AI legal contract automation

How to Apply AI to Contract Management

How to Apply AI to Contract Management

Most people tend to have rather divisive views on AI. Some say it will fade away in a few years while others believe it will revolutionize the way we do business across various industries. In this article, we will explore the reasons why contract management is a great use case for AI like ChatGPT and the numerous applications of AI in a commercial contract setting.

The Development of AI and ChatGPT

You might not realize it, but ChatGPT has been around since 2018. In its earliest forms, it was designed to respond to questions and hold conversations in a human-like manner. Over the years, it has evolved to combine those functions with natural language processing (NLP), ultimately resulting in the ChatGPT system we know today. 

The purpose of ChatGPT is to interpret complex language, then respond to questions about that language in plain terms. Legal professionals often perform a similar function in corporate roles. They generate and interpret the complex language of contracts to help other teams in the company understand the terms of the contract and leverage those terms to make deals while avoiding unnecessary risks. Therefore, this type of AI (NLP systems) is quickly becoming a great tool for lawyers and contract professionals.

The Challenges of Using AI

ChatGPT is still very new, with the revolutionary ChatGPT 3.5 update just releasing last November. As a result, there are still a number of challenges to consider when working with such a novel form of technology. Let’s quickly take a look at some of those challenges now.


ChatGPT still requires a significant amount of computing time. The cost of the tool combined with the slow response times makes it a somewhat expensive investment. However, once the AI has been trained and well-integrated into the contract lifecycle, it can save energy and time that makes up for that initial cost.


The current version of ChatGPT has only been trained on data reaching up to 2021, meaning some of the information it utilizes may be out of date. It also accesses public sources on the Internet for information. There is no quality control on these resources, so it does make use of biased content. For that reason, you should never consider the AI’s output to be automatically true. It will most likely need fine tuning before it can produce exactly what you need.

Things to Remember Before Incorporating AI

Before you can bring AI into your contract lifecycle, you need to think about two things: how you will approach the implementation of the system and how you will make use of the data or information it provides.

Plan for a Staged Approach

You cannot go from 0 to 100 with any technology implementation, but you especially cannot do it with AI. Failing to fix up your contract processes before bringing in technology means you will end up automating inefficient processes. There will likely not be any improvement in your contract lifecycle as a result.

There is also a significant amount of change management that needs to occur prior to integration. If you do not properly train employees on how to use the system before it becomes a part of their daily lives, they will be less likely to use it. Make sure everyone understands the value of the new tool and that the culture surrounding the implementation remains positive.

Create Infrastructure

AI gives you access to tons of data, but that data is useless if you have no place for it. Before incorporating an AI-driven system, you need to know what data you want to pull from the tool and how you can apply that data to your contracts. The contract lifecycle extends far beyond the reach of AI. If anything, AI is merely a tool to help move it along.

Target Areas to Apply AI in Contract Lifecycle Management

With the immense capabilities of this new technology, we are discovering new applications for AI practically every day. Here are some of the most pertinent areas that can benefit from AI assistance when managing your company’s contracts.

Drafting Contracts

If you asked earlier versions of ChatGPT to draft a contract for you, it would spit out a completely unsalvageable mess. Now, the AI can generate a reasonable draft of simple types of contracts, such as NDAs. Most lawyers still do not feel comfortable taking the contracts straight from the AI, but it does provide a baseline that you can use to speed up the drafting process.

This is especially true if you take the time to fine tune the system. After asking the AI to draft the document, you can then provide feedback, pointing out what it might have done wrong. It should learn quite quickly as you converse more and more with it. At the same time, you will learn how to engineer your commands or prompts to get the system to generate exactly what you want.

Standardizing and Simplifying Contract Language

AI is not currently capable of redlining in a productive way. However, it can help compare and contrast contract terms. This is especially useful when looking for ways to standardize language across many different types of contracts. AI may be able to pick out areas of contracts that do not fit with the new standards put in place. If you have a clause library available, you can easily replace the pinpointed language with approved clauses.

One of the strong points of AI is simplification. It can remove the fluff and unnecessary complexity from contracts that make heavy use of legalese. While not all lawyers are onboard with simplification to such an extreme, it can be helpful for the gradual process of simplifying contract language over time.

Extracting and Tracking Data

This is where the infrastructure we mentioned earlier comes into play. AI can extract all kinds of data from your contracts, from certain types of clauses to renewal dates and much more. In order to make use of that data, the company needs to put mechanisms in place that interpret the data. These interpretations allow you to gain a deeper understanding of your contracts and processes as well as the areas that might need improvement.

Recovering Contract Value

According to World Commerce & Contracting (WorldCC), the average amount of value leakage for an organization’s contracts is 9.2%. Incorporating AI could help quell that leakage and save your company’s bottom line. AI has the ability to help streamline a number of contract processes. Not only can it provide data that points out where you may be losing value, but it also offers potential solutions to those issues.

For example, you may be losing value by not following up on contract renewals. AI keeps track of renewal dates. You can use that data to set reminders about upcoming renewals. Or, perhaps you need to make changes to a number of documents at once. If you fine tune your commands, you can instruct an AI to perform those changes without having to carry them out manually.

The Future of AI-Driven Contract Management

In its current state, AI will not be taking over our jobs any time soon. Rather, it will most likely generate a lot of new positions, especially in contract management. It is a tool that requires a lot of dedication and training before it reaches its full potential. We are already beginning to see jobs cropping up that specifically handle the integration and use of AI to enhance contract practices. By embracing the immense capabilities of AI, contract professionals can augment their work and truly demonstrate the value the legal team brings to the organization