existing contract review workflows

Cons:

• Potentially more expensive compared to other options
• May require more technical expertise in order to be fully adopted by your team

Kira Systems

Kira Systems provides a user-friendly interface and strong support, with a focus on contract comparison and negotiation.

Pros:

• User-friendly interface with an intuitive workflow
• Strong customer support and training resources
• Offers a wide range of features including contract comparison and negotiation support

Cons:

• The NLP might not be as advanced as some of its competitors
• Pricing can be higher for larger volumes of documents

LawGeex

LawGeex is an affordable and easy-to-use platform with a strong focus on streamlining and improving review and negotiation processes.

Pros:

• More affordable pricing
• Easy to use — even for new users
• Offers a strong focus on streamlining contract review and negotiation processes

Cons:

• NLP capabilities might not be as advanced as some competitors
• Limited integration options compared to other platforms

Concord

Concord emphasizes collaboration and negotiation, offering a wide range of contract lifecycle management features.

Pros:

• User-friendly interface and intuitive workflow
• Strong focus on collaboration and negotiation.
• Offers a wide range of contract lifecycle management features from contract creation to renewal

Cons:

• Pricing can be higher for larger organizations
• Might not have the same level of advanced NLP capabilities as some competitors

Conclusion: AI is powerful, but not foolproof

Contract review AI can help your team in a wide variety of ways. It can save you time, increase accuracy and speed, and reduce cost and errors. It can also help with data extraction and other administrative tasks. 

You should always be mindful that while AI has many strengths, it isn’t foolproof. While it can extract a much larger volume of data than a human can, that data may not always be accurate.  Additionally, concerns regarding organizational privacy are coming into question when it comes to third-party LLM learning and data storage. 

Looking to the future, the potential for AI in contract review is limitless. This will undoubtedly raise more questions and concerns about privacy and ethics. The legal profession can benefit tremendously from using AI in contract review, but legal professionals should always use good judgment and best practices when utilizing AI.

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