Contract management is the process of managing a contract from initial creation to execution and amendment. The contract management lifecycle begins when a document is drafted and continues through every stage of its development and use. Because many contracts in the legal industry are digital, artificial intelligence (AI) is changing how organizations approach these processes.

Within legal services — where roughly 44% of work can be automated — finding ways to streamline contract management will be key for more efficient and successful operations.

Modern legal teams can use  AI technologies to ensure compliance, boost efficiency, and promote clear communication throughout the contract lifecycle. This guide explores the role of AI in contract management, detailing its benefits for legal professionals, key software features to consider, and essential tips for success with contract management in the AI era.

What is AI contract management?

AI in contract management uses artificial intelligence technologies to automate, analyze, and optimize contract-related tasks.

How is AI used in contract management?

AI is used in contract management to help ensure compliance, analyze contract data for insights, and automate drafting, review cycles, and approval processes. A contract management solution with AI improves efficiency, reduces errors, and promotes compliance. Some examples of how AI enhances contract management include:

• Customizes templates for frequently used legal contracts.
• Identifies risks and abnormalities based on contract type.
• Sends automated reminders for contract renewals and expiration dates.
• Makes legal service contracts more transparent with procurement AI contract management.
• Routes contracts to the correct entities and stakeholders for approval.

Related Read: Legal workflow automation guide 2024

How is Gen AI changing contract lifecycle management?

Generative AI, or Gen AI, is a type of artificial intelligence that can create new content, such as text or images, by learning patterns from existing data. Traditional AI typically analyzes data to identify patterns and make predictions. However, Generative AI is able to use the information in its database to create original output.

Generative AI contract management brings new possibilities for efficiency with capabilities such as:

• Automated contract creation: Gen AI can automatically draft paragraphs and pull together documents using templates.
• Suggested revisions: Revisions based on analysis from past contracts can make documents more effective.
• Reduced risk: Clauses that might not comply with standards and pose risks are quickly flagged with information from an AI database.
• Continuous Improvement: Gen AI’s ability to continuously analyze large volumes of contract data improves its drafting and review capabilities.

5 benefits of integrating AI in contract management

Using AI for contract management provides a number of benefits for legal organizations. Here are five to consider:

1. Greater efficiency and productivity

Not only does AI reduce the administrative work required for creating, reviewing, and approving documents, it lowers the risk of time-consuming, manual errors. The result? Processes get streamlined and legal professionals have extra support. Teams can spend less time on each stage of the contract management lifecycle to get more work done faster.

2. Improved compliance

Supported by a database that’s updated with the latest regulatory requirements, AI tools quickly surface potential issues within contracts for legal teams to address. This improves adherence to compliance requirements, helping to avoid fines and legal penalties.

3. Cost savings

Legal organizations save money by using contract management with AI in three critical ways. First, AI tools reduce time and labor costs by making contract management more efficient. This speeds up the contract lifecycle, enabling faster deal closures and better cash flow. AI can also provide insight into contract-related practices to support more cost-effective decisions. Last but not least, it reduces errors, decreasing the need for costly corrections.

4. More robust contracts

AI can analyze and identify potential risks and opportunities, leading to more detailed contracts. In addition to catching errors and checking for compliance, AI tools help legal teams adjust clauses and identify new ones to add. AI tools support legal professionals in developing more robust contracts that better serve clients.

5. Enhanced negotiation

Based on historical data, market standards, and the legal team’s goals, AI can help negotiators craft more effective proposals. It can also analyze previous negotiation outcomes to predict outcomes of new strategies, helping legal teams choose the most effective approach.

Related Read: Transform your business with AI workflow automation

What to look for in AI contract management software

To get the most out of AI contract management software, start by figuring out what your team’s specific needs are before researching solutions. The following are key features to consider:

Ease of use

An AI tool with an intuitive interface allows teams to easily draft, review, and manage contracts. This is important for legal professionals who need to focus on delivering results for clients rather than learning complicated systems. A user-friendly AI solution also encourages higher adoption rates and more consistent usage. Look for software that offers an easy-to-navigate user interface to encourage adoption and use.

Automation capabilities

Automating tasks throughout the contract management lifecycle reduces manual effort and human error. It also speeds up processing times. This efficiency lets legal teams focus on strategic tasks, such as negotiation and risk management, instead of administrative work.

Solutions with automation features that highlight repetition, ensure consistency, and help maintain compliance are a good choice for legal teams. Effective automation boosts productivity and accuracy, enhancing overall efficiency and leading to better contract management outcomes.

Integrations

AI solutions built for legal contract management should integrate with existing business tools (such as ERP and document management platforms). This enables seamless data flow across applications, reducing manual data entry and associated errors.

Strong integrations empower legal teams to easily access information across platforms, leading to better collaboration and fewer errors. Look for AI solutions that easily sync with your current tech stack to streamline contract management processes and support more efficient operations.

Data security

Strong security measures for AI solutions protect against cybercrime and unauthorized access to contracts. Essential features include 256-bit encryption, access controls, secure user authentication, and regular security updates.

Never use an AI solution without these robust data security measures. Protecting data within contracts demonstrates your firm’s commitment to high data-privacy standards, helping build client trust and confidence.

Compliance

Built-in compliance features help ensure contracts meet laws, regulations, and industry standards so you can avoid costly penalties.

Make sure you’re choosing an AI solution with robust compliance measures, including alerts for regulatory changes and audit trails. Compliance management features support the integrity of your contract management processes.

Analytics and reporting

Legal teams can generate detailed AI reports to identify trends and areas of improvement. You can also analyze metrics like contract cycle times, renewal rates, and compliance status. Advanced analytics predict risks and opportunities, helping legal teams make smart decisions around contract management.

The ideal AI solution will have strong analytics capabilities and customizable reporting tools. Real-time data visualization and easy-to-understand dashboards can help optimize contract management processes from start to finish.

Tips to succeed with AI-based contract management

As previously discussed, AI offers a number of benefits to legal teams, including improved efficiency, compliance, and stronger contracts. However, transitioning to AI-powered solutions can be challenging.

"More than half of transformative technology initiatives in the legal industry fall short of expectations. Overcoming the hurdles of implementing AI for contract management can be difficult. To help you succeed, consider the following tips:

Begin with realistic expectations for new technology

AI-based contract management software is not a plug-and-play solution. Companies often underestimate the preparation needed for successful implementation and may overwhelm staff with too many changes.

For a successful implementation, conduct a needs assessment, engage stakeholders, and make sure your firm’s contract data is well-organized and digitized. To smooth the transition and maximize benefits, start with a pilot phase, invest in training for legal teams, and continuously monitor the system.

Promote transparency and integrity for AI tools

At times, AI-generated content can include biases, errors, and misinterpretations arising from unknown or misunderstood data sources. Data privacy is also a concern, given that client information entered into AI systems may end up being shared with developers. Visibility into how these tools work is crucial.

When using AI-based contract management solutions, legal teams should be able to: 

• Filter out sensitive information.
• Secure data in a private cloud.
• Trace data back to its primary source. 

This increases stakeholders’ trust in the system and helps evaluate its data usage.

Fact check Gen AI output

Fact-checking AI outputs is essential for accuracy. AI can produce incorrect or biased information, so legal teams must review and verify drafts, clauses, and recommendations against reliable sources. Look for contract management AI solutions with robust fact-checking features, or those that integrate with validation tools to ensure accuracy and compliance.

Choose the right technology partner

A vendor with a solid reputation is more likely to provide reliable, high-quality software and responsive customer service. When evaluating AI solutions and vendors to work with, check for positive reviews, proven track records, and comprehensive support offerings. Support should include training resources and dedicated teams.

Selecting a reputable vendor with robust support ensures that your legal team can maximize its potential, quickly resolving any issues with your new solution.

Is your legal team ready for contract management in the AI era?

AI tools and solutions transform contract management for legal organizations. These technologies streamline processes and automate repetitive tasks to unlock valuable benefits such as greater productivity, cost savings, and enhanced negotiation.

In order to take document management to the next level, assess your team’s needs and test solutions that align. With a smart technology investment, you can set your organization up for more successful contract management, helping you stand out from the competition.