What Are the Benefits of AI Contract Analysis?
One of the biggest advantages of artificial intelligence (AI) is its ability to process and analyze massive amounts of data at a very fast rate.
Companies routinely need to analyze vast amounts of data while repeatedly reviewing their legal contracts. Specifically, legal teams need to regularly identify any potential risks in their contracts (such as potential expiration), look for opportunities to renegotiate, make sure that all information and clauses are accurate, and ensure all contractual obligations are being met.
Lawyers accomplish this by extracting data and expertly examining their contracts throughout their lifecycle, but this process is very slow and tiring. One way that companies have been getting around this is by using contract analysis software like what LexCheck offers. Contract analysis software utilizes AI to complete tasks in a matter of minutes that would require hours or days to be handled manually.
In this guide, we’ll uncover the basic process for how AI-powered chatbot analysis tools work, and then we’ll outline and discuss the primary benefits they have to offer legal teams with their work.
How Does AI-Powered Contract Analysis Work?
Two terms that you have likely seen being thrown around in discussions of artificial intelligence before are machine learning (ML) and natural language processing (NLP).
Both of these terms refer to subfields of AI and play a huge role in AI-powered contract analysis as well.
The Role of NLP and ML in Contract Analysis
NLP is the primary tool that helps lawyers search for specific data across thousands (or potentially tens of thousands) of contracts. That’s because NLP is the technology that allows software to interpret human language.
Specifically, NLP uses computer science and linguistics to study the structure and patterns in language. From there, it learns how to understand and analyze text and speech. As a result, NLP can learn the meaning and nuances behind morphology, syntax, and semantics.
In other words, NLP can learn about any double meanings or insinuations in text and speech. It’s the exact same technology that is used in AI-powered chatbots.
It’s at this point that ML comes into play. ML is simply a branch of AI that learns from data to identify patterns. It then makes predictions based on those patterns. In this case, it takes the data about learning the meaning behind language that NLP gathers, and it can then identify patterns and make predictions.
A contract analysis tool would then use its NLP capabilities to identify specific words in the text of the contracts and associate them with those predetermined categories. This is precisely how AI can classify hundreds, if not thousands, of contracts in a matter of seconds.
Incorporating AI Into Contract Analysis
The best way legal teams can incorporate AI into contract analysis is to give it repetitive tasks that would be very slow and exhausting for humans to complete manually but would not require human intervention (other than for a final check).
With this in mind, legal teams can utilize ML and NLP for a variety of such repetitive and yet critically important tasks, including (but not limited to) the following:
- Converting documents into text that is easily searchable
- Recommending different clauses and templates for different kinds of contracts
- Sending automated alerts that are associated with the obligations in contracts
- Identifying contracts that are nearing expiration
- Classifying contracts based on their types
- Editing contracts and checking for spelling and grammar errors
- Identifying any issues of non-compliance in contracts
- Identifying patterns that are present across contracts
Next, we’ll cover the primary benefits that AI-powered analysis tools have to offer their teams in greater detail.
The Primary Benefits of AI Contract Analysis
Here are the biggest advantages that contract analysis tools have to offer lawyers:
Saving Time
Easily the biggest thing that lawyers will save with the aid of a contract analysis tool is time. This is important, because as we all know, there’s very rarely a lawyer with enough time on their hands.
A contract analysis tool can perhaps be best viewed as a strategic partner for a lawyer. It can allow any lawyer to shy away from completing repetitive tasks to instead focusing more on their legal work or their relationships with their clients.
For instance, simply creating records for each contract a lawyer creates and then classifying those contracts by their details, dates, clauses, and permissions for who can access the document alone would save a lawyer several hours each week.
Issue Spotting
These AI tools can greatly improve the efficiency of legal professionals and teams by spotting issues and providing insights into legal documents that may not have otherwise been missed. It can help lawyers access relevant statutes or case laws or point out any inconsistencies that may exist in a legal document. For example, LexCheck can identify inconsistent language and greatly reduce the need for back-and-forth negotiations.
Reducing Human Error
The purpose of any AI-powered tool intended for legal teams can be boiled down into one word: accuracy. That’s because any AI tool is borderline useless for lawyers unless they are consistently accurate. AI-powered contract analysis tools are designed to deliver consistently accurate information to lawyers in a very time-efficient manner.
Besides saving a lawyer incalculable amounts of time, practically eliminating the risk of human error when it comes to creating and editing contracts is perhaps the next most important benefit that AI has to offer them.
Easily Extracting Text
An AI contract analysis tool is an amazing tool for any lawyer who needs to search existing contracts for specific information, data, or clauses. These tools have the capability to extract very specific pieces of data or information from thousands of existing contracts in a matter of seconds.
Identifying Contractual Risks
AI-powered contract analysis tools can quickly analyze contracts for any risks or threats that lawyers are searching for. Using a specific playbook created for each team, LexCheck can compare the language in the playbook to the contract being reviewed. It can also offer redline suggestions.
LexCheck’s contract analysis tool even comes with a risk assessment system that quickly analyzes contracts for uncertain and adverse outcomes. This is a sound risk mitigation process for any legal team to follow to ensure they do not take on any unneeded liability.
Insight Into Precedents
Another hugely important factor that lawyers need to remember when creating new contracts is legal precedent.
It’s very rare that lawyers prepare contracts from scratch. Instead, they prepare their contracts (as well as other documents) by basing them on contracts from previous court cases that were of similar circumstances.
This is yet another key area where contract analysis tools can come into play. These AI-powered tools can scan thousands of past contracts for very similar situations. Then, it can suggest specifics or nuances that the new contract should take into account based on the precedents it identifies.
Keeping Track of Payment Terms and Contractual Obligations
Hugely important parts of any legal contract are the payment terms and contractual obligations that all parties involved in the contract need to meet. Contract analysis tools will keep track of all payment terms or contractual obligations across all contracts that a lawyer creates and files.
It can then categorize the contracts based on the payment terms or obligations. Alternatively, it can present a lawyer with the payment terms and obligations for specific contracts without the lawyer needing to dive into the contract to look for it themselves.
In other words, lawyers can keep themselves continuously up-to-date across a wide variety of payment terms and obligations from dozens if not hundreds of contracts that they have circulating all at once.
Smart Search Capabilities
As noted previously, the NLP and ML capabilities in contract analysis tools make it very easy for them to identify inconsistencies and patterns from vast swaths of data.
This same technology can be used to check for extremely small bits of information across numerous contracts. For example, if a lawyer needs to search for just one or two very specific details from thousands of legal contracts, they will be able to find those details in a matter of seconds.
User-Intuitive Dashboards
Another huge advantage that contract analysis tools have to offer is the centralized, real-time dashboards. These dashboards allow lawyers to check for contract analytics, identify bottlenecks in workflows, see updates that are made to contracts in real-time, and check data extracted from the contracts into tables and graphical charts.
Conclusion
There’s no question that AI has become a central technology for legal teams to use for many tasks, including contract analysis. AI simply offers lawyers too many benefits in regard to efficiency and accuracy for it to be ignored.
Thanks to AI tools such as what LexCheck offers, the previously incredibly burdensome process of contract analysis has been transformed into one that is anything but burdensome.
Sources:
What is Machine Learning? | GeeksforGeeks
Natural Language Processing (NLP): What it Means, How it Works
precedent | Wex | US Law | LII / Legal Information Institute