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How AI Contract Negotiation is Poised to Drive Business Growth

February 15, 2023 4 min read
AI generated image of people reviewing a life size contract

In 2022, OpenAI’s ChatGPT went viral by making access to the power of large language models (LLMs) as easy as sending a text. ChatGPT showed how LLMs can convincingly handle complex written concepts in ways that many people — including me — thought wouldn’t be possible for years. Even activities like contract drafting, review, and negotiation, historically the domain of expensive and highly educated lawyers, suddenly seem ripe for disruption by this innovative technology. 

Don’t worry — humans are still very much unique and in demand, and AI-powered changes to the legal profession will unfold gradually. As ChatGPT itself said, “AI is not a replacement for human lawyers, but a tool to assist them in their work. AI still lacks the ability to understand the nuances and complexity of human interactions, and the ability to provide legal advice.” So unless and until AI is allowed to sit the bar exam, we’re safe. 

Still, the possibilities — AI-driven contract negotiation, instant redlining, and automatic template drafting, to name a few — are undeniably exciting. Here are some of the ways business contracting may change in the era of AI.  

AI-generated abstract image with modular structures

AI will draft new contract templates

Drafting new contract templates is a resource-intensive undertaking for businesses. The process involves researching industry standards, collaborating with outside counsel, and then iterating on multiple revisions. That’s a lot of work for humans, but producing new agreements from scratch is where generative AI shines. ChatGPT trained on a large dataset of contracts, where it learned the language and structure of legal agreements, including terminology, clauses, and formatting conventions. A trained model like ChatGPT can generate a surprisingly appropriate new contract when given a prompt detailing the needs of your business, including key information such as the names of parties involved, desired terms and conditions, etc. Text generated by an AI model is based purely on patterns and associations learned from the large dataset of contracts it was trained on. As a result, AI-generated contracts can actually set a mathematically accurate “market standard” in a way that humans can only approximate. 

AI will dramatically streamline contract review

One current challenge of contract negotiation is that it’s easy to miss important details or clauses in lengthy documents. Reviewers have to spend time poring over every sentence until they understand how the concepts within may affect their business. AI’s ability to analyze large amounts of text quickly, identifying patterns, and extracting meaningful detail, is perfect for contract review. From identifying potential issues to flagging inconsistencies in proposed terms, AI will automate many of the time-consuming tasks involved in review. ChatGPT already can provide automated contract summaries in plain language (suitable for non-legal stakeholders), highlighting key issues and pointing out areas of common ground. Maybe most importantly, it’s possible to train a model specifically for AI contract negotiation and review. Custom models can review contracts using a business’s existing contract playbook, empowering the business to identify and address the issues it cares most about more efficiently. Effectively, AI contract negotiation and review could lead to faster and more successful deal cycles.

AI generated image of a magnifying glass over a document

AI will suggest better redlines

Analyzing a counterparty’s contract language, drafting the (sometimes quite complicated) redlines in response, and finally aligning with the counterparty, can be a laborious process. AI contract negotiation automatically suggests revisions by identifying missing clauses, standardizing language, and flagging potential legal or regulatory issues. The models learn what to look for from your playbook, and previous contracts they’ve seen. Users can then review the suggestions and choose which ones to implement, making redlining faster while reducing the risk of errors or oversights. You can see this in action with Ironclad’s new beta feature, AI Assist™.

screenshot of Ironclad AI assist in product

One exciting possibility beyond the obvious accuracy and efficiency benefits is that AI contract negotiation may bring a deeper layer of objectivity to contracting. One of the challenges of contract negotiation is that it can be an emotional and subjective process. Negotiators may be swayed by personal biases or feelings, especially over the course of a long, difficult negotiation. This can make it difficult to reach a fair agreement. AI-driven contract negotiation, on the other hand, is not subject to these kinds of biases. By definition, AI can provide a more objective analysis of proposed terms. This can help to mitigate the impact of emotions and increase the chances of a successful negotiation.

The future of AI contract negotiation

AI will change the role of the human negotiator. But, it will not replace the need for human negotiators. Instead, AI’s prowess for automation and textual analysis will enable human negotiators to focus on more strategic (especially non-textual) aspects of the negotiation, such as relationship building and understanding the other party’s perspective. AI will then handle the more tactical aspects of the process, like generating contract language and identifying potential issues. This division of labor will allow human negotiators to be more effective — and efficient.

AI generated image of a pinwheel with people and documents within the wheel

Over time, AI will change the art of negotiation as a whole. AI-powered tools will evolve the process into something more data-driven and strategic, and less reliant on any negotiator’s own personal knowledge, personality, or biases. With AI, all parties involved in the negotiation will have access to data, trends, and insights to help them to make more informed decisions and, ultimately, reach agreements that are fair and mutually beneficial.

While AI still has a long way to progress, it’s already impressive. In fact, the first draft of this blog post was written by ChatGPT. Which parts were generated by AI and which by a human? Does it matter? AI certainly has an opinion on where it fits in the world of business contracting. The question is: do you? 

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Michael Ohta is a Senior Legal Counsel at Ironclad.