Online Contract Review: When You Should and Shouldn't Use These Services

At scale, pre-execution contract negotiation becomes a drain on company resources. With 80% of sales teams authorizing over 500 contracts each month, process management becomes necessary just to keep up, let alone free up space to handle new business. To help alleviate the burden, online contract review can be outsourced to an Alternative Legal Service Provider (ALSP), but it’s also possible to boost in-house efficiency without much hassle by implementing an artificial intelligence (AI)-powered contract review solution. This article will explore the pros and cons of each approach.

How To Perform Legal Contract Review

Legal contract review typically involves running through one or more checklists to ensure the needs of the company have been met while weighing the implications of suggestions from the other party. The process also requires corporate legal departments to compare the document to their clause library, existing templates, and corporate legal playbooks. Reviewers may need to conduct research to ensure they are keeping up with best practices, wording, and conditions with perfect clarity while also reducing risk and ambiguity. While multiple people and parties review the document before it is signed, much of this work lands squarely on the shoulders of highly paid attorneys due to internal escalation processes and uncertainties associated with junior-level associates. Gartner estimates that up to 40% of a lawyer’s time is spent on tasks that don’t require a lawyer, resulting in $2.7 million worth of lost productivity each year.

Outsourcing to an Online Contract Review Service

Contract review can be a slow, arduous process that busy legal departments don’t always have time for, which is why some consider outsourcing the task to ALSPs. However, there are pros and cons associated with this option:

Pros  

• Quality: ALSPs excel in handling standardized contracts like rental property agreements, sales contracts, or basic non-disclosures.
  
  
• Peace of mind: ALSPs do not assume liability for risks arising from contracts they’ve already reviewed, but having more than one set of eyes on a document can potentially reduce obvious spelling, grammar, and consistency errors.
  
  
• Resource conservation: Growing businesses looking to scale can temporarily rely on outside services during transition, while Fortune 500s may lean on ALSPs to conserve resources as opposed to adding salaries in-house. 

Cons

• Complexity: General reviewers may not fully understand your business.

• Cost: Reviews of lengthy contracts and/or a high-volume of documents can be cost-prohibitive.

• Speed: Turnaround time depends on many factors, but most often takes days or weeks.

• Consistency: Outside reviewers could make revisions that are inconsistent with how the company actually negotiates its contracts. The reviewers may also be inconsistent with each other, leading to wildly disparate negotiating positions for the same document type.

Bottom Line: Are Outsourced Contract Review Services Beneficial?

Outsourced contract review can be beneficial, but it is difficult to vet individual attorneys and guarantee quality review work, especially given a business’s unique needs. While it can be used for the occasional contract review or as a stopgap measure during periods of breakneck business growth, relying exclusively on outsourced contract review is not a recommended long-term strategy.

In-House Contract Review with AI

Rather than outsourcing the review to another company, contract review can alternatively be completed in-house with the assistance of an AI-powered contract review solution. The process begins once a document has been drafted. It includes:

• Preliminary review: to check for errors, consistency, and risk.

• Negotiation: to settle on terms that are agreeable to all parties involved.

• Revisions: to implement minor changes to clarify clauses and provisions.

• Execution: to sign the document and begin a business relationship.

In-house review typically starts with a junior-level attorney taking the first pass at a contract followed by oversight from a senior attorney. But tech-forward corporate legal departments are increasingly relying on AI-powered contract review solutions to perform the initial redlining and review work—saving them valuable time and resources in the process. As with outsourcing, this approach also comes with pros and cons:

Pros

• Compliance: With full process control, adherence to company positions is ensured.

• Time: The main review and negotiation work can be completed in less than five minutes.

• Cost: Savings add up as legal departments avoid review fees. 

• Ease: Review work can be easily initiated by sending an email, obviating unnecessary back-and-forths between parties.

• Free from human error: Unlike fallible human reviewers, AI never gets tired or distracted.

• Risk assessment: AI can fully redline a draft and provide a risk assessment of any changes made by a third party.

• Analytics: Data furnished by software can be leveraged to optimize contract review processes in the future.

• Customization: Custom “if/then” rules can be configured to automate changes and update agreements across the board.

Cons

• Cost: The upfront costs of implementation make these solutions best suited for teams who handle a larger volume of contracts each year. If only a handful of contracts are pending review, it may be cheaper to outsource the work.

• Onboarding: Although only a few dozen documents are typically needed to get started, onboarding does require some feedback as the AI becomes more fine-tuned over time.

• Digitization: Not all in-house legal departments use contract playbooks, so digitization may take longer if there is no existing playbook an AI can work off of.

Bottom Line: Is AI-Assisted Contract Review Worth It?

Contract review solutions that use AI can perform just as well—if not better—than any outsourced or online contract review service. Advances in technology over the past five years have enabled smarter and faster contract review with minimal human intervention. 

LexCheck is an AI-powered contract review and negotiation solution that incorporates natural language processing (NLP) technology to provide attorney-quality review and markup. It can automatically tailor third-party agreements to conform to any legal department’s unique playbook. The system fully automates 90% of the work normally performed by legal staff when reviewing an agreement. 

The end result mirrors the experience of working with another member of the team, but with little to no training required. And for corporate legal departments looking to adopt a more strategic and responsive contract review and negotiation workflow, that can be a game-changer.