AI Contract Drafting: Transforming Legal Processes Beyond Traditional Methods
- Last Updated: Jan 06, 2025
- 15 min read
- Arpita Chakravorty
Drafting a contract is a pivotal task in business dealings. It sets the stage for defining terms, ensuring performance, and safeguarding compliance in a future relationship. As businesses evolve, contract drafting methods have undergone significant transformation, moving from manual, document-based approaches to AI-powered automation.
In this blog, we explore the key differences between AI contract drafting and traditional methods, and why this shift is revolutionizing the way organizations manage legal agreements.
Why Precise Contract Drafting is Critical for Business Success
The importance of contract drafting goes far beyond just putting terms into words. A well-drafted contract is a vital tool that defines expectations and safeguards the interests of all parties involved. In today’s fast-paced business world, contract precision can be the difference between a smooth partnership and costly disputes.
- Establishes Clarity in Business Relationships
Clear contracts ensure that all parties are aligned on their responsibilities and rights, helping to prevent misunderstandings down the line. By outlining specific obligations and rewards, contracts help maintain mutual trust and transparency. - Serves as Key Documentation
Contracts act as critical records, providing a reference point for both parties to review their commitments. This record-keeping helps protect businesses against legal disputes and serves as proof of agreed terms. - Ensures Legal Enforceability
A contract in writing holds far more weight than verbal agreements in legal contexts. When drafted with precision, contracts become enforceable in court, ensuring that the interests of all parties are legally protected.
How is AI Used in Drafting Legal Contracts?
AI plays a hands-on role in drafting by identifying the right clauses, suggesting language tailored to specific contract types, and adapting content to legal and business requirements. It analyzes large volumes of past contracts to spot patterns and recommend wording that aligns with company standards. AI can also integrate with data sources like CRMs or procurement systems to pull in accurate details automatically, reducing back-and-forth and human input. Rather than starting from scratch, legal teams get a structured, pre-drafted contract that only needs review and fine-tuning.
To fully appreciate how far contract drafting has come, it’s helpful to look back at how the process worked before AI entered the picture.
How Contracts Were Traditionally Drafted with Document Management Systems
Traditional contract drafting involved basic tools and manual effort, which presented many limitations. Understanding how these methods worked helps shed light on the improvements offered by AI-powered CLM systems.
In the past, contracts were largely managed using document management software (DMS). Though functional, these systems were limited in scope, offering only basic storage and organization features. Here’s how it typically worked:
- Storage and Filing Systems: Contracts were stored digitally in repositories, often categorized into folders by client or project. While this helped with organization, finding specific documents could be time-consuming.
- Manual Drafting and Revisions: Contract clauses were often copied from previous agreements, and version control was cumbersome to maintain across multiple collaborators.
- Collaborating via Email: Stakeholders typically collaborated through email, sending versions back and forth. This process often led to confusion, as changes and comments were manually tracked, making it hard to maintain a coherent record of revisions.
- Review and Approval Delays: Contract reviews involved lengthy email chains, which created bottlenecks and delayed the approval process. Without automated workflows, tracking the status of approvals was inefficient and prone to human error.
- Signing Process: Finalized contracts were printed for physical signatures, and scanned copies were re-uploaded into the system. While digital signatures were sometimes used, they were often handled by third-party tools, not integrated into the DMS.
Challenges of Traditional Contract Drafting Methods
Contract drafting using traditional methods is not without its problems. While these systems worked for basic needs, they introduced a range of inefficiencies.
- Lack of Standardization: Without automated templates, contracts often varied in structure and language, resulting in inconsistent agreements that increased legal risk.
- Increased Risk of Human Error: The manual nature of traditional drafting made it easier to overlook details or introduce errors, which could compromise the legal enforceability of contracts.
- Limited Version Control: Managing multiple versions of the same contract via email often led to confusion, making it hard to track changes and resulting in potential errors in the final version.
- Inefficient Search and Access: Finding specific contracts within a DMS was a manual task, and access control often lacked the necessary precision to ensure the right stakeholders had appropriate permissions.
How AI and CLM Systems Are Transforming Contract Drafting
The introduction of AI-powered Contract Lifecycle Management (CLM) tools has drastically improved contract drafting processes. These systems go beyond just organizing documents—they automate workflows, ease collaboration and version control and provide valuable insights, significantly enhancing the contract drafting experience.
- Automated Drafting and Approval Workflows: AI-based CLM tools automate much of the drafting process by using pre-approved templates and clause libraries. This reduces the time spent on manual editing and ensures consistency in contract terms.
- Centralized Repository with Access Control and Searchability
CLM systems centralize contract storage with advanced search functionalities, making it easier to locate specific contracts. These repositories also offer role-based access controls, ensuring that only authorized personnel can view or edit sensitive contracts. - Collaborative Tools and Redlining: AI-powered platforms enable real-time collaboration, allowing legal teams to redline, comment, and negotiate contracts in a seamless and organized manner, without the back-and-forth of email chains.
- Speedier Drafting Process: Thanks to automation features like predefined templates and clause selection, contracts can be drafted faster, reducing the time from creation to execution.
How Generative AI is Further Enhancing Contract Drafting
Generative AI has pushed contract drafting to the next level by introducing features that make contract creation even more efficient. It goes beyond basic automation by learning from existing contracts to deliver more accurate, contextually relevant drafts.
- AI-Powered Playbook Libraries: Generative AI allows users to build customized libraries of clauses and templates, alongside risk positions, using natural language processing to assess and articulate risks. This system detects deviations from established standards, ensuring contracts align with company policies.
- Self-Service Contract Creation: Users can independently draft straightforward contracts, such as NDAs, by leveraging AI-guided questionnaires and pre-approved templates. This capability helps minimize legal team bottlenecks and accelerates the drafting process.
- Automated Redlining and Review: AI tools automatically identify inconsistencies and suggest changes, simplifying the review process. By utilizing pre-trained models, these tools ensure contract terms are consistent with preferred standards and company policies, streamlining compliance checks.
How Generative AI is Further Enhancing Contract Drafting
Generative AI has pushed contract drafting to the next level by introducing features that make contract creation even more efficient. It goes beyond basic automation by learning from existing contracts to deliver more accurate, contextually relevant drafts.
- AI-Powered Playbook Libraries: Generative AI allows users to build customized libraries of clauses and templates, alongside risk positions, using natural language processing to assess and articulate risks. This system detects deviations from established standards, ensuring contracts align with company policies.
- Self-Service Contract Creation: Users can independently draft straightforward contracts, such as NDAs, by leveraging AI-guided questionnaires and pre-approved templates. This capability helps minimize legal team bottlenecks and accelerates the drafting process.
- Automated Redlining and Review: AI tools automatically identify inconsistencies and suggest changes, simplifying the review process. By utilizing pre-trained models, these tools ensure contract terms are consistent with preferred standards and company policies, streamlining compliance checks.
The Sirion Advantage: AI-Powered Contract Drafting
Sirion stands out by combining the power of generative AI with an intuitive user experience that simplifies complex contracting.
- Businesses can quickly set up enterprise-wide playbooks tailored to their policies and risk positions.
- Pre-approved templates and clause libraries are readily accessible, streamlining drafting and maintaining consistency across teams.
- AskSirion, a conversational AI interface, enables users to draft contracts by simply answering guided prompts—drawing from approved language, insights from past agreements, and internal expertise.
- Entire contract packages can be created in one go, with related documents sharing terms and logic to provide a cohesive and complete view.
Just as importantly, Sirion connects with systems like CRM, S2P, and CPQ to allow contract requests to be initiated from where teams already work. Drafts can auto-populate using synced data, and status tracking across systems keeps all stakeholders informed and aligned.
The Bottom Line: AI Makes Contracting Work Smarter
The shift from traditional document management systems to AI-powered contract lifecycle management has transformed the way organizations handle contract drafting. With AI, businesses can significantly reduce manual effort, ensure accuracy, and maintain compliance, all while speeding up the drafting process. As businesses continue to embrace AI-driven solutions, AI contract drafting will become an indispensable tool for improving legal operations and driving efficiency in the contract lifecycle.
Additional Resources
DORA Compliance: A Deep Dive Into Contracting Readiness
