AI Contract Management Guide [Artificial Intelligence Advancement in 2023]

  • Andre Kay
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Artificial Intelligence in Contract Management

Running a successful business or firm involves entering into contracts with third parties, such as customers, vendors, suppliers, or other stakeholders. 

In contract management, it’s imperative to meet your firm’s growing needs—fostering trust, preventing future conflicts, detailing expectations, protecting against liabilities and ensuring profitability. 

However, the contract management process can be daunting, labor intensive, and time-consuming because of the many contracts a company must manage and keep track of.

An average company authors and manages contract data of hundreds and even thousands of active contracts. 

As a result, contracting processes are inevitably rendered inefficient. World Commerce and Contracting research shows that ineffective contract development and management costs the average company approximately 9% of its revenue.

AI is transforming the method of data handling in various industries, and the legal field is included; it optimizes the contracting process and influences the content of contracts. In this article, you will learn the impact of AI in contract management along with the benefits and risks involved in using AI in contract management. 

About Sociallybuzz

Sociallybuzz is a leading social media marketing, management, and digital advertising agency for small and medium-sized businesses. With over 12 years of experience, we know how to create and execute marketing campaigns that will help you grow your business. Our social media agency has created successful targeted social media campaigns that acquired our customers more leads, sales, and revenue.

Check out some of our case studies:

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  2. We used Facebook Ads and Google Ads to Drive Over 6 Figures in Sales for a B2B Brand. Read More
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What is AI for Contract Management?

AI for Contract Management uses artificial intelligence and machine learning to manage contracts. It is an automation system that allows you to manage and keep track of all your business’s contracts.

AI-powered contract management software is more rewarding than first-generation contract lifecycle management (CLM) software because CLM relies on rules-based automation, which still involves a significant amount of manual work.

AI-powered contract management software (ACMS) works by learning and understanding the language used in legal contracts. 

It performs contracting functions using natural language processing (NLP), trained to recognize and flag patterns and behaviors, such as recurring legal vital terms and clauses. 

ACMS applies this understanding of contracts in performing various tasks— spotting probable legal issues, automatically underlining revisions, or even making edit suggestions to make the contract easier to understand— that replaces manual contract management throughout the contract’s lifecycle. 

For example, the tedious activity of manually tagging Indemnification provisions, highlighting termination clauses, or payment conditions, names, and dates can be accomplished easily with ACMS, allowing you to concentrate on more intricate issues during contract negotiations. 

Use Cases for AI-Driven Contract Management

With AI-driven contract management, we can uniquely solve contract management challenges. AI Contract Management simplifies the contracting process and frees up time for more complex tasks involved in contract management.

Here are some of the ways that you can use AI to streamline contract management:

  1. Automated contract creation: AI Contract can be used to draw up contract drafts automatically. Usually, a user provides the AI with prompts in the form of pre-drafted contract terms and clauses to meet their specific needs.

    Afterwards, the AI automates the creation of contracts without constantly involving the user. Automated contract creation enables businesses to create reliable documents and a more effective workflow. It improves contract management by enhancing communication and collaboration while allowing all parties to keep in touch with the most recent information and revisions in the contract.

  2. Automated contract analysis: AI can be used in analyzing contracts for compliance and risk. It can spot discrepancies and inconsistencies between documents, compare obligations and liabilities of involved parties, summarize key findings and highlight patterns that might escape human judgment.

    By doing this, it makes the analyzing process a lot easier, quicker, efficient and error-free. One significant benefit of AI Contract Management is that it provides objectivity that clarifies to users the points they should focus on during contract negotiation.

  3. Automated contract management: Instead of engaging in routine contract management, AI can be used to manage contracts automatically from the pre-signature stage—creation, negotiation/collaboration, review/approval, and execution—to the post-signature stage—administration/execution, renewal/termination, and reporting/tracking. It saves time and ensures effective and efficient handling of contract documents.

  4. Automated contract renewal: AI can automatically renew an expired contract. It ensures the initial terms of an agreement remain enforceable for the contract’s new lifecycle. It follows a system of automation that conforms to a set time of renewal.

    If none of the parties involved opts out before the automatic renewal date, they will continue to be bound by the contract terms. Automated contract renewal lessens contract management hassles and ensures a smooth contract renewal.  

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Benefits of AI in Contract Management 


The benefits of AI in contract management are vast. Automated contract management software can reduce the time and resources needed to review and update contracts.

AI can also help to identify contract risks and opportunities and to recommend actions to improve contract performance. Additionally, AI can help to manage contract communications and lifecycles. 

The following are the benefits of AI contract management:

Better insights and analysis for decision-making

Organizations must make quick, accurate decisions to remain competitive in today’s business world. However, making informed decisions is not always easy, especially when data is complex and challenging to understand.

Contract management involves analyzing and reviewing tons of data points and making decisions. AI contract assessment and analysis make contracts easier to read and maintain and offer insightful data that facilitates well-informed decision-making. 

AI contract management software can help organize and make sense of contract data and historical outcomes so that decision-makers can see patterns and trends that may not have been obvious. With better insights and optimized analysis, organizations can make more informed decisions, increase their value and improve their business performance.

Facilitating Comparisons Among Standards And Analyzing Historical Clauses

As the popularity of AI in contract management increases, it is expected that contracts will be highly standardized, routinized and template-based, employing modifications only where necessary to fit specific user demands.

One of the benefits of AI contract management is analyzing and standardizing complicated historical clauses. AI contract management software uses algorithms to scan large databases for precedent and similar contracts. As a result, contracts are now standardized much more thoroughly. 

For instance, comparing different English language standards is facilitated using a common historical clause. This clause defines the origin of the standard and its relationship to other standards. It also specifies the date of the standard. Analysts can more easily identify and compare clauses of different standards using a common historical clause.

Extending Automated Capabilities

In contrast to first-generation contract management software, AI has extended automated capabilities. AI automatically identifies subtle patterns and structures in a document using pattern-matching algorithms. 

Its automation capability allows you to create new contracts using templates from older ones, make forecasts using information from those contracts, or create alerts for potential benefits renewal or re-contracting options.  

Reducing Repetitive Tasks

Contract management involves repetitive tasks. There are too many things to check for in a contract—essential dates, due dates, and terms and conditions. Drafting contracts, going through numerous rounds of modifications, or combing through previous agreements for acceptable terms can be draining. 

AI-driven contract management can handle information retrieval, analysis, and review tasks. It makes for a more error-free contracting process. 

Handling Large Contract Data Sets

AI-based contract management software offers endless potential. Unlike manually sitting through contracts, which takes more time, AI contract management can handle hundreds and thousands of contract data sets in less time. 

It keeps track of millions of contracts’ details. The information collected from each contract is then used when examining new agreements. Additionally, it finds trends in each contract, using these presumptions to draft, review, and polish new ones. 

Transforming Contract Insights into Intelligence

AI contract management has the potential to revolutionize how businesses operate. It can convert contract insights into intelligence that can be used to mitigate risks, boost efficiency, and enhance decision-making. It also ensures that the objective of any business relationship is accurately reflected in the contract and fully accomplished in reality.

It transforms contract insights into a number of intelligences, such as the quantity of renewable and non-renewable contracts for particular services, areas, or deal sizes; the duration of contract negotiation or which salespeople are obtaining the most business; who is reviewing contracts, distributing them, or approving their conditions through electronic signatures.

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How AI Is Changing Contract Management

Contracts powered by AI are far more efficient than manual contract management. AI doesn’t replace legal professionals; it makes their tasks—managing contract lifecycle—easier and more effective. 

Here are some of the ways AI is changing contract management:

Data Extraction

Data extraction is obtaining specific data from a larger data set; this can be done manually by identifying and extracting the desired data elements, but the process is time-consuming and labor-intensive.  

AI simplifies data extraction by identifying and extracting desired data, including crucial dates, clauses, legal jargon and terms and conditions, from PDFs, Word and image files. The extracted data can then be used for analysis, reporting, or other purposes, like sending reminder emails to the stakeholders when signatures are needed, flagging confusing wording for legal review, or providing warnings when deadlines are approaching.

Intelligent Workflow Automation

Intelligent Workflow Automation is automating contracting processes to make them more efficient. AI can be used to automate workflows such as approval, renewal, analysis and review.  

Intelligent Workflow Automation helps you save time and money and enhances your productivity.

Clause and Metadata Analysis

AI is proficient when it comes to studying the structure of a text and the information it contains. AI-based contract management software can quickly and reliably read contracts to extract provisions, organize metadata, and detect potential problems or areas of concern; this aids businesses with risk mitigation, dispute resolution, and regulatory compliance. 

Bulk Document Organization

AI doesn’t just analyze data or extract clauses; it also creates a system for organizing them. It rapidly and effectively categorizes enormous amounts of contracts, streamlining searches and making locating particular contracts or data simpler. It saves time and decreases the possibility of mistakes or oversights.

Smart Contract Review

Contract review can be a tedious process. It takes about 92 minutes on average to review a contract. This would be a daunting process for a company managing hundreds of contracts. Imagine multiplying 92 by that number.

AI may automatically review contracts, suggesting potential problems or areas to focus on; this provides businesses with contracts that are accurate, comprehensive, and compatible with legal specifications. Also, AI can make recommendations about how to bargain based on pre-established rules.  

Contract Risk Analysis

AI-powered contract management software can help you assess and identify risks associated with a contract, such as breach of contract or non-compliance. This is accomplished by flagging errors or incomplete information, underlining unfavorable terms, recommending changes to clauses that are missing or unclear, alerting specific teams when contract terms change, and even comparing clauses to standard contracts to determine risk levels.

AI-driven risk analysis helps you mitigate risks, decrease the chance of legal issues, and protect your business interests.

Contract Volume Mitigation

The increased contract volume is attributable to a growing company. The quantity of contracts a company manages regularly increases as it grows.  

AI mitigates contract volume by automating recurring actions, identifying possible problem areas, managing large uploads, and keeping all relevant documents in one location. Leveraging artificial intelligence in contract management can improve productivity, lessen the pressure on contract managers, and guarantee that contracts are handled effectively.

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Risk Management and Compliance

Without question, AI offers ease and efficiency. However, companies must be aware of the risks of over-relying on AI. 

The following are some risks involved in AI contract management:

  1. Risk of error: AI is only as good as those using it since it relies on instructions, inputs, and pre-programmed data. It can produce a wrong output if it has not been trained with high-quality, unbiased, and accurate data, and this could leave out risk concerns and revenue opportunities. Sometimes, AI systems generate results that include nonexistent rules or laws.
  2. Risk of bias: A data sample may be biased if it is small, homogeneous, or represents stereotypes. Bias reduces the credibility of your company documents and puts your reputation at risk. The data set that generative AI was trained on plays a crucial role in its performance. The generative AI tool will always have any bias in the data collection.
  3. Risk of data breaches: Data breaches will continue to rise because, in most cases, generative AI tools process and retain user input like other data services do while offering little to no security guarantees in their terms of use section. You must take caution when selecting the AI models to use and carefully read the conditions of use for the generative AI tool’s data security provisions.
  4. Risk of unintentional disclosure: To mitigate the risk of accidental exposure, avoid entering commercially sensitive data or confidential, personal or sensitive information. Where you cannot exclude a particular data, your company should ensure it de-identifies it. 

Summary: Artificial Intelligence in Contract Management

The secret to effective implementation and usage of AI in contract management is understanding what they can and cannot accomplish. It reduces the time spent on contract evaluation and drafting, thereby adding value to businesses dealing with large contracts and more routine transactions.

Remember that humans make contracts with other human beings. As a result, even while AI may be able to streamline some procedures, it will always require some human supervision. When equipped with the appropriate contract management software, a human is undoubtedly a force to reckon with.  

About Sociallybuzz

Sociallybuzz is a leading social media marketing, management, and digital advertising agency for small and medium-sized businesses. With over 12 years of experience, we know how to create and execute marketing campaigns that will help you grow your business. Our social media agency has created successful targeted social media campaigns that acquired our customers more leads, sales, and revenue.

Check out some of our case studies:

  1. 10.57% Conversion for Our Client Leveraging Google Performance Max. Learn More
  2. We used Facebook Ads and Google Ads to Drive Over 6 Figures in Sales for a B2B Brand. Read More
  3. 18X Return on Advertising Spend and Over $3 Million in Sales for an Online Store. Read More

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