AI in Contract Drafting: Transforming Legal Practice
by Audrey Zhang Yang
Introduction
The legal profession is experiencing an unprecedented transformation driven by the integration of Artificial Intelligence (AI) into various aspects of legal practice. Among these changes, the evolution of contract drafting and management stands as a particularly significant development. As law firms and legal departments navigate the opportunities and challenges presented by evolving legal technologies, understanding how AI is reshaping contract drafting becomes crucial for legal practitioners and law school students. This paper examines the current state of AI in contract drafting, its practical applications, and its implications for the legal profession.
Historical Context and Technical Foundation
The integration of AI into legal practice has been a gradual process, evolving over several decades. The roots of AI in legal practice can be traced back to the 1960s when one of the first legal expert systems was developed at the University of Pittsburgh.[1] However, it was not until the advent of machine learning and natural language processing (NLP) in the 21st century that AI began to exert subtle yet significant influence on contract management.[2] These technologies introduced sophisticated capacities for processing and understanding human language, fundamentally altering the approach to contract drafting.[3]
Contract drafting traditionally requires lawyers to perform multiple complex tasks: ensuring parties’ intentions are accurately reflected in contract terms, confirming legal enforceability, and anticipating potential issues that could arise during execution.[4] The process involves careful attention to introductory provisions, precise term definitions, identification of possible conditions to an obligation, designing agreed methods of the contract termination, and inclusion of appropriate boilerplate clauses.[5] With the help of NLP, AI systems have demonstrated remarkable capability in supporting these functions.
AI systems have sophisticated pattern recognition to analyze existing contracts and learn standard legal language patterns, which helps ensure accuracy and precision in expressing each party’s intentions.[6] These systems can ensure that contract terms are legally enforceable by cross-referencing legal databases, statutes, and regulations to confirm compliance with relevant law.[7] Furthermore, they excel at identifying common contractual conditions to obligations and suggesting appropriate risk mitigation clauses, such as force majeure clause.[8]
The technology’s analytical capabilities extend to identifying potential areas of dispute based on historical contract analysis, enabling preventive drafting approaches.[9] By leveraging large databases of legal documents, AI systems streamline the drafting process through automated insertion of standard provisions while maintaining consistency across documents.[10] This automation of routine tasks allows lawyers to focus on strategic aspects of contract preparation and negotiation.[11]
Current Industry Adoption and Impact
The adoption of AI in contract drafting has gained significant momentum within the legal industry. As of early 2024, 41 of the Am Law 100 firms actively use AI tools for document analysis, contract drafting, and due diligence.[12] Prominent firms such as Latham & Watkins, Clifford Chance, and Allen & Overy have positioned themselves at the forefront of this technological integration.[13]
AI’s impact on contract drafting manifests in three critical areas: efficiency, accuracy, and predictive analytics. The efficiency gains are substantial, as demonstrated by JPMorgan’s COIN (Contract Intelligence) program, which has reduced commercial loan agreement review time from 360,000 hours annually to mere seconds.[14] Enhanced efficiency allows lawyers to concentrate on higher-value activities that require complex reasoning and creativity.
AI also significantly improves accuracy and consistency in contract drafting. Human error is an inevitable part of manual contract review, but AI can minimize these risks by ensuring consistency in contract language and maintaining standard clauses across a company’s legal documents. A study by LawGeex showed that AI achieved an average 94% accuracy rate in spotting risks in non-disclosure agreements (NDAs), compared to an average of 85% for experienced lawyers.[15] Another example is Clifford Chance’s use of Kira Systems for clause extraction and comparison across multiple contracts, which allows lawyers to quickly identify discrepancies or non-standard clauses in large sets of agreements.[16] This can reduce the risk of human error in contract drafting and review.
Moreover, AI’s ability to engage in predictive analytics is one of the most advanced applications of the technology. By analyzing vast datasets of historical legal documents, AI can predict potential risks, suggest optimal clause wordings, and even forecast the likelihood of contract disputes.[17] This predictive capability allows lawyers to make more informed decisions and provide better service to their clients.
Global Applications and Language Processing
In today’s globalized legal landscape, AI’s ability to digest and analyze contracts in multiple languages is invaluable. Major firms like White & Case leverage AI systems to review contracts in multiple languages, facilitating international transactions and cross-border deals.[18] Advanced platforms such as Luminance can process documents in over 80 languages, significantly reducing the need for specialized translators.[19] The ability to help bridge language barriers is particularly crucial in supporting cross-border transactions and international legal work.
The Human-AI Partnership in Legal Practice
While AI’s capabilities in contract drafting and management are impressive, it is important to understand that AI is not replacing lawyers, but merely facilitating their work. The most effective approach is a symbiotic relationship between human legal expertise and AI’s computational power. As routine tasks become automated, Professor Gillian K. Hadfield of the University of Southern California believes that AI in contract drafting and review will lead to a better use of legal practitioners, stating that “lawyers will shift their focus from routine activities to much more high value work involved in shaping strategies and navigating complex legal problems.”[20] This shift may lead to a redistribution of legal labor, with emphasis on skills like risk assessment, strategic thinking, client counseling, and complex negotiation.
Conclusion
The integration of AI into contract drafting and analysis represents a profound shift in legal practice that extends beyond mere technological adoption. While this transformation brings challenges, including the need for new skills and careful ethical considerations, it also offers unprecedented opportunities for improving efficiency, accuracy, and insight in contract management. Success in adopting this evolving legal technology will depend on striking the right balance between human expertise and AI capacities. Legal professionals must develop proficiency not only in traditional legal theory and practice but also in understanding and leveraging AI technologies. Those who can effectively combine legal acumen with technological proficiency will be best positioned to thrive.
[1] Bruce G. Buchanan & Thomas E. Headrick. Some Speculation About Artificial Intelligence and Legal Reasoning. Stanford Law Review, Vol.23, P.40-62. (1970).
[2] Harry Surden, Machine Learning and Law, 89 Wash. L. Rev. 87. P.87-115. (2014).
[3] Cole Stryker and Jim Holdsworth. What is NLP (natural language processing)? IBM. 11 August 2024. https://www.ibm.com/topics/natural-language-processing
[4] Tina L. Stark & Monica Llorente, Drafting Contracts: How and Why Lawyers Do What They Do (3d ed. 2024). P.44-45.
[5] Id. at 255.
[6] Irene Ng. The Art of Contract Drafting: A Legal and Economic Framework for Innovators. Stanford-Vienna TTLF Working Paper No. 26, Transatlantic Technology Law Forum, Stanford Law School, Stanford, CA. P.24.
[7] Id. at 31.
[8] Id.
[9] Id.
[10] Id. at 32.
[11] Bloomberg Law. Can AI Write Legal Contracts? Bloomberg Law Insights, October 11, 2024, https://pro.bloomberglaw.com/insights/technology/can-ai-write-legal-contracts/#ai-contract-drafting.
[12] Geoffrey D. Ivnik. Biggest Law Firms Making Major Investments in Generative AI. LexisNexis. (February 09, 2024). https://www.lexisnexis.com/community/insights/legal/b/thought-leadership/posts/biggest-law-firms-making-major-investments-in-generative-ai
[13] Law Firms That Are Leading the Way With AI Technology. October 23, 2023. https://www.thelawyerportal.com/blog/law-firms-that-are-leading-the-way-with-ai-technology/
[14] Debra Cassens Weiss. JPMorgan Chase Uses Tech to Save 360,000 Hours of Annual Work by Lawyers and Loan Officers. ABA Journal. March 2, 2017. https://www.abajournal.com/news/article/jpmorgan_chase_uses_tech_to_save_360000_hours_of_annual_work_by_lawyers_and#google_vignette
[15] LawGeex Hits 94% Accuracy in NDA Review vs 85% for Human Lawyers. Artificial Lawyer. February 26, 2018. https://www.artificiallawyer.com/2018/02/26/lawgeex-hits-94-accuracy-in-nda-review-vs-85-for-human-lawyers/
[16] Clifford Chance. Artificial Intelligence and the Future for Legal Services. (2017). https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2017/11/artificial-intelligence-and-the-future-for-legal-services.pdf.
[17] Daniel Martin Katz. Quantitative Legal Prediction – or – How I Learned to Stop Worrying and Start Preparing for the Data Driven Future of the Legal Services Industry. (December 11, 2012). Emory Law Journal, Vol. 62, 2013. Available at SSRN: https://ssrn.com/abstract=2187752
[18] White & Case. Artificial Intelligence (AI). https://www.whitecase.com/law/industries/technology/artificial-intelligence-ai
[19] Luminance. Luminance’s AI. (2021). https://www.luminance.com
[20] Beverly Rich. How AI Is Changing Contracts. Harvard Business Review. (February 12, 2018). https://hbr.org/2018/02/how-ai-is-changing-contracts
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