AI is a modern phenomenon with remarkably broad applications across seemingly every industry. The global AI market is expected to grow from $100 billion in 2021 to almost $2 trillion by 2030, suggesting we’re only beginning to catch a glimpse of AI’s transformative impact.
AI is helping companies scale quicker than before while simultaneously uncovering ways to improve operations. When it comes to AI’s role in contract lifecycle management (CLM), the advantages are bountiful.
Let’s take a look at the powerful benefits of AI contract review, along with its challenges and likely future trends.
What Is AI Contract Review?
AI contract review involves the use of natural language processing (NLP), machine learning (ML), and large language models (LLMs) to analyze data extracted from documents. AI makes it possible to automate repetitive tasks, recognize clauses and important contract details, and provide alerts or suggestions.
AI is unique compared to less-advanced automation processes that have existed in the past, due to its ability to understand context and not just patterns. This enables AI to fill many of the challenging, redundant roles that used to require constant human attention.
AI contract management software can compare extracted data to a custom database of standards, benchmarks, special clauses and terms, improving and streamlining processes for greater efficiency.
Why Is Contract Review Important?
An accurate review and analysis of contracts is vital to maintaining compliance, managing potential supplier risks, preparing for changes or contract terminations and renewals, and for holding suppliers to your contractual standards.
How Does AI Contract Review Work?
AI contract review is made possible by advanced software that utilizes NLP and ML, two important subsets of AI that make it possible for an application to understand data that has been extracted and imported for analysis.
NLP in AI Contract Review
NLP is used to scan and interpret data in contracts. Going beyond automated scanning for familiar terms or phrases, NLP discovers context and meaning in addition to specific, relevant terms, using structure and syntax it has learned from large language models (LLM).
ML in AI Contract Review
ML effectuates intelligent algorithms that are able to improve an application’s ability to interpret contract data over time. ML trains on your specific extracted documents to become more familiar with patterns and clauses.
Over time, ML becomes more accurate, which facilitates numerous AI contract review processes.
Benefits of AI Contract Review in Contract Management
Historically, human beings were tasked with reviewing contracts one line at a time. The tedious redundancy would lead to great expense and the potential for errors stemming from fatigue.
AI contract review resolves multiple challenges businesses face without compromising attention to detail or accuracy. The major benefits include:
Reducing human error
Helping companies scale more efficiently
Saving time and money
Reducing compliance and regulatory risks
Identifying important clauses
Providing alerts to changes or conflicts
Analyzing data to provide valuable metrics
Freeing the workforce to focus on activities that require human expertise
ML adds a key component to the benefits of AI contract review with the ability to learn as it goes along. ML allows AI-based contract management to gain greater insight into the details of your agreements with vendors so it increases in accuracy and knowledge of intricate contract details over time.
The Role of AI in Contract Management
Contract management requires the ability to accurately extract your contract data, bringing it into your software platform where it can be organized, stored, and analyzed. But AI adds an important dimension to help you get the most value from that data when managing your contracts.
Automating Contract Analysis
AI contract review automates contract analysis, eliminating the bottleneck of manual review. Greater than regular automated applications, AI is able to interpret and understand context so it can correlate data to specific clauses and terms you establish.
Analyzing Contract Language and Clauses
AI contract review analyzes contract language with proper context, so clauses, renewals, and other terms are assessed to provide valuable insights that drive decision-making and uncover useful metrics.
Identifying Risks and Potential Issues
You are able to establish rules and preferred terms for agreements, phrases to watch for, and other contract details so your AI-based contract platform can recognize potential risks and flag them for your review. You can program your software to provide alerts for errors, conflicts, and regulatory concerns to reduce your potential exposure to risks.
Streamlining Contract Negotiation and Redlining Processes
Because AI enables your contract review software to categorize and classify contract terms, it makes it easy to review details for negotiations and visualize redlined clauses. You can determine predefined standards and best practices, saving the countless hours it used to take manually scanning for details.
Choosing the Right AI Contract Management Software
There is so much more to streamlining contract management than accurate data extraction. When looking for the right AI-based platform for your needs, be sure it is capable of providing:
Real-time actionable insights
Visualization of terms and conditions across your entire supplier ecosystem
Automatic contract renewals under the desired terms
A contract heat map to quickly identify contract risk
AI with ML that can train on your data and provide ever-increasing accuracy over time
Collaboration across all of your departments
Integrating AI into Existing Contract Management Systems
Some may find the idea of transitioning to an automated contract platform daunting. But, AI contract lifecycle management software can be used to integrate all of your data, allowing you to tailor every setting to your needs. Start by creating a centralized database of clauses and contract terms you wish to standardize.
You define your implementation goals—you determine the details you need to monitor.
Future Trends and Challenges in AI Contract Management
AI contract management is evolving quickly, closing the gap on the potential utility we could only imagine in decades past. We will continue to see huge strides in the benefits of ML for greater accuracy, tied to even more insightful data from deep AI contract analysis. Along with amazing advancements come the growing pains of learning to implement constantly changing technology.
The following are just a few other trends and challenges we’ll see with AI contract management in the future.
Data Accuracy and Bias
Transformative technology is only as powerful as the results it provides. As AI develops, experts train models to base intuitive algorithms on facts without informational bias or inaccuracies.
ML works particularly well in training for accuracy in contract management, and this will only continue into the future. Today’s best AI contract management platforms resolve many of the concerns over quality data using humans in the loop processes, where experts are able to easily review, verify, and intervene to correct errors when they arise.
Security and Compliance
Regulatory compliance draws the narrow lines for industries to follow, where every detail matters. As AI models become more complex and advanced, they offer assurances to the integrity of a contract’s data. But, the regulatory field is always changing, bringing new challenges for data integrity.
Much of these standards deal with managing data privacy and user access, where robust contract management software will provide administrative rules to safeguard sensitive contract information.
Terzo: The Future of AI Contract Management
Terzo's AI-powered platform optimizes contract management by leveraging AI technology to save costs, reduce risk, and aid proactive decision-making. Our platform makes this possible by providing automated contract visibility and governance forecasting, always with human-in-the-loop involvement to ensure data quality and accuracy.
Terzo’s AI-powered contract management platform leverages the most advanced technology to provide you with actionable insights for smarter, faster decision-making. Get in touch to try our free trial so you can discover hands-on what our system’s cost savings, risk reduction, and powerful analysis can do for you.