AI can help legal departments improve efficiency, reduce risk and accelerate deals in a challenging economy. LexCheck founder and CEO Gary Sangha explores AI’s potential.Â
Economic uncertainty is forcing companies to focus on efficiency. As business leaders strategize how to maximize revenue with fewer resources, they should consider empowering their legal department to accelerate deals and drive value.Â
More than 50% of organizationsOpens a new window report losing revenue due to contracting inefficiencies, and 99% report not having the right technology to improve their contract processes. Investing in effective tools reduces contract turnaround time and increases the legal department’s productivity. The faster legal can approve deals, the sooner your company can realize revenue, which is vital in our current economic climate.
Long Review Cycles Are Costly
Contracts are lengthy and complex, and every clause needs to be evaluated for risk and value. While you can’t rush the process, the longer reviews take, the more they cost. For example, contract review turnaround time can add a week to a new product launch, causing significant revenue losses for each day the product is not on the market. Or businesses may agree on a deal, but the legal review could take months, delaying much-needed revenue recognition.
Many legal departments manually conduct reviews, which are laborious, expensive and prone to error. Manual reviews also burden already overworked legal professionals. According to Axiom’s 2022 In-House Counsel Survey ReportOpens a new window , nearly half of lawyers report being very or extremely stressed or burned out. As a result, in-house legal departments suffer from significant turnover, generating more work for the remaining team.Â
Additionally, when your highest-paid lawyers spend hours reading documents rather than negotiating business terms or providing legal advice, you lose significant value.Â
Leveraging AI-powered legal tech for contract management provides a solution to these challenges by accelerating contract approvals while lightening workloads and allowing legal professionals to accomplish more high-value work.Â
Improve Review Efficiency
Legal departments can discover immediate ROI by automating the most tedious, time-consuming review and negotiation tasks.Â
Contract review requires extensive person-hours to adequately mitigate risk and inform decision-making. The task is daunting, especially at scale. AI expedites the process by reviewing every line to extract relevant data, identify inconsistencies and flag potential risks and issues â€” details that overworked legal professionals may unintentionally overlook.Â
Instead of sorting through contracts, legal professionals can concentrate on revenue-driving tasks such as analyzing results, crafting competitive strategies and maintaining favorable business relationships. The streamlined process reduces review time, effort and cost and accelerates sales velocity.Â
Standardize Best Practices
Legal departments create playbooks to standardize definitions, preferred negotiation positions and best practices. They can use that framework to train AI to enforce company-specific parameters when reviewing incoming contracts. This training helps ensure all agreements align with business expectations.
Rules-based AI also institutionalizes collective knowledge. Legal departments constantly need to train new staff, a long and expensive process with limited ROI. AI applies and retains information in perpetuity, so when people leave, the company doesn’t lose that valuable knowledge. New employees can use AI to learn the company’s negotiation framework and make edits in line with company policy, yielding better results in less time.Â
With hundreds to thousands of contracts, prioritization becomes challenging. Manual processes require the same time and attention for each document review, even if the agreement contains low risk.Â
AI can conduct a comprehensive risk assessment that was previously only possible when an experienced attorney reviewed the agreement. The technology flags potentially risky clauses and ranks them by severity so attorneys know how to prioritize their efforts. The assessment reduces escalations so senior lawyers can perform more high-value work.Â
Legal professionals can also use AI to identify ambiguous terms and suggest appropriate replacements or simplify and auto-insert preferable language, reducing risk and saving time.Â
AI identifies how and where negotiated agreements deviate from standards and proposes substantiated changes. In minutes, automated contract review solutions automatically apply the company’s preferred positions to each contract in the form of fully redlined and annotated contracts.
The markup enables reviewers of all skill levels to recognize which clauses require attention. Rather than comparing document versions, senior team members can concentrate on applying their knowledge and expertise to find solutions to specific issues. The streamlined redlining process significantly reduces the first-pass review of contract negotiations.
Increase Sales Velocity
Standardizing the contract negotiation process and making the legal playbook accessible shorten the approval process, allowing business units outside the legal department more autonomy without compromising quality or introducing risk.Â
With an automated markup, procurement and sales teams can be confident in their contracts and spend less time waiting for legal review. The shortened process enables the company to win and close more deals faster, driving higher and faster revenue.Â Â
A Note About Generative AI
Generative AI creates exciting new prospects for contract management, but the technology is still being vetted. One significant concern â€” generative AI could potentially introduce errors in legal documents. Existing algorithms sometimes experience â€œhallucinations,â€ which can be extremely problematic in the legal space. A recent high-profile case involved a lawyer submitting a brief with fake casesOpens a new window generated by generative AI.
Generative AI may struggle to understand context and nuance specific to a firm or business’s contracts. Depending on the training data set, generated content may be counter to best practices or not applicable to the circumstances.
Privacy and confidentiality pose another challenge. You must ensure AI will not include confidential information in a response.Â
Generative AI will revolutionize the way legal professionals work, but that time is not here yet. In the meantime, legal teams should look to more mature AI solutions built specifically for legal. Many of these more robust, proprietary AI options rely on rules-based systems, meaning the AI makes decisions and applies appropriate changes aligning with predetermined rules, such as an established contract playbook.
Best Practices for Leveraging AI in Contract Management
To effectively leverage AI in contract management, you must implement the technology thoughtfully and intentionally. General counsels should follow these best practices.
Selection and implementation
- Define clear objectives for contract management.Â
- Identify business needs to guide the selection of AI-powered contract management tools.Â
- Ensure data privacy and security in tools and practices.Â
- Train and upskill employees to effectively use the technology.
Contract management tools in practice
- Use AI to automate rote tasks and reduce workloads.
- Leverage AI to understand document structure and context and extract actionable insights at scale.
- Monitor and measure performance to adjust processes and tools as needed.Â
Don’t Forget the Humans
While AI is valuable, it won’t replace lawyers altogether. Business leaders and general counsels need to prioritize human-centered AI, allowing humans â€“ not computers â€“ to dictate processes. AI-powered technology should meet the legal team’s needs to make their lives easier, not add additional steps. The right solution can reduce workloads and allow time for more value-added work, which correlates with less burnout and better job satisfaction.
Budgets and legal professionals are stretched thin in this challenging macroeconomic environment. While AI-powered contract management solutions require some upfront costs, they quickly create significant ROI. Legal departments can harness the power of AI to unlock maximum contract value, accelerate sales velocity, drive growth and revenue and address workforce challenges, all of which are imperative to surviving an economic slow period.
Have you used AI-powered tools for contract management? Tell us about your experience on FacebookOpens a new window , TwitterOpens a new window , and LinkedInOpens a new window . We’d love to hear from you!
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