Contract analytics with AI is reshaping the legal industry by providing innovative solutions for managing contracts with greater accuracy and efficiency. In this blog post, we explore how AI is transforming modern legal practice, enhancing the performance and precision of legal processes.
Contract analysis vs contract analytics: AI as a game changer
Contract analytics is a process that is enabled by AI and machine learning, which allows for the systematic examination of contract data. It is, however, essential to distinguish between contract analysis and contract analytics in order to gain a full understanding of their respective roles and benefits in the context of modern legal operations.
The objective of contract analysis software is to conduct a detailed, content-specific examination of individual contracts. This process may be conducted manually or with the assistance of AI, which primarily supports the review and interpretation of the contract's content. To illustrate, AI can assist in the identification of legal risks or the assurance of compliance with company policies within a single contract.
Conversely, contract analytics utilises analogous technologies, albeit with an emphasis on the comprehensive and data-driven examination of substantial quantities of contracts. The objective is to derive strategic insights, minimise risks, identify opportunities and optimise processes. Contract analytics enables companies to analyse numerous contracts simultaneously, uncover patterns and understand how certain contract clauses impact overall business performance.
For example, while contract analysis might help assess and interpret the clauses of a single contract, contract analytics could be used to analyse all existing contracts within a company, identifying trends such as how specific clauses affect corporate outcomes.
As legal operations become increasingly complex, tools such as contract analytics software and AI-driven contract analysis have become essential for efficiently managing and interpreting large volumes of contract information. These technologies provide a strategic advantage by delivering fast, precise insights that traditional methods often struggle to achieve. Beyond automation, they are fundamentally changing the way corporate legal teams approach contract management, significantly improving both efficiency and decision-making.
How contract analytics works
Contract data extraction
AI-powered contract analytics software excels at extracting key information from legal documents, including clauses, dates, and parties involved. Manual processes that were once time-consuming and error-prone can now be completed efficiently and accurately. This automated contract data extraction offers a clearer view of contractual obligations and opportunities, and enables the extracted data to be directly synchronised with existing Contract Lifecycle Management (CLM) systems, ensuring seamless integration into broader contract management workflows. Furthermore, these extracted data points can serve as a foundation for more extensive analyses, providing deeper insights and supporting strategic decision-making within legal departments. This allows legal teams to focus on more strategic activities, freeing up time and resources that can be better spent on higher-value tasks.
Risk management
Beyond contract data extraction, AI plays a critical role in risk management. By identifying discrepancies and compliance issues early in the contract lifecycle, risks can be proactively managed before they escalate. Recent discussions underscore how AI contract intelligence aids in detecting risks that even seasoned legal professionals might overlook, highlighting its value in improving the precision of accuracy analysis.
Examples include:
- Evaluating active contracts based on the amount of penalty clauses
- Assessing active contracts for breaches of company policies
- Displaying existing contracts by jurisdiction or contract duration
Image 1: shows which active NDAs violate company policies
Image 2 illustrates: a) the percentage distribution of jurisdictions and b) the contract duration of all active contracts.
Benefits of AI contract analytics
Efficiency and speed
Contract analysis improves efficiency. Traditional contract review is time-consuming and prone to errors, but AI contract review significantly reduces processing time. This acceleration in business operations allows legal teams to focus their resources on more strategic tasks and sales.
Conversely, if the objective is to retain oversight of all existing contracts and conduct active risk management across the entire portfolio, contract analytics with AI is an invaluable tool. This technology enables the extraction of all relevant metadata with a single click. It can generate an Excel report, synchronise with a Contract Lifecycle Management (CLM) system, or present weighted data in a dashboard. This comprehensive approach allows legal departments to effectively manage risks and make data-driven decisions across their entire contract base.
Accuracy and precision
The increased accuracy provided by contract analytics software minimises the human error that often occurs in manual contract review. At Legartis, we've found that even experienced in-house counsel can disagree on the interpretation of contract clauses. The challenge of determining which interpretation is correct raises questions about the standards to which GenAI systems should be held. AI's ability to deliver consistent results is a significant advantage, improving the quality of legal work. However, AI should always operate under human supervision to ensure that critical tasks are performed correctly.
Cost savings
A significant benefit of contract analytics software is cost savings. Automating routine tasks reduces reliance on expensive legal resources, allowing legal teams to focus on more complex, specialised issues. Improved accuracy also minimises errors, reducing the risk of litigation. In addition, automated contract data extraction tools can assist human reviewers by identifying errors that might otherwise go unnoticed – providing a valuable complement to human expertise.
Key features of contract analytics software
Modern contract analytics software, such as Legartis, uses natural language processing (NLP), large language models (LLM) and machine learning to understand and interpret the nuances of legal language. This capability is critical for accurate analysis, as legal documents often contain complex content and specialised vocabulary.
Contract analytics software can be effective either as a stand-alone solution or integrated with existing Contract Lifecycle Management (CLM) systems. While integration with a CLM ensures that the analytics process is part of a smooth, end-to-end workflow, increasing efficiency and reducing the risk of data silos, stand-alone solutions like Legartis also provide valuable insights without the need for a traditional CLM connection. This flexibility allows organizations to quickly benefit from AI-powered contract analytics, even without a CLM system, as no extensive installations are required. Compatibility with other legal technology platforms remains important, facilitating easy information exchange between different systems and further streamlining legal processes.
The indispensable role of contract analytics
Contract analytics goes beyond risk management; it plays a critical role in optimising financial outcomes. By analysing contract terms, organisations can make better decisions, renegotiate contracts and manage renewals more effectively. This proactive approach contributes significantly to financial gains, making contract intelligence an essential tool for any organisation.
Challenges and future trends in contract analytics
While AI is a powerful partner, human expertise remains essential to ensure accurate and reliable results. The debate over whether AI errors are comparable to human errors highlights the fine line between misunderstandings, differing interpretations and actual errors.
Over the next years, we can anticipate that the precision of AI analyses will continue to improve, driven by the rapid advancements in large language models. Additionally, there will be an increased demand for and availability of on-premise solutions, offering enhanced data security. The level of automation in contract review and analysis will also rise, enabling business users to conduct initial contract assessments more effectively.
AI contract analytics – a conclusion
AI contract analytics is transforming contract management by providing organisations with powerful tools to significantly improve efficiency, accuracy, and compliance. By combining AI with human expertise, organisations not only gain a competitive advantage, but are also better equipped to meet the complex challenges of the modern legal environment.
The impact of contract analytics goes beyond technical improvements, it fundamentally changes the strategic direction of organisations. By automating and optimising legal processes, resources are strategically allocated to value-adding tasks. This not only strengthens compliance, but also ensures long-term business success. Companies that adopt these technologies early will position themselves as leaders in this rapidly evolving industry and be well-prepared for the challenges and opportunities of the future.
Talk to us if you would like to learn more about the capabilities of our contract analytics software.
