Excited About Generative AI and Contracting? Here Are 3 Ways You Can Catch the Wave

Like pretty much every other field in business, the contracting world has been a buzz about generative AI.

And for good reason. Generative AI was made for contracts: with the ability to interact conversationally with natural language, large language models can quickly summarize contracts and classify their components (e.g., pricing information, clause attributes, etc.) so legal and non-legal professionals handling contracts can more easily understand their commercial agreements and take action on them.

As with previous tech breakthroughs, some speculated about the potential threat of generative AI taking people’s jobs—including those professionals involved in contracting, from drafting, negotiation to delivery. Yet as professionals explore the possibilities of AI, that fear has given way to a sense of excitement for how it can serve as a partner to drive productivity gains.

Following a survey of corporate legal professionals on AI, IDC came to this conclusion: “Despite the headlines focusing on the replacement of lawyers, most respondents indicated that they expected AI to have more of an enhanced co-worker role. Essentially, functioning as an insource labor force for menial tasks.” 

Another recent report, from World Commerce & Contracting, found that 35% of respondents said they are “personally enthusiastic” about the future of AI in contracting – by comparison, only 2% are “personally negative.”

Another recent report, from World Commerce & Contracting, found that 35% of respondents said they are “personally enthusiastic” about the future of AI in contracting – by comparison, only 2% are “personally negative.”

That said, well over half of respondents in the WorldCC survey (61%) have not implemented AI – generative AI or otherwise -- into any part of the contracting process (that they were aware of).

So the question becomes: How to close the gap between the enthusiasm for adopting generative AI in contracting and actually implementing it?

Here are three tips to consider:

1. Play to its strengths

By now you’ve probably already heard horror stories of generative AI gone wrong – hallucinating case law, trying to break up marriages. 

While often framed as failures of the technology, these are really examples of user error. Like any tool, you need to understand what generative AI is good at and play to its strengths. 

As you look to apply generative AI to your contracting processes, understand what language model you’re using, the applicability and relevancy of the data it is querying, and what prompts surface the best insights (far from taking our jobs, generative AI may have given us all a new one: prompt engineering!)

Summarizing long texts

As noted earlier, generative AI is very good at summarizing long texts, which is an obvious strength to play into with contracts. Think about how much time can be saved if you can just ask a bot when a contract expires. Certain offerings have also been trained on contract attributes specifically, so they can identify different clause types. That can be very useful when reviewing a high volume of contracts (think of portfolios of contract types like NDAs or master service agreements for a business division) or more in-depth analysis across a portfolio (for example, reviewing bodies of contracts to ensure a limitation of liability clause is added where it had been excluded).

Negotiation AI

Conduct a few experiments to understand its strengths; from there, you can set expectations and define success. For example, it may not be realistic to expect generative AI to unilaterally conduct complex contract negotiations—but it is realistic for generative AI to tell you if a certain clause is missing so you can add it in. More robust systems can also point you to the right clause to suggest based on your company’s negotiation playbook.

2. Think big, start smart

Speaking of experimentation, this next consideration mirrors advice I share for CLM implementations in general – don’t try to boil the ocean and solve every contract challenge in the company with AI right away. Instead, onboard your new AI partner like you would any new member of a team: start it out with small, isolated projects that provide value but don’t necessarily carry enterprise implications.

Small wins and early learnings

This will provide your organization with early learnings about what generative AI does well. It can also deliver small wins that gain trust and buy-in from stakeholders. This is critical: While the number of AI skeptics in the contracting world appears smaller, we all know that it only takes a few curmudgeons to bog down a digital transformation project. (In a future blog I will further discuss how tried and true change management strategies are still necessary in the age of AI).

Small, early wins can make AI’s benefits tangible and help chart the path to bigger, bolder applications.

3. Play it safe

According to the recent WorldCC survey, “security and privacy” ranks #1 as the biggest barrier for adoption of AI in contracting. The survey also found that nearly 1 in 5 organizations have banned the use of generative AI tools like ChatGPT.

“Security and privacy” ranks #1 as the biggest barrier for adoption of AI in contracting, according to WorldCC.

While I hate to hear about blanket bans of technology, I agree that caution is warranted when it comes to generative AI, especially as it applies to contracts.

Contracts contain some of the most sensitive commercial information in an enterprise. Professionals must be absolutely certain about where any data fed into a large language model goes and how it is used. Even if the data is anonymized and deconstructed, it is still being shared—potentially breaking data security obligations contained in the very contract you’re analyzing.

Data security and privacy

Thankfully there are ample generative AI systems, like Azure OpenAI, that provide enterprise security. Azure OpenAI and systems like it offer safe environments that, ideally, overcome security concerns of both uses and their information security departments so they can start leveraging this tremendous technology. So, make sure that any use of generative AI complies with your company’s policies and be sure to partner with trusted players who take security and privacy seriously.

Parting Thoughts

Generative AI has the potential to unlock the power of contracts in ways not possible before, but its tremendous capabilities should not distract us from a simple truth: This is just another technology.

By taking the time to learn its strengths, incrementally expand its application, and comply with by data security policies, contract managers can take the lead in reshaping how their business leverages contracts to drive value in their enterprises.