Thought Leadership  •  May 03, 2021

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How Does AI Contract Analysis Software Work?

While traditional contract review might have been undertaken by junior associates, improvements in contract analysis machine learning mean that artificial intelligence (AI) can increasingly assist in the contract analysis process.

Below, learn about improvements to machine learning and syntactic processing in AI, which increase accuracy within contract review; the benefits of using AI for this purpose and what to expect when turning to AI to review business contracts.

Why Choose AI Contract Analysis Software?

The contract review process is not known for its efficiency. Consider the amount of human power required to update and edit contracts to reflect the specific agreement between two parties — even when you're drawing on a template to reduce labour.

Then there's the amount of effort needed to proofread documents developed by the other side to make sure the agreement reflects what's been agreed upon while working within deadlines imposed by third parties. Add the clarifying phone calls or emails flying back and forth, and it becomes clear how analysing contracts is time-intensive and laborious — even when every effort has been made to simplify the process using templates.

There are significant implications for the bottom line. One study estimates that poor processes for contract management cost businesses 9% of their annual revenue.

AI promises to simplify the process of updating, editing and revising contracts by using language analysis, customizable rules and machine learning. Using AI contract analysis saves labour, time and money while delivering reliable results.

AI Contract Analysis Software 101

Before diving into the specific machine learning and language processing features that empower the latest generation of AI contract analysis software, here's a simplified overview of how AI software works.

First, the AI is given data to study, such as old contracts uploaded into the system. Then, the AI is trained on what to identify. For instance, when preparing for a post-LIBOR transition, AI might learn to recognize the term LIBOR, so it can flag documents that contain the term for review.

Once the AI has received initial data and learned rules on which to act, the software can begin to analyse documents and recommend certain actions, similar to the way a human reviewing contracts might.

These examples of AI document analysis will help you understand the process better, so you can begin to see the way AI software can streamline your business's contract analysis:

  • Rules-bases system: AI contract analysis relies on rules to learn from information with which it’s presented. In a rules-based system, an AI can recognize specific clauses within contracts, such as nondisclosure. Rules that tell the AI to forward contracts with those clauses to specific parties, such as in-house counsel, help ensure the documents go to the right parties without human intervention.
  • Unsupervised machine learning: Unsupervised learning is essentially document review and classification. It's the computer equivalent of handing interns a stack of files that were found in the archives and asking them to pair like with like. Assigning this task to an AI reduces staff time while organizing information for further review and action.
  • Supervised machine learning: In supervised machine learning, AIs can be taught to make decisions about the data they're reviewing by learning as they go from data inputs that were entered by staff. The precursor to rules-based learning, this is where AI learns to detect specific clauses within contracts by mapping the staff input to words or key phrases that become "known".
  • Deep learning: Deep learning relies on neural networks to mimic the human thought process. The technical term refers to the way AI continues to learn over time, delivering continuous improvements to its results the more it's deployed. In contrast to a deep learning approach is an algorithmic approach deployed in previous generations of AIs, where the machine tends to plateau over time.

In terms of contract review, this means you'll get better results over time because the AI has a bigger set of data from which to draw when making predictions or classifications. This isn't so much a technique you can understand as a benefit you can grasp. As with a junior associate, output improves over time due to training and hands-on experience.

  • Language processing: This refers to the capability of an AI to understand and act on words. The AI uses language processing to recognize words or key terms and take desired actions, as in the example about rules-based logic.

AI contract analysis software has revolutionized the industry by slashing the time it takes to review a contract by anywhere from 30% to 90%. Typically, a robust contract analysis software such as eBrevia will offer powerful, customizable features that allow you to analyse any type of contract, from M&A to real estate deals to audit and compliance.

Features include:

  • The ability to compare two documents to spot differences
  • Mark action items that need human review
  • Mark tasks as complete
  • Recommend next action based on rules-based logic
  • Summarize key findings when reviewing documentation

If you haven't yet adopted AI software for mission-critical tasks such as contract review, powerful software such as eBrevia may convince you. Ready to learn more?