Contract management might sound boring and it is exactly that. It is a tedious process of refining, authoring, negotiating, reviewing, and approving documents.
Earlier artificial intelligence (AI) was just a fever dream. Today AI is everywhere. People just love using it to speed up processes. (No, ChatGPT didn’t write this).
AI in contract management is gaining momentum like never before. About 50% of companies expect AI to improve contract management efficiency within the next 2-3 years. This article explains exactly why and how.
What is AI in Contract Management?
AI in contract management is the application of AI technology to improve and expedite the contract lifecycle management procedure. It uses AI techniques such as machine learning and natural language processing (NLP) to automate tasks, increase productivity, and reduce risks related to contract administration. Some of the AI contract automation solutions include Cenza, Contract Works, Contracts 365, Contract Logix, Gatekeeper, and many others.
Contracting experts can get insightful information by swiftly and precisely extracting and analyzing data from contracts using AI-based contract management tools. Contract types can be recognized by these systems, which can also extract and categorize contractual phrases and clauses and map them to pre-existing templates. They can also offer statistics on the frequency of contract renewals, the length of negotiations, and the approval procedures.
6 Benefits of Using AI in Contract Management
Below are various uses of AI in contract law.
- Automate compliance: It is difficult to handle everything manually when contract regulations evolve consistently. AI can play a role in streamlining compliance functions to facilitate risk management. Ensure the sensitive information in contracts is protected by encryption.
- Faster contract cycle times: AI contract analysis can minimize time taken for creating the entire document lifecycle, from drafting to review of the whole document. Eliminate errors while increasing efficiency.
- Reduced costs: Costs may arise out of mistakes made. The fewest number of such errors will be allowed by your contract management solution.
- Manage large datasets: By analyzing big data, CLM tools that are AI-based can identify patterns, detect anomalies, and optimize business processes.
- Minimize repetitive tasks: Contract development is cyclical but with AI based tools it may involve other obligations like retrieving information for you.
- Optimize finances: AI-driven contracts aid in streamlining workflows so that your team concentrates on relevant agreements and payments move more swiftly.
How does AI Improve Contract Management Processes?
AI enhances contract intelligence processes in various ways:
- Automated analysis of the contract: AI-powered contract management systems utilizing natural language processing (NLP) search for and understand contractual terms and clauses correctly. This leads to quicker, more accurate reviews of contracts that save time and effort spent on manual inspections.
- Contract consolidation: AI automates repetitive tasks and workflows to streamline the process of managing contracts. It can also identify types of contracts, extract classifiable terms, as well as point to templates where agreements have already been made. This saves time and improves efficiency.
- Improved risk management: By examining the legal language in a contract, AI can find potential risks that may arise. It ensures compliance with regulations and reduces any mistakes or omissions in contracting processes.
- Better Cooperation: AI driven tools for managing contracts facilitate interaction between service providers and those procuring their services. They create a central platform that helps people communicate unambiguously, share documents, delegate responsibilities among others making procurement process more accurate plus efficient.
- Contract assembly effectiveness: Contract generation is automated in AI-powered contract management systems that extract significant contract details and construct comprehensive contract records. This reduces manual intervention and streamlines the process of assembling contracts.
- AI based pattern recognition: AI enables contract management professionals to derive useful information from contracts. In fact, it identifies terms like performance, renewal rates, negotiation duration, and approval procedure, which in turn can be used for strategic decision-making.
- Higher speeds combined with efficiency gain: The use of robotic AI solutions in managing the contract makes repetitive tasks become automated hence causing improvement in speed as well as higher efficiency. This in turn would allow legal professionals to concentrate on other strategic issues apart from doing much data entry work day after day.
Also Read: How is AI Data Management Transforming Businesses?
Can You Trust Artificial Intelligence in Contract Management?
Yes, artificial intelligence (AI) can be trusted in contract management. AI-powered contract management systems have proven to be efficient and accurate in automating manual tasks, such as contract analysis and data extraction.
However, it is important to note that AI should only be used as an additional tool and not a sole one.
A few firms that handle contracts have expanded their services and are marketing themselves as using “AI to read a contract and give advice”. But rather than coming from AI, this “advice” is from a human. Because context is essential for providing advice, yet AI is incapable of determining it, AI cannot provide counsel.
Rather, these businesses utilize artificial intelligence (AI) as a text parser, much like a web search engine, to scan a contract for pre-defined words and phrases that are frequently the cause of contractual disputes, according to legal experts. After locating the desired text, the AI engine provides “advice” penned by the legal professionals who developed the program. We refer to these as rules-driven.
What Are The Disadvantages Of Using AI In Contract Management?
Limitations in Contextual Understanding
AI-powered contract management systems may struggle to capture the full context and interpret complex legal language accurately. Nuances and subtle differences in contracts may be overlooked or misinterpreted, potentially leading to errors or omissions.
Lack of Legal Advice
AI tools cannot provide legal advice. While they can assist in identifying potential risks and flagging areas of concern, human expertise is still necessary to ensure the legality and appropriateness of contract terms. Relying solely on AI without human oversight may result in legal issues.
Dependency on Data Quality
The reliability and quality of the data used to train AI systems is crucial. The performance and dependability of the AI-powered contract management system may be impacted if the supplied data contains biases or inaccuracies. To reduce this risk, regular data maintenance and validation are essential.
Cost and Accessibility
AI in contract management systems costs more. This is because it includes additional costs such as licensing fees, implementation costs, and ongoing maintenance expenses. This may limit accessibility for smaller organizations with limited resources.
Ethical Considerations
Using AI in contract management brings up important ethical issues, like data security and privacy. Organizations must protect sensitive contract information and use AI responsibly, following all relevant laws and regulations.
Bottom Line
AI in contract management can assist with a variety of functions. These include supplier search, negotiation, strategic planning, risk management, and more. Though it’s crucial to keep in mind that AI cannot completely replace human involvement, it can be a useful tool for improving the effectiveness and efficiency of contract administration.
