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The Crucial Role of Humans in AI-Driven Contract Management

April 27, 2023

Legal Talent Outsourcing

Revolutionizing Commercial Contract Management: The Crucial Role of Humans in AI-Driven Solutions

In-house legal professionals who handle large volumes of commercial contracts are constantly seeking ways to optimize efficiency and effectiveness in contract management. One promising avenue is the integration of Artificial Intelligence (AI) into the contract lifecycle management process, which can help businesses create, review, index, analyze, negotiate, and approve contracts more seamlessly. And with all the attention surrounding massive advancements in AI these days, it’s only a matter of time before legal departments at companies of all types and sizes will be faced with the challenge of leveraging AI to assist with commercial contract management.

In this article, we focus on the key issues and trends driving AI adoption and the critical role of humans in harnessing the power of AI for efficient and effective contract management.
 

Key Trends Driving AI Adoption in Contract Management

Various economic, legal, regulatory, and technological trends contribute to the growing importance of AI in contract management. Economic pressures, such as cost reduction and the quest for a competitive advantage, are driving companies to adopt AI-driven solutions to automate repetitive tasks, minimize errors, and improve overall efficiency. 

Simultaneously, the ever-increasing complexity of legal and regulatory requirements necessitates the use of AI to analyze and interpret intricate rules, ensuring contract compliance and mitigating risks. For example, legal and regulatory changes in areas such as data privacy and employment-law-related agreements—such as the Federal Trade Commission’s proposed ban on non-compete agreements, and varying state laws on non-disclosure agreements—make managing commercial contracts a huge challenge for many legal departments.

The promise of recent advancements, particularly in AI, data analytics, and cloud computing, is that technology can make contract management more accessible, cost-effective, and scalable. In the process, technology such as AI allows in-house legal professionals to focus on strategic and higher-value work, leading to increased job satisfaction and productivity.
 

The Human-AI Partnership in Contract Management

In our experience helping clients with various aspects of commercial contract outsourcing and optimization, there is a sharp acceleration of businesses looking to go through a process of what we call “contract rationalization,” which involves the review and digitization of various contract templates. The objective of this process is to develop standardized, compliant, and effective templates that can be used for non-disclosure agreements, licensing agreements, master service agreements, procurement contracts, real estate agreements, statements of work, and other miscellaneous contracts across different business units and jurisdictions.

AI can play an important role in all aspects of contract management, including assisting with contract rationalization, but it's crucial to understand that AI is not a replacement for human expertise but rather a powerful tool that complements and enhances human capabilities. There are aspects of commercial contract management, such as data analysis, where AI excels. There are other areas, such as negotiation and strategic decision-making, where human qualities like judgment and empathy are still paramount.

The synergy between humans and AI in contract management can be observed in several areas related to contract management:
  • Data curation and preparation is a vital aspect of AI-driven contract management. Humans are responsible for collecting, organizing, and cleaning data to ensure AI has access to accurate and relevant information. This process is crucial for the effectiveness of AI systems and their ability to deliver meaningful insights.
  • Training and supervision play a pivotal role in the development and implementation of AI solutions. Human experts provide guidance and feedback during AI model training, ensuring accurate understanding of complex legal language and concepts. This collaborative approach helps create AI systems tailored to the specific needs of the organization and its legal professionals.
  • Integration and customization involve legal professionals incorporating AI solutions into existing workflows and adapting them to the specific needs of their organizations. This seamless integration ensures that AI-driven tools work in harmony with established processes, enhancing efficiency and effectiveness without disrupting the existing legal ecosystem.
  • Review and oversight are essential components of the human-AI partnership. While AI can provide valuable insights and automate various tasks, it's crucial for humans to review AI-generated outputs, verifying their accuracy and addressing potential discrepancies or errors. This human oversight helps mitigate risks and ensures the quality of the AI-driven contract management process.
  • Strategic decision-making remains a distinctly human domain. While AI provides valuable insights and data-driven recommendations, humans make the final, informed decisions considering broader context, legal and ethical implications, and long-term consequences. This collaborative approach enables legal professionals to leverage AI's analytical capabilities while retaining control over crucial decision-making processes.
  • Relationship-building and negotiation are areas where human skills like empathy, communication, and persuasion remain crucial. While AI can analyze data and recommend negotiation strategies, the nuances of human interaction and the ability to understand non-verbal cues are essential in fostering relationships and negotiating favorable contract terms.
  • Continuous improvement is a significant aspect of the human-AI partnership. Human feedback loops help refine AI algorithms and improve their performance over time. This iterative process ensures that AI-driven solutions remain relevant and effective in the ever-evolving world of contract management.
  • Creativity and problem-solving are areas where humans excel. They can think outside the box and address unique or unexpected challenges, complementing the analytical capabilities of AI. Legal professionals' ability to devise innovative solutions and adapt to new situations ensures that AI-driven contract management remains flexible and responsive to the organization's needs.

Overcoming Obstacles and Taking Next Steps to AI Integration in Contract Management

While the potential benefits are significant, implementing AI-driven contract management solutions is not without challenges. 
  • Ensuring access to high-quality, consistent data is crucial for AI system effectiveness. Integration with existing systems may give rise to compatibility and interoperability issues. 
  • Resistance to change may be encountered, necessitating effective change management, communication, and education to overcome employee skepticism and fear. 
  • In-house expertise in AI, data science, and legal technology may be limited, requiring external support or investment in training and development.
  • Legal and ethical concerns, such as data privacy, security, and compliance with regulations, must be addressed as part of the AI implementation process. 
  • Scalability can be a challenge, as organizations must ensure that AI-driven contract management solutions can grow and adapt to meet evolving needs. 
  • Finally, while AI has made significant advancements, it’s by no means infallible. Proper human oversight is necessary to mitigate errors and potential risks.
With all that said, there’s no doubt that AI’s role in commercial contract management will inevitably—and rapidly—increase in the coming months and years. The companies, and their legal departments, that will be best positioned to harness the power of AI will accelerate their efforts to rationalize and digitize their commercial contract processes and templates in order to lay the foundation for AI integration.

For many companies who have traditionally taken a more ad-hoc approach to contract management, this transition will take time. In some cases, it will require a multi-year, incremental process involving data gathering, review and digitization. Don’t make the costly mistake of jumping straight to purchasing an expensive software solution without first laying a strong foundation that will allow an AI tool to be effective.

Some of the first steps a company should take include establishing a budget, mapping the process out, identifying project team leaders, and enlisting outside resources as necessary. 
 

Conclusion

The successful integration of AI into contract management hinges on a collaborative approach, where human expertise and AI capabilities work in tandem to unlock new levels of efficiency and effectiveness. By embracing the human-AI partnership, in-house legal professionals can leverage the power of AI-driven solutions while retaining control over critical aspects of the contract management process. The key is to view AI not as a replacement but as a valuable tool that enhances human capabilities, transforming the way commercial contracts are managed and ultimately driving business success.

Interested in learning more about how AI can help your business optimize and manage commercial contracts? Contact us for more information.
 
Author Image

Meron Hewis

President, Legal Talent Division

Meron Hewis is the President of the Legal Talent Outsourcing Division of Lexitas. Ms. Hewis has over 20 years of experience in legal consulting, project management, and alternative legal talent outsourcing solutions. She is a thought leader in the industry, providing unique legal solutions and designing the operations of various legal programs internationally.

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