Home Back to All Blog


Randy Bishop

How To Hack AI To Improve Your Contract Management

Artificial intelligence (AI) is in the process of completely transforming how the world works. And contract management isn’t exempt from this transformation.

You’re probably familiar with some of the current applications: data extraction, contract drafting, and workflow automation…

But there are many more potential use cases just waiting to be discovered.

In this post, we will look at some of the more unconventional ways AI is being used in contract management software, show you how to “hack” AI to get the most out of it, and caution you against using AI as a crutch. It's a powerful tool, but it still requires the guiding hand and expert knowledge of a human professional.

Table of Contents

What is AI in Contract Management?

AI is a powerful emerging technology that can solve problems, perform tasks, and analyze data quickly. In the context of contract management, AI leverages several key technologies:

  • Natural language processing (NLP): This technology paves the way for AI to understand, interpret, and generate human language. It’s what allows AI to easily extract key details from contracts, classify contract types, and even translate legalese into plain English.

  • Machine learning: AI uses algorithms that learn from data without explicit programming. For contracts, this means AI can analyze massive amounts of historical contract data, identify patterns, and predict outcomes.

  • Optical character recognition (OCR) technology: OCR helps AI scan contracts, while expert systems can apply rules-based logic to make deductions relevant to contract analysis.

Here’s an example of how that might look in practice:

  1. AI scans documents using OCR.

  2. AI then uses NLP to identify termination clauses within a batch of contracts.

  3. AI uses machine learning to analyze patterns within past negotiations to predict if similar clauses are likely to be disputed in new agreements.

While this is just one way AI can use these technologies to improve contract management, it should give you an understanding of how they work together. 

ai-in-contract-management-explained

Using AI To Supercharge Your Contract Management

AI offers a range of benefits throughout each stage of the contract management lifecycle

Let's dive into some unconventional ways it can streamline your processes:

Predict Contract Outcomes

AI doesn't just tell the past; it can help you peek into the future. 

By analyzing your historical contract data, AI can give you an idea of the likelihood of success for new contracts. 

Here's how it works:

  • Historical data: You provide AI with information about your past contracts, including their types, the specific terms and clauses involved, the other parties, and their ultimate outcomes (e.g., successful on-time completion, delays, disputes, etc.).

  • Pattern recognition: AI uses machine learning algorithms to identify patterns within your data. It pinpoints which contract elements correlate to positive outcomes and which tend to lead to less favorable results.

  • Probability prediction: When you're crafting a new contract, AI can assess its terms and provide a data-driven prediction about the chances of achieving your desired business outcomes, whether it's timely delivery or securing favorable payment terms.

This kind of predictive power allows you to make informed decisions during the negotiation stage, maximizing your potential for success.

Enhance Contract Clarity

Let's be honest — legalese can be a headache for everyone involved. While AI can assist in translating complex contract terms into plain language, it's crucial to understand its limitations in fully grasping language nuances. 

Instead of solely relying on AI to rewrite contracts, you can use AI to read contracts and highlight potential areas of confusion.

This approach has several key advantages, including:

  • Improved understanding: AI can help identify and flag confusing language, ensuring everyone from clients to colleagues can quickly grasp the key points of a contract.

  • Faster negotiations: By pinpointing ambiguous terms early on, AI reduces the room for misunderstandings, potentially speeding up the negotiation process.

  • Better client relationships: Demonstrate your commitment to transparency by using AI to ensure that contract language is clear and understandable.

Lawyers and legal teams can use AI to summarize contracts and identify potential problems or ambiguous terms. This way, AI serves as an aid in the drafting process, ensuring that the final language is clear, precise, and legally sound.

By leveraging AI to enhance understanding and identify potential issues, you can ensure that your contracts are both clear and legally robust, while still benefiting from the efficiency and insights AI can provide.

Highlight Contract Risks

AI is a tireless watchdog for your contracts, sniffing out potential risks that might slip past human eyes. AI can be trained to recognize a wide range of issues based on keywords, phrases, and industry knowledge.

This type of risk identification is crucial because AI can review contracts far faster than any manual assessment, flagging potential risks early in the process.

AI leverages existing and previous contract data, applying customer insights to enhance its accuracy and effectiveness. By analyzing historical contract data and incorporating feedback from past experiences, AI becomes adept at identifying potential issues that might not be immediately apparent.

And AI’s helpful hand doesn’t disappear when a contract is signed. 

AI can also continuously monitor a contract throughout the duration of its lifecycle, keeping humans more informed and prepared, allowing for proactive management and timely intervention.

Knowing contract risks upfront and staying vigilant throughout the contract's lifecycle allows you to negotiate proactively, address issues early, or craft mitigation clauses for your protection. 

Draft and Proofread Emails

Let AI handle the heavy lifting when it comes to your contract communications. 

Whether you need to draft a quick update, clarify a complex clause, or negotiate terms, AI assistants can:

  • Create style-matched drafts: AI can analyze your previous emails and generate drafts that align with your typical communication style, saving you time and ensuring clarity.

  • Reduce errors: Get an extra layer of proofreading — AI helps polish your emails by suggesting grammatical fixes and catching typos.

  • Make emails sound more professional: AI assists in maintaining a professional tone and consistent brand voice across all your contract-related communications.

While emails aren’t necessarily considered a “stage” of contract management, communication is absolutely a piece of the puzzle. And AI empowers you to communicate more efficiently and professionally regarding contracts, saving time and strengthening your business relationships.

Create Better Spreadsheets

AI takes the drudgery out of spreadsheets, letting you focus on analysis and insights.

AI can automatically extract relevant contract details, like dates, parties, and key terms, and populate your spreadsheets for you.

Plus, it can minimize the chance of errors while saving valuable time by taking care of data entry, freeing you up for strategic work.

And if you’ve ever struggled to remember a specific formula, AI has you covered there, too. 

Summarizing Meetings

AI is the perfect meeting minute-taker, ensuring no important detail gets missed. 

Instead of scribbling notes, AI can analyze meeting recordings, generating concise summaries that highlight key decisions and next steps.

It can even identify action items and ensure they're assigned to the right team members, preventing tasks from slipping through the cracks.

With AI handling your meeting follow-ups, you'll gain clarity on key decisions, ensure everyone understands their responsibilities, and streamline post-meeting processes.

How To Use AI Effectively

Getting the best results from AI in contract management requires careful planning and understanding. Let's dive into the essential steps to successfully harness the power of AI.

how-to-use-ai-effectively

1. Use Prompt Engineering to Your Advantage

The way you communicate with AI directly impacts the usefulness of its outputs. 

Prompt engineering is the art of crafting precise instructions that guide AI toward the exact results you desire. 

Let's break down the key principles:

  • Be specific: Instead of vague requests like "analyze this contract," provide as much specific information as possible. What type of analysis do you require? Risk identification? Comparison with standard industry contract terms? Translation into plain English? The more precise your direction, the more targeted the results.

  • Provide context: AI performs best when it understands the bigger picture. Briefly outline the type of contract (NDA, vendor agreement, etc.), your company's role (buyer, seller, etc.), and any specific concerns or goals you have for the analysis.

  • Focus on the desired outcome: State your desired outcome clearly, and AI will work toward providing that exact type of output. What do you ultimately want to achieve by using AI? Do you want a list of high-risk clauses, a simplified summary, or a spreadsheet comparing terms with past negotiations? 

  • Refine your results: The perfect AI outcome rarely appears on the first try. View this as a conversation — analyze the initial results, identify areas where AI may have misunderstood, and refine your prompt accordingly, providing clearer instructions or additional context.

Let’s say you want to use a generative text solution to analyze a contract for risks. Here’s how that would look: 

Bad prompt

"Analyze this contract for risks."

Better prompt

"I am a procurement manager for a manufacturing company, negotiating a supply agreement for critical components. Please analyze this contract and identify clauses that pose financial, legal, or operational risks to our company. Pay close attention to payment terms, delivery timelines, and quality standards clauses."

Why it’s better: It specifies the role (procurement) and type of contract (supply agreement) and focuses AI on risk areas of highest concern.

Or, if you want to simplify the language in a document: 

Bad prompt

"Simplify this contract."

Better prompt

"I need to explain this master services agreement to our sales team, which doesn't have a legal background. Please rewrite this agreement in plain English, focusing on clearly defining the scope of services, payment schedules, and termination clauses."

Why it's better: It states the audience (sales team) and the specific clauses most important for their understanding.

And what if you want to predict a contract outcome? 

Bad prompt

"Will this contract be successful?"

Better prompt

"Analyze this draft lease agreement for our new office space. Compare its terms (rent, deposit amount, length of lease, renewal options) to our past office leases, paying close attention to outcomes where we relocated within three years. Predict the likelihood of us needing to relocate early from this new office space."

Why it's better: It provides historical context and a specific metric for defining "success," allowing for a meaningful prediction.

Remember, practice makes perfect. Experiment with different prompts and analyze the results. Soon, you'll master the art of communicating effectively with AI for optimal contract analysis.

2. Train Your AI Correctly

Think of your AI system as a highly intelligent but inexperienced intern. With the right training, it can become your contract management superstar. The key to unlocking its potential lies in the type of data you provide during its learning phase.

Focus on feeding your AI accurate, well-structured, and highly relevant information. 

Even the most sophisticated AI can produce flawed results if it's trained on poor or incomplete data.

Here are the types of information to prioritize:

  • Contracts and metadata: Include the full contract text and essential details like dates, parties involved, contract type, and any relevant industry classifications. This metadata gives context to the contract terms, allowing AI to identify patterns more effectively.

  • Outcomes: If you want your AI to predict outcomes, it needs to understand what good and bad outcomes look like. Clearly label your past contracts with their outcomes (e.g., successful on-time completion, delayed but resolved, terminated prematurely).

  • Human expertise: Where possible, augment your data with annotations made by legal experts. For example, if training your AI for risk identification, include contracts with specific clauses previously marked as high, medium, or low risk. This provides AI with valuable examples to learn from.

Treat training your AI as an ongoing process, not a one-time task. 

Regularly review the outputs it produces. If you notice consistent errors or missed insights, investigate your training data. 

Is something missing? Are the examples representative of the real-world scenarios you face? 

Adjust, retrain, and repeat until you see continuous improvement. 

Say your goal is to highlight contract risks, for example: 

good-ai-starting-points

The time you invest in carefully curating your data will pay dividends in the accuracy and usefulness of your AI outputs. 

3. Know the Limits of AI

While AI is an incredible tool, it's important to be realistic about its capabilities in the realm of contracts. 

Here are some key things to keep in mind:

  • AI isn't great with ambiguity: Contract language can be nuanced, with terms that could have multiple interpretations based on context. AI systems might struggle to grasp these subtleties, potentially misunderstanding the intent of some clauses.

  • AI isn't always accurate: Even advanced AI models can make mistakes or misinterpret data. It's essential that your AI policy includes a thorough review of all AI output before making decisions, especially for high-stakes contracts.

  • AI can inherit biases: AI learns from the data it's fed. If your past contracts or training materials contain biases (intentional or unconscious), these biases could be reflected in the AI's recommendations. Always strive to identify and eliminate bias to ensure fairness in your AI-powered processes.

  • AI hallucinates: AI models can sometimes generate outputs that seem plausible but are factually incorrect or nonsensical. This is known as "hallucination." When using AI for contract analysis, be especially vigilant about verifying any information or conclusions generated by the system.

AI is powerful, but it’s not perfect. It can handle many data-heavy tasks with incredible speed and accuracy, freeing you up for strategic decision-making and the nuanced judgment required for complex contracts, but you still want to double-check its work. 

4. Protect Your Data

Contracts contain sensitive business information, making data security and privacy protection paramount when using AI tools. 

Here's what you need to consider:

  • Robust encryption: Ensure the AI platform you choose employs strong encryption protocols for data at rest (stored in databases) and data in transit (moving between systems). This protects your information from unauthorized access or interception.

  • Access controls: Implement strict controls on who within your organization can access contract data and the AI's outputs. Role-based permissions and auditing trails are key for granular control and accountability.

  • Understand data usage: Be clear about how your AI system analyzes and uses contract data. Ensure it's used solely for your authorized purposes and not shared with external parties or utilized for purposes outside your contract management needs.

  • Data breach risks: A data breach could expose your sensitive contract information to unauthorized individuals, leading to financial loss, damaged reputation, and even legal repercussions. Take data security seriously because the consequences for breaking GDPR or HIPAA regulations are no joke.

Remember, choosing an AI platform with a strong security track record is vital!

5. Don’t Use AI as a Crutch 

AI is still a relatively new technology in the legal realm, and despite its incredible power, it can't fully replace human expertise in the world of contracts. 

Contracts often involve complex scenarios, competing interests, and negotiations that require strategic thinking. AI might excel at data analysis and highlighting potential issues, but the ultimate decisions about concessions, deal terms, and overall strategy rest with you.

It also might lack a broader understanding of your business priorities, industry nuances, and long-term relationships with contracting parties. This context is vital to making informed decisions that align with your larger business goals.

While you can train AI systems to spot potential areas of concern, they don't possess the in-depth legal knowledge and analytical ability of a qualified legal professional. Especially for high-stakes contracts, careful legal review remains essential.

Treat AI as a tireless data-crunching, risk-spotting sidekick. Utilize its strengths to enhance your efficiency and insight. 

But always make sure that the final judgment call belongs to you, the human contract expert.

See How ContractSafe Can Help Improve Your Contract Management Today 

ContractSafe is a contract management solution focused on simplicity without sacrificing functionality.

And that’s exactly how it incorporates AI into its system. 

Here’s how it works: 

  • Smart data extraction: Our [AI]ssistant automatically extracts important contract data and populates the relevant fields for you. 

  • Categorization by contract type: With ContractSafe, you can use AI to instantly categorize each contract by type, eliminating the need for manual sorting. With 14 "out of the box" contract types and the flexibility to add your own custom categories, our system adapts to your specific needs.

  • Tailored data collection: Ensure the right data is collected for each contract type. Forms are automatically applied based on the contract's categorization, ensuring consistency and completeness.

Rather than hopping on the AI bandwagon, ContractSafe’s approach to this new tech is to help you do what you’re already doing, only better. And safer.

If you want to see how ContractSafe’s AI can help you improve your contract management and how you can incorporate it into your workflow, schedule a demo today

See how ContractSafe can save your business time and money

Searching for Contract Sanity?

Gain control of your contracts today. Take the first steps in just a few minutes

Recent Blog Posts

Do you need full-lifecycle CLM?

Learn the difference between pre- and post-signature CLM features and discover why ContractSafe might be the best choice for your business.

What Is Enterprise Contract Management and Do You Need It?

Explore how enterprise contract management can transform your contract chaos into a well-oiled machine that drives growth and mitigates risks.

What Is Contract Performance and Why Does It Matter?

Boost your contract performance and achieve better outcomes with contract management software. Learn how to measure, track, and optimize agreements for success.

icon_line_dots person_testimonial

“I couldn't believe we were already up and running in just 30 mins

icon_yellow_quotes
  • sirius-xm-logo
  • Dollar-Shave-Club-logo
  • TED-logo
  • United-Express-logo
  • The-University-of-Arizona-logo
  • j2Global-logo
  • payscale-logo
  • Living-Spaces-logo
  • Jam-City-logo
  • McClatchy-logo
  • SFMOMA-logo
  • Sacred-Heart-logo
  • california-pizza-kitchen-logo
icon-line-dots

Contract relief is waiting.

Gain control of your contracts today. Take the first steps in just a few minutes.

Request a Demo