Contracts & Artificial Intelligence: Hit or Miss?
Sep 05, 2022 | 5 min read
Contracts-and-AI-Is-the Intelligence Intelligent Enough

Businesses strive to increase their adoption of the technology trends to improve their efficiency and profit, Legal departments are no different. AI helps Legal and Contract professionals to quickly perform routine tasks like data extraction, contract review, or analytics reporting.

According to The Future Ready Lawyer Report 2021 by Wolters Kluwer, 70% of legal professionals say Artificial Intelligence will have an impact on their department, up from 58% in 2020. That said, AI still does not replace the vital role of legal or contract teams. Why so? We discuss that in this blog.

“Although AI is set to explore some new avenues and significantly impact how a robot performs human functions, the advanced protocols of programming a robot close to human-level perfection is still an inconceivable wish.”

– BusinessToday India

1. The emotional intellect that contracts need

Contracts are the foundation of business relationships – the relations a business has with its stakeholders like its suppliers, partners, and customers. Contract relationships are personal communications between two businesses that require emotions, wit, expressing gratitude, etc. to get the maximum output from the contract terms.

  • Critical contract management decisions involve understanding the elements of a contract’s lifecycle to extract meaningful data insights, for which human intellect is essential
  • Businesses can not use AI for contract negotiations, renewal decisions, or solving contract issue
  • AI cannot itself establish or maintain counterparty relationships – which are beyond just the business transactions

2. AI needs a lot of data & consistency

With hundreds of contracts to manage, sorting through all of them and finding the ones you are looking for is essential, but it becomes a challenge due to the lack of efficient file tracking and search capabilities. Advanced search and tracking empowers professionals with efficient contract lifecycle management in the form of better insights into the contracts data and enhanced visibility.

  • Most contract management scenarios don’t have a pattern – Different contract types and terms deal require a specific approach
  • Organizations don’t have historical data on contract decisions and the work culture between departments is siloed
  • There is no industry standard or benchmark for contract negotiation except for simple sales or low-value contracts

3. The effort-to-value that AI provides is a big question

More contracts mean bigger workloads due to increased regulations and associated complexity inefficiencies that can result in lost deals and unmitigated risks. This is the reason why AI is being incorporated to free up Legal and Contract Management teams from tedious day-to-day contract-related tasks although it does come with the price of added infrastructure, training, and maintenance.

  • The efforts to capture, train and maintain AI-related technologies can sometimes seem a lot to some businesses
  • When AI Contract Management stays limited to just automatic data capturing or redlining, most enterprises don’t see it as valuable
  • Contrary to what AI is supposed to do, it can sometimes be a hindrance to professionals who are used to performing contract tasks differently

4. AI’s role adaptability & multiple streams of work

Contract management involves various people, departments & integrations, applications, customers, and vendor types unless it’s a repeatable process 100s of times over. Evaluating a contract’s ability to meet your business goals requires different teams to adapt to the contract lifecycle right from contract drafting to contract renewals/termination.

  • Humans embrace change and adapt when it’s necessary for the good of the business while machines are programmed for specific roles
  • Role adaptability enables flexibility, collaboration, and an iterative approach which results in better collaboration and stronger relationships with customers
  • It enables businesses to adapt and accommodate more rapidly, so that when requirements or technology changes, the entire contract doesn’t have to be amended
5. The creativity & agility of contract & legal professionals

Effective contract management demands creative ideas and problem-solving techniques to keep team members engaged and deliver better products to clients. You also need to adapt to the needs of various expectations, obligations, performance metrics, and any compliance issues time-to-time for which presence of mind and critical thinking is essential.

  • Not all contracts have the same objectives, linear process, different types & complexities need a different approach
  • The key to making AI work is legal insight, contextual awareness for the counterparty, and creative issue resolution
  • Learning from work patterns does simplify the job, but it lacks the outside-of-the-box thinking like making legal processes more human-centered, usable, and satisfying

6. The social awareness & collaboration needed to fuel contract relationships

Businesses rely on people’s ability to create and understand contracts, especially in response to a sudden and global circumstance – like a global lockdown. Digital systems to collaborate on contracts help non-legal teams engage in the contract execution process better. They enable stakeholders and decision makers to approve, edit, and execute contracts on any mobile device, anytime.

  • People working with counterparties such as contractors and suppliers intuitively know when a contract is a borderline risk, or when a payment will be made or won’t be renewed
  • When is collaborative, they have insights into contractual outcomes much ahead of actual events
  • Natural human skills are tricky for machines, and what’s easy for machines (analyzing tons of data in seconds) is practically impossible for humans. Business needs both kinds of capabilities

AI makes contract management more efficient by extracting data and analyzing contract data like renewal dates, renegotiation clauses, obligations, etc. helping businesses evaluate contracts faster, and organize and locate vast amounts of contract data more readily reducing the risk of contract disputes. Having said that, it constantly needs human interference and creativity to direct and correct its assumptions which is why AI-Human collaboration is the way to go.

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