How to Read a Contract With AI Assistance

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The modern workplace demands collaboration between humans and Artificial Intelligence (AI) to increase productivity, job satisfaction, and profitability. 

Why? Because while computers excel at repetitive tasks, data manipulation, and parallel processing, humans are good at strategizing, creative problem solving, and communicating with empathy. 

For legal teams operating under heavy workloads and pressure, having lawyers and automation is essential. And if you’re wondering how to review a contract, the answer is simple: Have your AI solution perform the first pass, then give the draft a human touch to consider how to further improve the process. In this article, we explore the how and why of AI-powered contract review.

Graphic depicting two workers learning how to review a contract with AI assistance

How to Review a Contract for Due Diligence

Ultimately, you’ll want your contract to be:

    • Clearly stated, with both parties agreeing upon what’s put forth
    • Reasonable, with both parties able to live up to the agreement
    • Complete, with all “what if” situations present and accounted for

You’ll also need to consider contract structure to make sure everything is included, such as:

    • Preamble: the name of the contract, the name of the parties, and the date
    • Recitals: background details and context for the agreement
    • Defined terms: clarifying the meaning of any potentially ambiguous language
    • Term and termination: how long the contract lasts and how it’s extended or canceled
    • Representations and warranties: promise of delivery and remedies if breached
    • Conditions: party behavior that is or isn’t allowed
    • Payment: stipulations on when and how money is exchanged, including collections
    • Risk allocation: who bears risk, penalty waivers, and limits on liability or recovery
    • Boilerplate: standard legal provisions (notice, confidentiality, indemnity, force majeure)
    • Exhibits and schedules: description of services, service levels, and pricing 

Ideally, lawyers will take at least three passes on every contract:

    • First pass: a high-level skim assessing the contract’s structure, ensuring every component is present
    • Second pass: a deeper look at defined terms and how they’re used in the contract
    • Third pass: a final look at term, termination, payment provisions, and risk assessment

And look out for common pitfalls such as the following:

    • Most-Favored Nations clauses: which require you to offer the same services, products, or prices as you’ve offered anyone else
    • Exclusivity: limits on who else you can enter an agreement with
    • Liquidated damages: a set amount of damages agreed upon for breach of contract
    • Sub-contractors: which may fail to guarantee the quality you desire
    • Service levels: metrics of performance should be acceptable and remedies provided

Keep an eye out for overly expansive or ambiguous language such as “provided, however,” “notwithstanding any provision to the contrary,” or “for the avoidance of doubt.” If you need clarification from the other party, don’t be afraid to ask.

Why AI Should Initially Review Your Contracts

As you can see, there are many considerations when reviewing through a contract. It takes legal teams a tremendous amount of time to review and negotiate each one under the lens of risk analysis and opportunity. Increasingly, corporate legal departments are resorting to AI-powered tools to streamline the process. While software cannot replace humans, it can make the work much more digestible, helping companies innovate in the process. 

If you’re wondering how to review a contract with AI assistance, here’s how the process typically works: 

  • Upload sample agreements to the system. AI platforms require some level of foundational knowledge to achieve peak performance. Your team will need to load the system with at least a dozen past agreements to get started. Proprietary data and best practices may also be included in the initial system onboarding.
  • Upload a draft and wait five minutes. Uploading a draft to AI-powered platforms is as easy as sending an email. The entire contract can then be fully redlined and reviewed in just five minutes.
  • Determine whether or not to escalate. A heavily redlined draft may require auto-escalation to senior counsel. Fairly straightforward contracts may be handled by junior-level attorneys, saving senior counsel ample amounts of time.
  • Implement what you can. Proposed corrections can be accepted or rejected with the click of a button.
  • Focus attention on highlighted passages. Rather than perusing every clause, teams can instead focus on areas of greatest risk or strategic opportunity to address legal precedents.
  • Strategize and finetune. Through machine learning, common issues can be automatically resolved as lawyers enter “if/then” rules. Senior counsel can spend time looking at analytical data to determine where improvements might be made so deals pass faster.

The business case for reviewing a contract with AI assistance is compelling, as it allows teams to:

  • Work faster: Automated contract review using AI speeds negotiation times by up to 90%.
  • Work more accurately: AI reviews NDAs with almost 10% more accuracy than lawyers.
  • Train smarter: AI helps standardize employee training and reduce costs by 99%

Ultimately, AI empowers lawyers to engage in more meaningful, strategic work rather than mundane review. They have time to consider ways to improve relationships and business outcomes. In a time where everyone is asked to do more work and expend fewer resources, AI can help shoulder the burden.

Review Contracts Faster and Smarter with LexCheck

With LexCheck’s award-winning AI platform, reviewing contracts faster, more accurately, and more efficiently is now a reality. Legal teams won’t have to worry about common errors or omissions. They’ll be able to route work to the appropriate personnel, train new staff members on the corporate playbook, and gain strategic insights like never before.

If you’d like to learn how to review a contract or let LexCheck’s AI-powered contract review solution do it for you, contact us at sales@lexcheck.com  or download our download our 7 Steps to Optimize Your Contract Review Process guide to learn more about how we work. 

gary-sanghaGary Sangha | Founder & CEO

Gary Sangha is the Founder and CEO LexCheck. He's a serial entrepreneur and an academic. Gary previously founded Intelligize, a legal technology company that was acquired by LexisNexis. He's affiliated with the University of Pennsylvania and Stanford University and started his career as an attorney at Shearman & Sterling and White & Case.