Can AI Write Legal Contracts?
Legal contracts are essential for businesses because they document expectations and specific conditions for a business arrangement. However, managing the contract lifecycle can become overly time-consuming because of slow drafting and negotiation processes, inefficient storage and retrieval systems, limited oversight mechanisms, and communication challenges.
For these reasons, artificial intelligence (AI) – the overarching description for technologies that use computers and software to create intelligent, humanlike behavior – is finding its place in the legal profession. In fact, more legal teams are turning to AI for legal professionals, and specifically contract management technology solutions, to improve contract performance, fulfill professional obligations, and mitigate risks. But with recent advancements in AI tools for legal writing, many legal professionals may be left wondering how exactly AI is incorporated into these solutions and whether legal AI tools can be trusted to write and review legal contracts.
In this article, we explore how generative AI – which draws on enormous data sources to instantaneously create seemingly new, task-appropriate content such as essays, blog posts, and videos – can help legal professionals write legal contracts. Read on to learn about the intersection of AI and legal contracts, including the benefits and risks of using AI for contract-related tasks, and how AI-powered contract management systems such as Bloomberg Law Contract Solutions can help legal teams store, manage, draft, negotiate, and analyze contracts more efficiently.
What are contract automation tools?
Contract management is the discipline used to create and oversee a contract throughout its lifecycle, and contract management tools help legal professionals organize this process. And while a contract management tool can include AI-powered features, the entire tool isn’t AI-based. Rather, contract management tools can incorporate AI to provide automation.
The contract lifecycle involves multiple stages, from initial consideration to termination. If legal teams don’t have a well-documented process for managing a contract through each of these stages, they might spend too much time on manual and inefficient contract-related tasks.
For instance, when writing and generating contracts, legal teams often lack a centralized contract repository and can encounter version control issues when several team members work on the same document. This can make it difficult to track obligations and deadlines during the contract review and negotiation process. Plus, these teams may not have the reporting and analytics technology to provide insights on activities such as turnaround times.
Enter contract management software (CMS) solutions, which are designed to automate and streamline the contract management process. These contract automation tools offer a unified platform for legal and business teams to draft, negotiate, sign, renew, and report on business contracts by automating the manual work that’s traditionally involved in a contract workflow (such as using spreadsheets and shared drives to track and store contracts). These tools can also help store, search, and manage drafts and final agreements.
Today, many CMS solutions incorporate AI-powered features. For example, Bloomberg Law Contract Solutions leverages proprietary semantic search and natural language processing technology to deliver advanced search and contract analysis features. These legal AI tools save lawyers valuable time by removing the guesswork from contract review.
Can AI draft contracts?
Yes. Large language models (LLMs) – a subset of generative AI that can recognize, predict, translate, summarize, and generate language, including software code – can write legal documents, including contracts. LLMs use deep learning algorithms to generate humanlike text in response to user prompts. These models “predict” the correct response based on a large set of documents from which the model learns about human language.
Patrick Lavan, marketing manager, Bloomberg Law
Utilizing a powerful LLM can empower lawyers to automate essential but tedious contract drafting functions, allowing attorneys to spend their valuable time strategizing and negotiating rather than drafting. However, although AI contract drafting tools can help lawyers more efficiently begin the first draft of a legal document, they are not full-service AI contract generators. This means the resulting product should only be used as a starting point.
“Right now, there isn’t AI technology that’s good enough to blindly write a contract without an attorney reviewing it at all. It would be a massive risk for a lawyer to do this because the technology just isn’t there yet,” said Patrick Lavan, a Bloomberg Law marketing manager. “LLMs are great at summarization, but they don’t have the situational awareness and context an attorney does. These tools only have the information you provide. So, they can give you a starting point for a legal document, but a lawyer needs to take it across the finish line.”
Keeping this in mind, legal professionals should use these tools as an AI contract drafting template rather than a start-to-finish document production tool.
Can AI review a contract?
Yes, lawyers can use AI for legal document review, including reviewing legal contracts. AI contract review tools can be especially useful for helping lawyers spot errors and inconsistencies in contract drafts as well as determining the best language to include in a contract.
Andrew Gilman, senior product manager, Bloomberg Law
However, it’s important to note that AI contract analysis tools should supplement rather than replace a human lawyer’s review of a contract. And when using AI for legal document review, lawyers still need to provide prompts that instruct the AI technology on what it’s reviewing for.
“Your final product is only as effective as the prompts that are used to do this analysis,” said Andrew Gilman, senior product manager for Bloomberg Law. “With that said, as vendors’ base models improve, the analysis will get better and better. This is why it’s important to trust your vendor. There needs to be a lot of validation and iteration before the technology can give you the best answer it can.”
Legal professionals trust AI contract review software from Bloomberg Law because the software is backed by service and security honed over decades of meeting the complex needs of legal, tax, and financial professionals.
For example, machine learning models such as Bloomberg Law’s Draft Analyzer can identify how draft language may deviate from the market standard and help attorneys focus on language their counterparty usually agrees to. First, a machine learning model detects clauses and builds a clause outline. Then, semantic analysis allows the tool to compare the draft language to, for example, tens of thousands of publicly filed M&A agreements and identifies text with a similar meaning that’s most relevant to your agreement or transaction.
Can AI analyze and help execute final contracts?
Lawyers can use AI contract analysis tools to review final contracts for issues, errors, and inconsistencies. They also can use AI technology to help execute a final contract by streamlining the validation and security portion of the electronic signature process. But, as noted, lawyers can’t expect to completely hand over the analysis and execution of contracts to AI.
“AI can help analyze and execute final contracts, but it won’t do the full job,” said Lavan. “The technology is not at a point where it can handle these tasks unassisted. You still ultimately need a legal professional to review the final contract and ensure it’s absolutely correct.”
Although you can find legal AI contract templates on the internet, utilizing a CMS solution is more reliable because it can store internal contract templates such as standard master service agreements (MSAs).
Bloomberg Law’s Contract Solutions employs AI technology trained on large numbers of contracts to analyze and compare draft clauses against your organization’s past agreements and the EDGAR database. The tool uses AI to quickly and easily analyze every contract to identify and highlight defined terms and will flag any potential issues and errors to ensure there aren’t any mistakes that could cause ambiguity or confusion.
Trusted contract intelligence from Bloomberg Law
While human assistance is still required throughout each stage of the contract management process, AI tools for legal writing can help streamline and simplify the operation. By embracing AI tools for legal professionals, organizations can achieve better oversight, improve productivity, and fully realize the potential of their contracts.
Download our Special Report: The Power of the Prompt to further explore AI in the legal industry, including practical tools and perspectives from thought leaders and legal experts to help you navigate what’s next.
Bloomberg Law’s Contract Solutions leverages contract intelligence and contract analytics to solve the most pressing challenges legal teams face during the contract workflow. Request a demo to learn more about how Bloomberg Law’s AI-driven legal tools can help your legal team save time and reduce risk.