Chatgpt took the world by storm in 2023, capturing collective attention and introducing “Gen AI” across business sectors. This innovation became more ubiquitous with its large language models (LLMs). We are all fascinated by the unique ways businesses use technology. However, one aspect that has witnessed immense transformation is generative AI in contract management.
Top legal firms, corporate legal departments, and procurement teams leverage AI to manage contracts. It is the best way to attain efficiency, innovation, and accuracy in the contract management lifecycle.
What is Generative AI?
To simply put, Gen AI uses artificial intelligence algorithms to analyze existing content components like text, images, and audio or identify underlying patterns related to those original inputs and create completely new content with similar ideation.
Ultimately, it is the branch of artificial intelligence that has the ability to create new content or data from the existing. Contract management services integrated with tech ensure that the extracted and abstracted terms are accurate and compliant.
How Does Generative AI Work in Contract Management?
As artificial intelligence in contract management has been transformative simultaneously, it has become a staple for industries to tap into its potential and make the most out of it. Let’s see how AI in contract management transforms contract management services:
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Automates Contract Creation:
Gen AI has been playing an integral role in contract lifecycle management (CLM), which is creation of contracts. Earlier, drafting contracts manually was one of the most time-consuming tasks that require high-level of expertise and meticulousness. With gen AI, you can train a system on a data set of contracts and make it learn to generate new contracts that are tailored to the specific needs of business, legal firms or corporate departments.
Gen AI has the ability to interact with natural language like a human being. These LLMs can quickly summarize contracts and segregate their components. Moreover, firms can also extract information such as pricing, expiry dates, renewals and auto renewals etc., indemnification and limitation of liability clause attributes, and more within seconds. Gen AI is highly smart in summarizing long text, saving you ample time.
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Improves Contract Analysis and Risk Assessment:
Gen AI is also used mainly to analyze and assess the risks of contracts. It can learn to predict potential risks related to a given contract by training it on a database of contracts and outcomes. It ensures an automated risk assessment to help organizations make informed and data-driven decisions about their contracts. In this way, you’ll be able to identify and mitigate potential risks before they cause problems.
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Streamlines the Contract Lifecycle:
Gen AI ultimately simplifies processes with minimum human intervention. Gen AI can help you constantly review, negotiate, and edit contracts. It also upholds legal and ethical compliance, which is essential to ensure adherence. Another factor that makes Gen AI the best choice is precision and reliability. It validates and tests the accuracy, ensuring transparent and auditable processes.
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Customized Contracts:
Can you imagine creating a legally compliant and tailored contract in minutes? With Gen AI, you can! Yes, that’s the reality. It has the ability to analyze massive datasets of existing agreements and can learn the nuances of legal language. It generates a draft tailored to the specific contract type or vendor.
The Impacts of Generative AI in Contract Management
AI in contract management delivers transformative benefits across various business functions:
1. Time Optimization
Gen AI automates the creation, review, and analysis of contracts, drastically reducing the time needed for contract management. This efficiency allows businesses to redirect valuable resources to more strategic initiatives, speeding up overall business operations and facilitating quicker decision-making.
2. Cost Efficiency
Using gen AI in contract management minimizes the reliance on manual labor, resulting in significant cost savings in human resources and operational expenses. Companies can reinvest these savings into innovation, expansion, or other critical areas that support growth and sustainability.
3. Risk Reduction
It enhances risk management by thoroughly analyzing contract clauses, terms, and conditions to identify potential risks. This proactive approach helps businesses avoid legal and financial pitfalls, prevent disputes, and maintain regulatory compliance, thereby protecting their reputation and financial health.
4. Enhanced Compliance
AI’s capability to accurately interpret and apply legal language ensures that contracts meet regulatory requirements and industry standards. This reduces the risk of compliance violations, penalties, and legal issues, fostering stakeholder trust and strengthening corporate governance.
5. Superior Decision-making
Gen AI provides access to detailed contract data and insights, equipping decision-makers with crucial information. By utilizing analytics and predictive tools, businesses can make well-informed decisions regarding contract negotiations, vendor management, and resource allocation, driving strategic success and a competitive edge.
Challenges and Solutions
Implementing gen Artificial Intelligence in contract management comes with its set of challenges, but with the right strategies, these can be effectively addressed:
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Data Quality
One of the most significant challenges is ensuring the availability of high-quality contract datasets for training AI models. AI systems rely heavily on large volumes of accurate and relevant data to learn and perform effectively. Poor-quality data can lead to inaccuracies and inefficiencies in AI-generated contracts.
Solution: Organizations need to invest in curating robust, comprehensive datasets. This involves collecting, cleaning, and organizing contract data to ensure it is relevant and high-quality. Regular updates and maintenance of this data are also crucial to keep the AI models accurate and reliable.
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Legal Expertise
Gen AI systems must be developed and implemented with a deep understanding of legal principles and practices. This requires close collaboration between AI experts and legal professionals to ensure that the AI-generated contracts are legally sound and comply with applicable laws and regulations.
Solution: Bridging the gap between technology and law involves continuous collaboration and knowledge exchange between AI developers and legal experts. This can be facilitated through interdisciplinary teams and ongoing training programs that keep both parties updated on the latest advancements and legal requirements. Integrating legal expertise into the AI development process ensures that the generated contracts are both accurate and compliant.
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Ethical Considerations
Ensuring fairness, transparency, and privacy in AI-generated contracts is a critical ethical challenge. AI systems must be designed to avoid biases, maintain transparency in their decision-making processes, and protect the privacy of sensitive information.
Solution: Organizations should implement rigorous ethical standards and practices in their AI development and deployment processes. This includes regular auditing of AI-generated contracts to detect and rectify any biases, ensuring transparency in how AI decisions are made, and safeguarding privacy by adhering to data protection regulations. Developing and enforcing clear ethical guidelines will help maintain trust and integrity in AI-driven contract management.
Empower Your Business with Gen AI and CLM
Efficient contract management is essential in today’s competitive business environment. Artifical intelligence in contract lifecycle management revolutionizes the process by automating and optimizing contract creation, analysis, and negotiation, reducing human error and identifying risks early.
At Legal Support World, we provide advanced solutions tailored to your contract management needs. Discover how LSW can transform your contract lifecycle management and secure your business’s future success.
Step confidently into the future with our generative AI solutions!
