How Does AI Contract Drafting Work in Legaltech
In today’s high-tech world, contract drafting with AI is helping attorneys, law firms, and businesses produce more effective legal documents. By automating repetitive tasks like redundancy searches and compliance reviews, attorneys can now save time and reduce the risk of errors when preparing agreements for their clients.
Artificial intelligence (AI) accelerates legal contract drafting by streamlining tasks, and such tools like Loio already offer legal professionals real-time insights into new legal trends.
Tools like сlause bank and clause analysis can recommend critical provision language in real time, taken from a vast collection of best practice contract screens. Additionally, AI algorithms perform live document reviews and analyses and flag any potential issues or inconsistencies for manual correction.
Traditional Contract Drafting Challenges
Before AI, lawyers spent hours researching legal precedents and drafting custom clauses, often resulting in errors and inconsistencies in the final agreements. Language and terminology needed to be standardized to prevent inconsistencies when drafting multiple contracts. Pre-AI attorneys encountered other difficulties when preparing complex agreements for clients, including:
Intraoffice boilerplate templates — Twenty years ago, if attorneys wanted their employees to use templates for legal documents, they had to outsource a computer programmer to create an electronic boilerplate for the firm or delegate an employee to spend time creating custom templates. These templates either became outdated after a few years or only addressed one type of legal matter. Prior to the idea of templates, most attorneys drafted their agreements by starting from scratch each time, which consumed time and company resources.
Redundant provisions — The boilerplate templates mentioned above frequently held unnecessary language and confusing legalese. They were often created using software that did not allow attorneys to revise the terms or provisions, which prevented the creation of unique client agreements.
Ambiguous language — Lawyers new to contract drafting often use vague terms or unclear language when manually creating documents. Accurately documenting the terms agreed to by the parties and clearly defining the elements of a contract — the offer, acceptance, and consideration — is essential for enforcing legal agreements in court.
Omissions — Many boilerplate templates omitted deal-specific language that was intended to safeguard a party’s interests. Before built-in machine learning, attorneys needed to carefully review contract templates and drafts for omissions, which was a time-consuming process.
Technical errors — After hours of working on the same document, overlooking errors can be pretty common. Simple mistakes like misspelled or incorrect words, reversed dates, or improper headers can be enough to nullify a contract when the errors cause a change to the intended meaning of the promises made between the parties.
The Benefits of Contract Drafting With AI
AI contract drafting applications, like Loio, use machine learning to help legal professionals create documents quickly and accurately. This technology has revolutionized how lawyers produce their legal agreements, offering law firms previously unavailable benefits, including increased efficiency, reduced risk of error, improved compliance, and cost savings.
With a closer look at the advantages of AI contract drafting taken from Lawrina’s “Step-By-Step Guide on Contract Drafting and Review Software,” the following stand out as reasons this AI software is becoming an essential legaltech application for law firms today.
Efficiency and ease
Efficient contract drafting requires impeccable review. Using an AI constructor automates the review process, making contract drafting with AI faster and easier for the user. The AI review process also happens instantaneously since the AI contract drafting software pre-scans (learns) all the relevant facts and language before document production occurs.
AI-driven tools that are well-trained on appropriate datasets can also help users:
- Choose the correct template — AI contract drafting apps hold massive document template databases, and their algorithms can help you choose the right agreement template for your client’s needs.
- Analyze clauses for omissions and redundancy — AI can recommend which clauses are mandatory and which language would be better to alter or remove.
- Discover best practices — Training the AI contract drafting process with quality datasets teaches the app to produce more robust and coherent language structures during document production.
- Find and correct technical errors — The software detects inaccuracies during contract drafting with AI and lists error items for quick correction or elimination.
Cost-effectiveness
Automated contract drafting with AI is cost-effective because it reduces the time and effort required to draft agreements. This means lower costs to the client and no need to hire additional staff to perform the same tasks manually. Overall, AI contract drafting is essential for law firms and businesses to modernize their contract drafting processes and save money.
Quality
AI machine learning improves the quality of legal contracts in the following ways:
Removes careless mistakes — Automatic text review and revision allow you to focus on the contract’s essential terms and not on its technical details.
Creates the rough draft — Correcting a contract is more accessible than writing one from scratch. Instead of delegating the first draft to your paralegal, let AI handle this task.
Reviews past contracts and applies best practices — AI screens contracts in bulk to learn jurisdiction requirements and how competitors draft similar agreements. With this information, the AI contract drafting app can advise you on best practices for creating effective contracts.
Enhances appearance and style — AI automatically corrects formatting errors and can rewrite legal jargon in plain language, offering efficient document design.
Increased accuracy with decreased error risk
AI-powered tools consistently identify and correct errors to ensure users can draft their contracts uniformly and comply with state rules and regulations. The AI contract drafting process also flags potential issues and inconsistencies, allowing attorneys to make manual revisions before finalizing the document. Increased accuracy when contract drafting with AI further reduces the risk of errors that could result in issues before or after the parties sign the contract.
Assistance with contract negotiation
Contract negotiation involves complicated discussions among parties who each hold interests and concerns. AI technology accelerates agreement preparation and evaluation during the entire negotiation process as follows:
Machine learning compares multiple contract drafts to detect discrepancies and similarities in language.
AI analyzes each party’s interests and choices during the bidding and counteroffer phase of contract negotiation.
Automated contract preparation monitors the document’s execution and performance, notifies you of any concerns or breaches, and enforces contract terms and conditions in real time.
More on AI Screening and Contract Drafting Templates
The AI software analyzes data from thousands of pre-existing contracts to learn how to screen legal agreements efficiently. Its performance is more effective than a human review because the AI contract drafting app’s algorithms can highlight potential issues or inconsistencies as the user drafts the agreement.
To ensure that all parties understand the contract clearly, automated screening also offers users language in layman’s terms when it detects complex legalese in the document. The machine learning feature also scrutinizes standard provisions for consistency and compliance with relevant laws and rules. Hence, legal professionals won’t have to spend as much time or money on LexusNexus or Westlaw research when contract drafting with AI.
AI Contract Drafting Policy Prerequisites
Before implementing AI contract drafting processes and related workplace policies, law firms and businesses should perform the following tasks:
Decide which of the following process tasks the AI contract drafting app should optimize or execute:Document analysis for identifying relevant data points (i.e., parties, effective dates, performance);
- Clause suggestion based on the analysis;
- Personalization of AI-suggested clauses;
- Final contract generation of the selected clauses and customized data points; and/or
- Contract review and analysis for identifying errors, inconsistencies, and legal issues.
Consider lower-level options when contract drafting with AI instead of the more advanced tools or solutions. Basic options that users can choose when using automated drafting apps include:
- Contract type — choose the template type (e.g., nondisclosure agreement (NDA), employment contract, or lease agreement);
- Jurisdiction — select the jurisdiction that governs the contract;
- Language — choose the contract text language; and
- Collaboration — decide which users can share the document for review and feedback.
Decide which workers or workplace team will have access to the software.
Train employees and implement an AI integration policy after training. Policy standards and rules to help ensure that employees use AI responsibly and ethically within the organization include:
- Transparency — determine how employees will use and analyze collected AI data;
- Data privacy — develop guidelines for protecting the privacy of employee, law firm, and client data;
- Ethical application — outline ethical considerations for using AI;
- Oversight and accountability — establish oversight and accountability mechanisms in the workplace to oversee AI integration and daily use.
When embarking on AI contract drafting processes and related policies, it is crucial for businesses and law firms to secure validated consent for data collection and handling through a comprehensive Data Collection Consent Form. This form fosters transparency, ensures compliance with data protection regulations, and builds trust with individuals whose data is being processed as part of AI-driven contract automation initiatives.
Ethical Considerations
Some people mistakenly believe that AI contract drafting apps can impact business ethics by reducing the need for legal professionals in the workplace. This idea is far from true. AI doesn’t eliminate employee positions; rather, it frees up staff hours by giving the workers more time to tackle more important, creative, and demanding tasks within the office.
Another ethical misconception concerns the quality and accuracy of work products when executing AI software documents without human oversight. However, under Model Rule 5.3, lawyers already hold an ethical duty to review a third party’s work product, whether it’s produced by a machine or by a paralegal. So, human eyes will always review AI contracts for accuracy and completeness before execution since the lawyer remains ultimately responsible for the work produced.
The Future of AI Contract Drafting
Most attorneys today agree that contract drafting software is a must-have tool in the workplace. Moving forward, law firms will likely be using the AI contract drafting process more often as algorithms improve and learn at faster, more efficient rates.
AI contract drafting apps are revolutionizing the way legal professionals produce client agreements. The technology offers attorneys, and businesses increased efficiency, reduced error risk, improved compliance, cost savings, increased accuracy, and protection from potential malpractice litigation.
Overall, AI contract drafting offers legal professionals who use it a significant advantage over those who don’t. The new tech streamlines document production and ensures that the legal agreements produced are more accurate and easily understood.
Article by Karyna Pukaniuk
Karyna Pukaniuk, Head of Legal at Lawrina. Experienced Tax and Corporate Lawyer, team leader, and legaltech pro. Led and backed the smooth operation of the legal team and accompanied several different projects simultaneously. Worked closely with department's leads, and shareholders and advised them through all legal, regulatory, and risk management matters. Supervised multi-million dollar M&A deals, and actively participated in the company's product development.
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Frequently Asked Questions
Yes. AI contract drafting detects errors or omissions during document production after properly scanning (learning from) large volumes of well-written legal agreements.
Through built-in algorithms and natural language processing, AI can detect complex legal language and terminology in real-time and offer the user clearer, best-practice alternatives.
Yes. Most AI software uses encryption and other security measures to protect sensitive data and ensure confidentiality. However, no computer software is 100% safe from hackers. Therefore, attorneys who use AI contract drafting should include it in their cyber security policies and obtain informed consent from their clients before exposing their confidential information to AI technology.
AI algorithms will only work as well as they are taught. When users feed the machine learning app with substandard legal agreements that contain biased or inaccurate contract rules and language, the AI contract drafting app may produce unwanted results. Always scrutinize the final contract with human eyes before printing it for execution.