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What Is AI Contract Management? Exploring A Digital Future
Bethany Mullinix |
September 28, 2023 |

 17,809 total views

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The term “contract management” refers to the process of managing contracts, including monitoring deadlines, setting contract terms,  and tracking a contract post-signature. Legal and procurement teams have tried to perfect these processes for years, but they are not without issues. 


Even well-maintained systems are prone to:

  • Manual processes and human error
  • Difficulty tracking multiple contract versions
  • Delays in contract approvals and execution

Fortunately, AI-based contract management now mitigates many of these instances. Large enterprises are adopting artificial intelligence solutions across functions at an increasing rate because they help improve human output. For procurement and legal professionals, this means time back to focus on more strategic work. 

In this article, we’ll cover the ways AI is changing contracting, the benefits of using AI-based systems, and what to consider if you plan to implement AI for your contract management.


How Is AI Changing Contract Management?

Any technology capable of automating contract management processes to generate or manage a contract counts as AI contract software. Such platforms use machine learning (and now generative AI) to conduct contractual data analysis, complete risk management tasks, and automate AI contract drafting, categorization, and version comparison.

But AI contracts are only as good as the way you manage them and how you leverage AI and automation to do so.

When you carry AI through the entire contract lifecycle management (CLM) process, you can minimize the errors and inconveniences from historically manual contract management methods. 


Ways AI Can Automate Contract Management

Using AI-powered software to automate contract management can take on several forms depending on the needs of your enterprise. Since contract lifecycle management encompasses the entire contracting process – from draft to checking off that last obligation – AI supports this process in many ways. 

First, let’s look at how AI has historically worked with contracts using rule-based programs and bots trained to perform specific operations based on various scenarios. Humans set the rules. They are, thus, still error-prone. 

  • Automating workflows
  • Scanning and digitizing contracts
  • Organizing documents in a centralized cloud repository for easy access and search functionality
  • Using search terms to locate and extract specific documents, clauses, and data points

Enter machine learning and generative AI. With this technology, we start to see trained contract data built on a strong Large Language Model (LLM) that can pinpoint, evaluate, and present information based on the contracting data it reviews. This creates a more organized and timely system free from human-made mistakes.

Properly trained contract-specific data helps AI with: 

  • First draft contract authoring and template setup
  • Identifying risks and discrepancies 
  • Legal review and initial redlining
  • Tracking the performance of contracts and ensuring deliverables and deadlines are met  
  • Simplifying difficult contract language


Benefits Of AI Contract Management For Procurement And Legal Teams

  • Enhanced Efficiency and Speed – AI contract management solutions automate repetitive tasks and workflows. This added efficiency helps reduce the time teams need to dedicate to the legal review process and lets human reviewers focus on more strategic tasks.
  • Improved Accuracy and Compliance – AI analysis ensures that each contract’s terms and conditions meet compliance standards. In addition, AL supports real-time error detection and presents suggestions for correcting any errors found.
  • Proactive Risk Management – AI-based CLM tools use predictive analytics to detect potential contract risks and trigger real-time notifications if they find unfavorable contract clauses. 
  • Advanced Data Insights – AI contract management solutions provide in-depth contract performance analytics and leverage past contractual data. These insights help improve contract negotiation terms and tactics and support more educated decision-making. 


Things To Consider When Using AI-Based Contract Management

While we’ve made huge strides towards reliable and accurate AI solutions across industries, there are still several factors to consider before implementing AI-powered contract management solutions into your organization.

  • Cost-Effectiveness – AI contract management systems are not cheap to adopt, and the high initial setup costs may make these solutions unfeasible for some. You’ll also need to factor in the costs of keeping your data trained, tested, and optimized or upgrading your LLMs as new technology develops. 
  • Over-reliance on Contract Automation –  As we just learned, AI sometimes makes life easier. But this presents a risk of relying too heavily on its capabilities. AI might feel like the magic pill, but we can hardly expect it to cover all legal contracting processes. It’s a stepping stool, not a replacement for human oversight and intuition. 
  • Data Privacy and Security Concerns –  AI without proper cybersecurity measures can lead to potential vulnerabilities in the system. These security issues can result in both critical data breaches and system misuse.
  • Integration Hurdles & Resistance to Change –  Implementing any new technology within a large enterprise is challenging – 98% of organizations face implementation barriers related to contracting. To make the most of investing in AI and rallying stakeholders behind it, implementation should be thoughtful, user-focused, and phased. Additionally, overcoming the learning curve during implementation may lead to a short-term reduction in productivity.


Getting Started with AI Contract Software

For businesses planning to adopt a new AI contract management system, there are key steps to take for the best possible results. How to implement a contract management system is just as important as the why. So, before choosing a software solution, review the following points.


Considerations for AI Adoption

To reach the most favorable outcome, you must first assess your current contract management processes – the whole lifecycle, step by step. From there, you can compare your existing methods with the capabilities of the solution you’re considering. Ask:

  • What steps will change? 
  • Who is involved, and what is their role?
  • How much time AND budget are we currently spending on managing contracts? 
  • What’s working well? 
  • Where can we improve? 

Be sure also to consider training and change management strategies – who will the change affect, and what can you do to make the transition as smooth as possible? 


Evaluating AI Vendors

No two AI contract management systems are created equal, so it’s important to thoroughly evaluate the various features that each vendor offers. For example, if the firm is relatively small during implementation, looking for vendors providing scalability and customized integration options may be beneficial.

Finally, get referrals! Evaluate the experiences that other businesses have had when working with a CLM. Explore reviews and testimonials on third-party sites. Ask the CLM vendor for case studies and customers you can speak with directly.  


Why You Need AI-Based Contract Management

AI’s capabilities are changing rapidly. While we don’t predict that lawyers or procurement professionals will lose their jobs, we do predict how we work will change. 

To keep up with this change, individuals and organizations need to adapt. Whether learning a new skill or being open to doing things differently than you’ve always done them, being flexible and adaptable will keep you ahead of the curve. 


Determining Whether AI Contracts Are Right for You

AI contract management streamlines contracting and legal processes in ways that humans may only have imagined in the movies. 

But we’re here! 

AI is supporting contract generation, organization, and management pre to post-signature, reducing risks and improving accuracy as it goes.  

Contract management will thrive with AI. Humans will thrive using AI. We simply need to educate ourselves on the best approach moving forward. 

Author: Bethany Mullinix

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