AI Contract Negotiation Unleashed: Can Humans Be Cut Out?

AI contract negotiation refers to the use of artificial intelligence (AI) technologies and algorithms to facilitate and streamline the process of negotiating and drafting contracts. Contract negotiation is a critical aspect of business transactions, involving the discussion and agreement on terms and conditions between the parties involved.

Integrating AI into the contract negotiation process aims to enhance efficiency, reduce time, minimize errors, and improve overall outcomes. AI contract negotiation systems leverage natural language processing (NLP) and machine learning algorithms to analyze and understand the content of contracts, identify relevant clauses, and suggest optimal terms based on historical data or predefined criteria.

These systems can assist legal professionals and business stakeholders by automating routine tasks, flagging potential issues, and providing insights into negotiation strategies.

Table of Contents

AI Contract Negotiation Key Feature

Key features of AI contract negotiation include the ability to:

Automate Document Review: AI systems can quickly analyze large volumes of contracts, extracting key information and identifying potential risks or discrepancies.
Contract Clause Analysis: AI can assess specific contract clauses, comparing them to predefined standards or industry benchmarks, and provide recommendations for modification or approval.
Language Understanding: Natural language processing allows AI to comprehend the nuances of human language, improving the system’s ability to interpret complex legal terminology and context.
Risk Assessment: AI can evaluate the potential risks associated with different contract terms and propose adjustments to mitigate those risks.
Negotiation Strategy Optimization: By analyzing historical data and successful negotiation patterns, AI can assist in developing optimal negotiation strategies to achieve favorable outcomes.
Time and Cost Efficiency: Automating repetitive tasks in the contract negotiation process can significantly reduce the time and resources required, allowing legal professionals to focus on more complex and strategic aspects of negotiations.

However, it’s essential to note that while AI can enhance contract negotiation processes, human oversight and legal expertise remain crucial. AI systems are tools to support decision-making, not substitutes for human judgment. Ethical considerations, data privacy, and the need for a transparent and explainable AI are also important factors in the adoption of AI in contract negotiation.

AI Contract Negotiation Key Benefits

Key Benefits of AI in Contract Negotiation:

Efficiency: AI streamlines the contract negotiation process, automating routine tasks and accelerating the overall timeline.
Accuracy: AI’s analytical capabilities enhance precision in contract analysis, reducing the likelihood of errors and oversights.
Cost Savings: Automation reduces the time and resources required for manual contract-related tasks, resulting in significant cost savings.
Risk Mitigation: AI identifies and assesses potential risks within contracts, enabling proactive risk management and informed decision-making.
Customization: AI facilitates the creation of standardized templates and allows for contract customization, ensuring flexibility to meet specific negotiation needs.
Data-Driven Insights: AI provides valuable insights into negotiation patterns, party behaviors, and contract trends, supporting negotiators with informed decision-making.
Expeditious Execution: Automation speeds up the contract creation and execution process, leading to quicker deal closures.
Collaboration Enhancement: AI centralizes contract-related information, fostering collaboration among legal teams and stakeholders through real-time communication and updates.
Strategic Support: AI assists negotiators by offering data-driven recommendations, aiding in the development of effective negotiation strategies.
Compliance Assurance: AI’s analysis of legal language and tracking of regulatory changes ensures contracts align with the latest legal standards and requirements.
Document Management Improvement: AI organizes and manages large volumes of contract-related documents, facilitating easy retrieval of critical information and maintaining an organized contract repository.
Scalability: AI solutions are scalable, adapting to the evolving needs of businesses and accommodating changes in contract volume and complexity.
Time Efficiency for Legal Professionals: Automation of repetitive tasks allows legal professionals to focus on higher-value activities, promoting innovation and strategic thinking within the legal domain.

In summary, AI in contract negotiation provides a range of benefits, including increased efficiency, accuracy, and strategic decision support, ultimately contributing to a more agile, collaborative, and compliance-focused contract management approach.

Leadership at Luminance: Director’s Legal Journey

“Attorneys often feel fatigued and find themselves bored frequently,” explains Jaeger Glucina. “Having a tool to handle the tedious tasks and expedite the process, allowing you to shift your focus to strategy sooner, is crucial.”

The managing director and chief of staff at Luminance, a UK-based AI company established in 2015 for legal professionals, joined in 2017 after qualifying as a barrister and solicitor in New Zealand.

“Legal professionals are undoubtedly highly trained individuals,” she states. “However, the truth is that they dedicate a substantial amount of their time to reviewing contracts. It can take up to an hour for someone to review a non-disclosure agreement, and in a firm, there may be hundreds of these documents to review every day.”

Currently, Luminance is gearing up for the launch of Luminance Autopilot, a fully automated contract negotiation tool. The company intends to initiate beta testing with selected customers in the upcoming month, followed by a broader rollout in the new year.

I have received an invitation to visit the company’s London office to witness the tool in action. Before me, there were two laptops on the desk. The left one, designated for this demonstration, belongs to Luminance’s general counsel, Harry Borovick.

The right one represents Connagh McCormick, the general counsel at Prosapient, an actual customer of Luminance. On the back wall, behind the laptops, a large screen displays an audit trail, chronicling the modifications made by each party to the contract.

Autopilot at Work: Revolutionizing NDA Negotiations

The computers will use Autopilot to negotiate a mutually acceptable non-disclosure agreement (NDA). NDAs outline the conditions under which one organization shares its confidential information with another.

The demonstration commences. Mr. Borovick’s computer receives an email containing the NDA, opening it in Microsoft Word. Autopilot swiftly reviews the contract, initiating modifications. A six-year term is deemed unacceptable and is promptly adjusted to three years. Additionally, the governing law for the contract is switched from Russia to England and Wales.

The following high-risk clause imposes unlimited liability, implying that there is no upper limit on the potential amount Luminance might be required to pay in the event of a breach of the NDA terms. “This poses a significant obstacle for Harry’s business,” notes Ms. Glucina.

“The software has suggested a liability cap of £1 million instead. It has also modified the clause, as the other party had included wording related to ‘holding harmless,’ implying absolution from legal liability in specific situations. However, the AI recognized this as problematic and safeguarded Harry by removing that particular clause.”

AI-Driven Contract Refinement

In a contractual exchange, both AIs strive to enhance terms for their owners. Mr. Borovick’s computer automatically emails the revised NDA, and it opens on McCormick’s machine. McCormick’s AI observes the removal of “hold harmless” language and introduces a liquidated damages provision, transforming the £1 million liability into agreed compensation for breaches.

Upon receiving the updated contract, Mr. Borovick’s AI rejects the liquidated damages provision and inserts language, ensuring his firm is only liable for direct losses. The fourth version of the contract gains approval from both parties. McCormick’s AI accepts all changes, sending it to DocuSign for signature.

“At that point, you get to decide whether we actually want the human to sign,” notes Ms. Glucina. “And that would be literally the only part that the human would have to do. We have a mutually agreed contract that’s been entirely negotiated by AI.”

Rapid Contract Negotiation with Autopilot

The entire process concludes in just a few minutes. “The idea is to reduce delays caused by people not getting to something in their inbox or being occupied with other tasks,” explains Ms. Glucina.

Autopilot represents an advancement from Luminance’s copilot tool, which color-codes clauses for legal professionals during contract reviews in Word. Green indicates acceptable clauses, red highlights unacceptable ones, and amber signals non-standard clauses. The tool can also autonomously redraft clauses based on its understanding of the firm’s past agreements.

While other companies like Lexcheck, Genie AI, and Thoughtriver provide contract review technologies, Luminance is the first to introduce an autopilot. The Luminance system is built on a large language model (LLM), similar to the foundation of the popular text generation tool ChatGPT.

However, Luminance’s tools are trained using over 150 million legal documents rather than public internet content. Luminance users establish knowledge banks containing their signed documents, enabling the software to learn the contract terms the company typically agrees to.

Positive Reception for Autopilot in Contract Review

After the demonstration, I interviewed Connagh McCormick, general counsel at Prosapient. The company connects experts with investors and consultants for industry research, managing 20 to 30 client negotiations simultaneously.

They leverage Luminance’s solutions to expedite contract reviews, with some negotiations lasting 48 hours and others spanning 12 months. McCormick expresses enthusiasm about trying the new Autopilot when it becomes available.

“Some people ask, ‘How do you feel about AI doing all the negotiation?'” he says. “It ends up in the laps of both lawyers signing. At that point, I’m going to read the contract, and the other lawyer’s going to read the contract. If there’s anything I disagree with, I’ve got the opportunity to flag it. I’m not committed to anything the AI has done.”

Balancing AI and Human Roles in Law

When considering job risks, the consensus is that a human touch is indispensable. According to one expert, trust is a key reason people turn to lawyers, and AI’s lack of accountability makes a human presence essential.

While AI can free up a lawyer’s time for more engaging tasks, Law Society of England and Wales president Nick Emmerson emphasizes that currently and likely in the future, AI cannot completely replace the legal expertise offered by qualified professionals.

“This is because clients have varying needs and vulnerabilities, aspects that a machine cannot currently master. Human judgment is crucial to prevent automated decisions from yielding potential false positives. Additionally, there is an art to negotiation and, ultimately, bargaining that AI is unlikely to master.”

He further notes, “With any technological innovation, the role of a lawyer is likely to evolve, along with the types of jobs and skills required.” Culled from Can AI cut humans out of contract negotiations?

FAQs

Is there an AI for Contracts?

Contract drafting tools powered by AI can swiftly generate contracts within seconds, utilizing the information provided in your prompt. This enables the automation of the contract drafting process, offering the flexibility to customize contracts to align with your specific needs and use cases.

How can we use ChatGPT to Negotiate Contracts?

Through researching the opposing party, ChatGPT can furnish negotiators with valuable insights into their interests, priorities, and potential strengths and weaknesses. This knowledge becomes a strategic tool, aiding in the development of contract negotiation strategies that increase the likelihood of achieving favorable outcomes.

How to use AI in Contract Management?

Create standardized templates to streamline the contract creation process. Utilize data analysis to identify risks, costs, and abnormalities, employing Natural Language Processing (NLP) to determine the contract type. Automate the sending of specific contracts to relevant legal bodies for review. Upon approval, receive a notification indicating that the contracts are ready for use.

What are the Disadvantages of AI Contracts?

One primary limitation of AI in contract drafting and management is the absence of human intuition. While AI excels at analyzing data and identifying patterns, it may fall short of fully grasping the context and nuances of a contract in a manner comparable to a human professional.

Will AI Replace Negotiators?

Although AI can provide powerful insights, negotiators, without this foundation, depend on technology to drive their strategies rather than relying on their intuition and knowledge. The truth is that negotiations are dynamic, and no two discussions will be identical.

What Can AI Do for Smart Contracts?

AI has the capability to automate the creation and execution of smart contracts, significantly enhancing speed and cost-effectiveness. Additionally, it can assist in filtering and validating the data input into smart contracts, guaranteeing that contract execution occurs only when the specified conditions are met.

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