AI Contract Review Evolution: From Manual Overload to Generative Intelligence
- last updated: 15 Nov, 2024
- 15 min read
- Arpita Chakravorty
Intro
Contract reviews are one of the most crucial stages in the contracting lifecycle. Any oversight in detecting issues or risks can impact a company’s relationships with partners, suppliers, or customers, leading to potential business interruptions and significant value leakage. Because of this, contract review has continually evolved to address these challenges, with AI playing an increasingly central role.
Over time, AI-driven contract review has advanced from simple automation to sophisticated, generative intelligence tools, allowing legal teams to work with greater speed and precision. Each stage in this evolution has brought unique advantages and addressed specific pain points, moving contract review toward a more streamlined and effective process.
Let’s explore this progression.
1. Early Contract Review: Template and Clause Libraries
In the beginning, contract review was a slow and arduous process. Legal teams had to manually examine every word of a contract to ensure compliance, cross-referencing pre-approved templates and contract clause libraries. Each detail was scrutinized, even in standard agreements like non-disclosure agreements (NDAs) or master services agreements (MSAs), which could be handled more efficiently with standardized terms. However, without the necessary tools, legal teams were forced to rely on manual processes.
- The Challenge: While templates and clause libraries provided a framework, legal teams still had to detect deviations, assess language, and compare each contract manually against preferred company positions. This approach was highly time-consuming and labor-intensive, especially for standard contracts that didn’t always require such exhaustive review.
- Emerging Need for Efficiency: The burden on legal teams grew as the volume of contracts increased, creating a need for solutions to automate routine elements of the review process.
2. Self-Service Contracting and Automated Approval Workflows
With advancements in contract lifecycle management (CLM) systems, self-service contract creation tools and automated approval workflows emerged as the next phase of AI in contract review. Sales and procurement teams could now draft contracts independently through guided questionnaires, generating documents with pre-approved language and terms. For instance, procurement could generate a new vendor contract by answering guided questions, which would pull in relevant clauses from a clause library and build a contract without legal’s direct involvement. Automated approval workflows would then route only non-standard contracts to legal for review.
- Efficiency in Standardization: Self-service tools enabled business teams to draft and without requiring extensive legal oversight, reducing the burden on legal teams and freeing them to handle more complex, high-stakes contracts.
- Complex Contracts Still Required Legal Review: Despite these advancements, contracts with non-standard terms or complex language still required thorough legal examination. This highlighted a continued need for smarter AI solutions to assist legal teams in analyzing complex clauses and potential risks, rather than just facilitating contract assembly and routing.
3. Clause-Level Review with AI: Identifying Deviations
The next significant advancement in contract review came with AI-driven clause-level analysis. These AI tools could identify deviations from preferred language, flagging non-standard clauses, and suggesting replacements from a predefined playbook. With this level of functionality, clause review AI could handle tasks previously managed by legal teams, such as quickly spotting language variations and flagging high-risk provisions.
- Increased Speed and Consistency: AI tools for clause comparison and non-standard language detection helped legal teams review contracts faster and more accurately. Deviations were highlighted instantly, making it easier to apply pre-approved language and ensure consistency with company standards.
- Limited Context and Nuance: Early clause review tools couldn’t assess risks in context. They sometimes suggested full replacements for minor deviations and lacked a holistic view of the contract, focusing on individual clauses without evaluating overall risk. This highlighted the need for more advanced AI in contract review.
4. AI in Contract Review: Sirion’s Advanced CLM Platform
The latest in contract review is generative AI, exemplified by Sirion’s AI-Native This cutting-edge technology takes contract review beyond clause-by-clause analysis, performing issue-level reviews and providing a holistic risk assessment across the entire contract. Rather than simply flagging deviations, Sirion’s Gen AI identifies risks in context and offers concise summaries that clearly articulate potential issues.
Key Features of Generative AI Contract Review
- Holistic and Risk-Aligned Analysis: Unlike previous generations of AI, generative AI analyzes contracts as a whole, identifying risks according to predefined risk positions. This comprehensive approach ensures that all potential risks are reviewed in context, giving legal teams a complete view of risk factors across the entire document.
- Detailed Risk Categorization and Issue Summarization: Generative AI doesn’t stop at flagging risks; it organizes identified issues into specific categories, such as regulatory compliance, financial risk, or confidentiality concerns. By providing an organized issue list, legal teams can quickly prioritize and address high-risk areas, streamlining the review process and enhancing contract risk management.
- Concise Plain-Language Summaries for Quick Understanding: Sirion’s AI goes a step further by delivering plain-language summaries that explain detected issues and risks clearly. This feature enables legal professionals and other stakeholders to quickly grasp the nature and significance of potential risks without needing to read the entire contract, accelerating decision-making.
- Transparent Citations for Easy Reference: To enhance explainability, Sirion’s generative AI includes citations that guide users directly to the specific sections of the contract where issues originate. This transparency not only builds trust in AI-driven reviews but also makes it easier for legal teams to verify and address issues, enhancing the reliability of the review process.
Result: Generative AI has revolutionized contract review by enabling faster, more accurate assessments of contract risk. This technology moves contract review beyond basic automation, empowering legal teams with strategic insights and providing them with a clear, actionable view of risk. By making contract review more efficient and accurate, generative AI frees legal teams to focus on high-value tasks and ensures that contracts align with organizational priorities and risk positions.
The Future of Contract Review with Generative AI
The evolution of AI in contract review and CLM for legal reflects a broader trend toward intelligent, automated workflows across business functions. As AI capabilities continue to expand, generative AI in contract review is set to reach even greater levels of precision, making it indispensable for businesses striving for efficiency, compliance, and risk management in contracting.
As AI becomes better at understanding natural language nuances and contextual meaning, the review process will only become more refined, minimizing manual intervention even for complex agreements.
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