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 By Justin Pelletier

Contracting is a common activity for any legal team, but very few teams do it right. A legal contract can take on average between 20 and 30 days to create, negotiate, and finalize. This is because contracts are difficult and sometimes impossible to sort. Contracts are often inaccessible, cumbersome, and scattered across multiple company departments and locations and therefore, promote inefficiencies and the risk of lost business opportunities. As legal teams face time pressures from other departments and clients, they are faced with the additional burden of digging through dispersed files for contracts or other documents that are hiding data from quick review. The manual handling of contracts is burdensome and has led to the technological development of combining artificial intelligence (AI) with contract management systems to overcome the many challenges of contracting facing law firms today.

The biggest challenge facing law firms when contracting stems from the vast number of contracts they must keep track of and keep organized. Contracts are often difficult to manage and complicated when updating. To make the manual handling of contracts more complex, original contracts are often needed in order to draft amendments, create renewal agreements, or even write a termination letter. Most legal teams lack the existence of a database that stores contract data, so it is often a challenge to get information quickly, such as locating certain clauses, a renewal date, or determining if a new regulation changes a prior executed contract. Without AI, contracts remain scattered across computer shared drives in folders creating risk of error at every stage of the contract management process. Therefore, it makes sense for a law firm to adopt a contract management system with AI to alleviate some of these concerns.

The market for AI contract management software is projected to significantly increase to $2.9 billion by 2024. This is up from $1.5 billion in 2019. Recently, the popular electronic signature company, DocuSign, purchased Seal Software, a company that develops AI-powered contract solutions, indicating the market trend is moving towards AI. Companies are investing heavily in AI in order to stay competitive within their industry. AI has the ability to easily extract contract data, such as renewal and effective dates, and allows companies to quickly view and organize large amounts of contractual information that can lead to a decrease in contract disputes and an increase in the volume of contracts negotiated and executed.

The benefits of using AI-powered contract management software will ultimately lead a law firm changing the tools they use to contract, influence the content of their contracts, and improve the process by which the firm contracts. This is important because as business matures, laws change, and due diligence projects arise, law firms must quickly conduct detailed reviews of their existing contracts and being able to locate specific terms or clauses quickly is a necessity. AI diminishes liability exposure because law firms will be able to quickly and efficiently scan their active contracts and flag language for recorded and standardized clauses that may pose risk to the business preventing problems before they can happen.

Though current non-AI contract management software has existed long before AI came into existence, it limited the law firm’s ability to only store and organize their contracts. While it helps that most non-AI contract management systems have the ability to store standard clauses, they are not the future recipe for success. AI uses automation to pull certain language from a client email, interpret the context and meaning of multiple languages, and then use the information to create a new contract instantly with all the appropriate contract clauses. The new technology does not hinder the human involvement aspect of contract negotiation, but rather alleviates and enhances the human involvement by having lawyers focus more on counseling rather than performing administration work. AI saves the legal team valuable time by quickly extracting key terms and clauses, such as specific dates, involved parties, liabilities, and more from every contract allowing them to more time to focus on more complex negotiations.

Critics argue that AI-powered contracting software will rid the role of the individual lawyer when executing contracts. The argument is that successful contracting skills like drafting, paying attention to details, negotiation, and review are no longer required since AI can do all the work. In the past, expensive and challenging contract deals required a dependent group of many lawyers working tirelessly on every word in the contract to favor their client. AI will not rid the role of the individual lawyer when contracting but will change their role. Lawyers should be spending more of their time assessing risk and providing counsel rather than puddling around in the role as a contract administrator. It is not necessary to have enough employees to track every line that goes into a contract. Rather than having a large team of lawyers conduct due diligence before a deal, law firms will now have small team with the expertise to review AI software red flags and then react with valuable advice leading to a better use of legal talent.

Considering the significant advantages AI software can offer law firms when contracting, the technology does not come free or charge or risks. Even though the return on investment can eventually pay for itself, the initial investment in AI can be a heavy hit on a law firm’s budget. Additionally, some of the limitations of AI can be the lack of creativity, risk of program errors, cyber security, and dependency. A law firm likely cannot change their AI software at a whim and often will need outside technological assistance should they want to make any future contract adjustments. Despite these risks, the benefits of implementing an AI-powered contract management system in your law firm are overwhelming. AI is the wave of the future and will become, if not already, a necessity to any business operation.


Student Bio: Justin Pelletier is a second-year law student at Suffolk University Law School, concentrating in Business Financial Services Law. He is a staffer on the Journal of High Technology Law and a candidate for LLM in Taxation 2021 through Suffolk University Law School. Justin received a Bachelor of Arts Degree in Sociology and Justice Studies from the University of New Hampshire.

Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.


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