Navigating the Contract Landscape with AI

Artificial intelligence is a hot topic these days. There are several pros and cons of using AI for contract drafting, negotiations and post-execution review. Types of contracts used in the fenestration industry include agreements specific to material purchase, manufacture or sale of products (e.g., with vendors, manufacturers, distributors, builders, installers, service technicians) as well as general business-related agreements (e.g., leases, employment, insurance, mergers/acquisitions).

Benefits and limitations

The most obvious benefit to using AI in a contractual setting is efficiency. Drafting a contract from the ground up requires time and effort. The ability to have AI identify, review and comprehend data at a speed that is not humanly possible and then put that information into a working document is invaluable. To make good use of AI, however, the user must understand the parameters AI is using to identify the information it is using to create the contract. Numerous companies will sell you AI programs that draft contracts and review contracts you receive from others. While the programs differ, the basic concept is to enter some key information into the program, which AI will then use to generate a draft. That may be efficient, but it is only step one.

Human review needed

AI drafting programs are not a substitute for human review and comprehension. Nor are they a substitute for an attorney, who should review an AI-generated contract for accuracy, completeness and compliance with the law. An AI-generated contract should be carefully analyzed by both. A critical eye must be used to make sure all essential provisions are present to adequately protect your company (which means knowing what could be missing), ensure it encompasses the correct terms, and identify any errors in the provisions that are included. 

It is also important to confirm that the contract contains all terms needed for the particular jurisdiction and accurately represents any industry-specific standards or regulations included. Finally, contract terms and industries evolve over time so if you use an AI program, you will want to ensure it is regularly updated to include current trends.

AI can also be used to review contracts sent from other parties. It will analyze contracts and identify important terms and potential risks. Some AI programs will also suggest revisions. Again, though, AI should not be used as a substitute for review and analysis by you and your legal counsel. AI programs might not catch creatively drafted language. AI programs will flag what it identifies as potential risks, but AI can miss issues that are complex or nuanced, or it might not flag issues in provisions that use a lot of industry-specific terms or standards. Conversely, AI can flag benign provisions as potential risks, so it is important to understand the terms used to determine whether the flagged issue is an actual risk.

Moreover, whether you are using AI to draft or review a contract, it is important to read and understand what is in the contract you are sending to the other party or you might find yourself in an uncomfortable situation of being unable to explain why an inclusion of a certain word, phrase or provision is necessary for your company.

Post-execution review

Once you have an executed contract, AI can be useful in extracting information such as deadlines and termination dates you can use to set reminders. It can also be used to quickly identify provisions by keyword without having to scroll the entire document. This can also be done to some extent using the “find” or “search” function in non-AI programs.

The takeaway is that using AI programs to draft or review contracts may provide some upfront efficiencies, but the work does not end there. It is vital that all contracts be carefully reviewed and understood by the company and its legal counsel to ensure accuracy and completeness.