AI in Contracting
AI in Contracting
AI in Contracting
AI in contracting:
untapped revolution to
emerging evolution
Contents Foreword
2 Foreword Artificial Intelligence (AI) is not new, but in November 2022
3 Definitions it emerged from the shadows, no longer a technology used
4 Our survey audience exclusively by specialists, but accessible in the public domain.
5 Introduction
This immediately raised a multitude of issues – political, ethical, regulatory. This WorldCC
6 Setting the scene: the contracting lifecycle report, kindly sponsored by Icertis, explores the impact of AI in the field of contracts and
7 GenAI contract management and answers the questions:
9 Constraints on use How it would be used to conduct business?
10 Issues with accuracy What is the current nature and level of adoption and use, and how does this vary
11 Our expectations across sectors and major geographies?
What are the benefits that come from the use of AI in this field?
12 Current reality
What are the barriers or constraints on adoption and use?
14 Surge in personal attitudes
15 Nervousness remains The public launch of ChatGPT generated over a million users of AI. While ChatGPT grabbed
16 Sector variations headlines, it is certainly not the only AI platform making waves in the field. Other notable
language models and forms of AI, such as BERT, OpenAI’s Codex, and Google’s T5, have
17 Regional variations also been garnering attention for their advancements and applications in various domains.
18 Conclusion Each of these platforms has its own unique capabilities and applications, contributing to the
diverse landscape of AI technologies available today.
Case studies
In July 2023, WorldCC released its first study dedicated to exploring the impact AI is having
19 Integration of AI in the financial services sector
on the contracting community. This expanded report, based on input from 513 organizations,
19 The evolutionary impact of AI in procurement is the most comprehensive look yet on how AI is impacting the contracting community.
and supply chain management The detail tracks current adoption and use and offers insight to future plans and expert
20 AI in contract management: In-house tools or ChatGPT? predictions on how AI will change the practice of contract and commercial management
21 Leveraging AI for strategic organizational transformation over the next few years.
and contracting innovation
22 Transforming legal operations with AI
23 The impact of AI in retail: An executive perspective
24 The rapidly changing landscape of commercial
contracting
Definitions
Algorithmic Accuracy Contextual Misinterpretation Large Language Models (LLMs)
The accuracy of AI systems depends on the algorithms they AI might struggle with understanding the nuances and A class of natural language processing AI models that
use. Flaws in algorithm design can lead to incorrect contexts of complex contracts and legal scenarios, leading are trained on massive text data sets to generate
predictions or decisions. to misinterpretations. coherent, human-like text. LLMs like ChatGPT are a type
of generative AI.
Artificial General Intelligence (AGI) Data-Driven Errors
Also known as ‘strong’ AI. Hypothetical AI, that possesses AI models depend heavily on data for training. Inaccurate, Metadata
general intelligence and excels at any intellectual task that outdated, or biased data can lead to erroneous outcomes. Metadata refers to data that provides information about
a human being can, including reasoning, problem-solving, other data. In other words, metadata is ‘data about data’.
and learning across disciplines. Data-Driven Decisions AI can gather and analyze data about contracts and legal
Decisions based on insights extracted from data analysis, documents.
Artificial Intelligence (AI) using AI algorithms.
The ability of machines to mimic human cognitive functions, Natural Language Processing (NLP)
such as learning and problem-solving. This includes a range Error Propagation The ability of AI systems to understand, process, and
of techniques, from simple rule-based systems to complex Inaccuracies in early stages of AI analysis can propagate generate human languages, including analysis of text data
machine-learning algorithms. In the context of contracting, through the system, leading to compounded errors in and extraction of information. Enables natural human-
AI can be used for tasks like contract review, drafting, decision-making. machine interaction.
negotiation, and compliance monitoring.
Generative AI (GenAI) Predictive Analysis
Artificial Narrow Intelligence (ANI) A type of AI that focuses on creating new content, like Using AI to forecast future events and trends, like supply
Also known as ‘weak’ or ‘narrow’ AI. They are AI systems text, code, or images. Examples include ChatGPT and chain disruptions.
designed to perform dedicated tasks and excel at specific Large Language Models (LLMs) used for drafting
functions rather than general intelligence. contracts or analyzing visual data in compliance and
risk monitoring.
ChatGPT • Public GenAI: Utilizes open data, providing wider
A large language model chatbot developed by OpenAI. accessibility and innovation, but raises concerns about
It gained significant attention for its ability to generate data privacy and bias
human-quality text.
• Private GenAI: Accesses proprietary data, enabling
Computer Vision control and customization for specific needs, but may
A field of AI focused on enabling computers and systems be limited in scope
to identify, process, analyze and understand visual data • Hybrid GenAI: Combines public data with private
such as digital images and videos. It powers applications organizational information to connect the benefits
like image recognition and analysis. of both.
Not-for-profit, charity 4%
Buy-side
29%
ANI
“AI in procurement, legal, and contract A useful summary, but we need to know more. A good
management streamlines transactional place to start is to recognise there are different types of AI,
which can be categorized by capability, learning approach
tasks through automation, enhances or application. Artificial Narrow Intelligence is designed to
strategic contracting through analytics, excel at performing specific tasks.
optimizes risk assessment, and improves Most AI systems in use today are ANI (Artificial Narrow
decision-making by analyzing vast data Intelligence), also known as ‘weak AI’ or ‘narrow AI’.
This means they are designed to excel at performing
sets, leading to more efficient and informed
AGI
specific tasks, unlike the hypothetical AGI (Artificial
contract negotiations and compliance General Intelligence), which could theoretically master any
monitoring.” intellectual task a human can. It’s important to remember
that these categories are not mutually exclusive, and many Artificial General Intelligence, could master
AI systems combine different approaches and techniques. any intellectual task a human can.
Generative AI (GenAI) and Computer Vision are two
common applications of AI in commerce and contracting.
GenAI focuses on creating new content, for example,
ChatGPT or other Large Language Models (LLM) being
utilised to draft contracts or Computer Vision to analyze and
understand visual data in compliance and risk monitoring. GenAI
Generative AI focuses on learning content in
Later in the report, we explore where GenAI can further order to be able to generate new content.
support Commercial and Contract Management (CCM)
activities, but first, it is important to establish the context –
the broad scope of commerce and contracting.
Post-award
Analytics
GenAI
In addition to the different types of AI, GenAI has public, private and hybrid
systems, each having their own strengths in commerce and contracting.
Public systems utilize open data, providing wider Figure 3: Five potential benefits of GenAI
accessibility and innovation, but raise valid concerns
around data privacy and bias. Private systems access 1. Risk analysis 4. Enhanced negotiation strategies
proprietary data, enabling control and customization for AI will help us to evaluate external AI can draw on historical data and
specific needs, but may be limited in scope. Hybrid models factors like geopolitical changes or market analysis to develop or
combine public data with private organizational information supply chain disruptions, providing propose negotiation strategies,
to connect the benefits of both. insights and suggesting techniques for including predictions of counterparty
risk mitigation in contracts. positions and responses. It will also
Private GenAI can efficiently automate routine tasks for support negotiation training through
contract management by tapping into internal data like past role-play and scenario planning.
contracts, strategies, and client details. This streamlines
workflows and optimizes contract operations. Public GenAI
draws on extensive external data to support more strategic 2. Benchmarking and optimization 5. Fraud detection and compliance
decision-making, predictive analytics, and risk assessment. AI is able to compare contract terms AI will monitor external regulations and
It can identify trends not apparent from limited internal data. and performance against a wide range compliance requirements, potentially
of industry standards or templates, alerting us to non-compliance issues
In essence, current uses of private GenAI are typically identifying areas where we may want or the need for contract updates,
enabling greater operational efficiency. Public GenAI, to consider improvement or develop as well as supporting improved insight
by drawing on a mass of external data, provides a more policies for negotiation. to possible fraud.
expansive perspective that may inform strategy and provide
fresh ideas. However, private GenAI can offer strategic
insights through analyzing internal contract portfolios 3. Innovative problem-solving
?
to reveal value, success factors, and trends. The ideal AI will increasingly generate creative
approach combines the specificity and customization solutions and ideas for tackling
of private GenAI with the big picture perspective and contracting challenges by drawing
expansive analytics of public AI’s data. In combination, on diverse data sets and learning
from a variety of past scenarios and
this promises both operational efficiency and strategic
outcomes.
foresight for contracting. The report reveals significant and
continued over >
growing use of internal AI in areas such as contract review,
drafting, negotiation and data extraction.
GenAI (continued)
The go-to platform for GenAI is ChatGPT > but what else is out there?
Here are some of the leading alternatives.
Microsoft Bing > Perplexity.AI > Gemini > Jasper Chat > Writesonic >
(formerly Google Bard)
• Powered by GPT-4 • Cites sources • Powered by OpenAI models • Offers GPT-4 model
• Supports visual input and • Actionable results • Upload images • Expansive knowledge • Image creation
output • Good for product • Chat history til mid-2021 • Voice command
• Connects to the internet recommendations • Powered by PaLM 2 • Remembers conversation • Translation
• Get the latest information on • Features GPT-4 mode • Export to Docs • Plagiarism free output • Character-based chat
any subject • Upload files. • Colab • Supports 29 languages. • Internet access.
• Chat history • Powerful coding and
• Different chat modes reasoning capability
• Cites sources. • Multilingual model
• Implicit Code Execution.
• Comparable to the GPT-4 • Supports web access • Engaging and • Supports GPT-4, Claude,
model • Good for coding conversational. and more
Constraints on use
Such a rich list of potential benefits 5. Regulatory and compliance issues These are in Figure 4: Implementing AI in the contracting process
many cases still to be defined and they also vary
suggests that AI adoption and use between jurisdictions, resulting in complicated and No 60%
should be surging ahead. But it isn’t. currently unpredictable risks and potential costs. 61% +2%
While uncertainty remains, it will slow adoption. Yes 16%
Since our previous report, published in July 2023, the
6. Costs and ROI concerns As outlined in the 20% +25%
increase in use within business, or even plans for use, has
identified issues, the initial investment to develop and
shifted only marginally. Figure 4 shows the extent of AI Actively 12%
implement AI technology can be significant, and implementing
implementation within the contracting process, with the 10% -15%
there may be uncertainty about the potential return.
percentage taking no action remaining fixed at 60%. Unsure 11%
7. Resistance to change In some places this is
diminishing, in others it is increasing. Employees 8% -28%
That is in stark contrast to the level of personal enthusiasm
for AI, which has more than doubled and now stands at may fear job losses or be skeptical about AI’s
June 2023 January 2024
almost 80%. capabilities.
8. Accuracy and hallucination If organizations are
The report confirms a range of concerns and perceived
to rely on AI, they must find a balance with human Figure 5: Barriers for implementation
risks which continue to cause delay in realizing these
intervention. GenAI in particular can ‘make things up’
benefits.The primary issues are: Privacy and security 57%
and does not always interpret data correctly.
1. Data privacy and security Given that AI systems will Oversight is needed and this requires appropriately Data output quality 46%
process large volumes of data, privacy and security top skilled and trained personnel.
the list of potential risks, especially with regard to GenAI. General lack of trust 46%
9. Ethical and moral considerations The use of AI
2. Quality and bias in data There have been many in decision-making processes may introduce ethical Uncertain ROI 37%
examples from early AI systems where the quality, questions, particularly around accountability and
quantity or nature of underlying data and training transparency in automated decisions. Resistance to change 35%
generates unreliable or inaccurate results.
3. Integration challenges Integrating AI into existing To really tap into what AI has to offer, businesses have Lack of technical 34%
to overcome some tough challenges. Tackling these expertise
systems and workflows can be complex and resource-
issues is key. Organizations providing and deploying Lack of resources 31%
intensive, potentially disrupting current operations.
AI solutions might benefit from these areas when dealing
4. Lack of expertise Building from this point about Lack of budget 30%
with implementation and product development.
integration, organizations may lack the necessary
Awaiting development 29%
technical or subject-matter expertise to effectively of policies
implement and manage effective AI solutions or secure
Integration challenges 28%
adoption and use. and vendor selection
AI
identifying patterns and anomalies that might go unnoticed the nuances and contexts of complex the algorithms they use. Flaws in
by human oversight. This allows for real-time improvements contracts and legal scenarios, algorithm design can lead to incorrect
in contracting cycle times, vigilant compliance monitoring, leading to misinterpretations. predictions or decisions.
and pro-active cost management.
Our expectations
CCM practitioners have clear views on where,
and to what extent, AI can assist in their work.
Figure 8 shows the list of benefits practioners anticipate
and also whether ChatGPT agrees with the ranking.
While the differences are not extreme, it is interesting to
see that ChatGPT sees the greatest benefit as freeing
up time for more strategic work and has rather lower ranking
of its ability to assist in negotiations.
Current reality
Across the 30% of organizations with AI implemented or in the process of
implementation, there is a variety of use cases, with all appearing to be based
on embedded AI. Each of the top three involves some form of data extraction.
Therefore, the research confirms that while GenAI may Figure 9: Current reality of what AI is used for Reflecting on the survey results and the disparity between
have massive potential and is being actively evaluated for current implementations and respondents’ aspirations,
Metadata extraction 12%
use, it has yet to move beyond ideas and experiments. it’s evident that there is a growing interest in expanding AI
Our interviews largely confirm this, indicating that capabilities. This growing desire is due to AI’s potential to
individuals and groups may be testing applications such Clause extraction 11% enhance efficiency, accuracy, and decision-making across
as contract drafting or negotiation support, but they various operational areas.
have yet to implement as a standard component of their Contract summarization 10%
process or workload management. Most desired AI capabilities
Contract analytics and 9% 1. AI-influenced workflow
automation 2. Contract benchmark
“These tools appear to be best at issue-
Obligation extraction 9% 3. On-demand contract generation
spotting and conducting an initial review,
but there is clearly still a need for the 4. Supplier evaluation / selection
Clause comparison and 7%
subject-matter expert ‘human-in-the-loop’ risk rating 5. RFX preparation or response
to determine how to appropriately address Contract language 7%
Most desired GenAI capabilities
those issues or fill the gaps in a way translation
1. Summarization, analytics and insights
that is consistent with the company’s On-demand 6%
(individual contract or multiple)
clause creation
individual risk appetite.” 2. Drafting contracts or clauses
Negotiation support 6%
Monica Riederer, Vice President, Digital & Enterprise 3. Risk and compliance
Operations Counsel with Northwestern Mutual (individual contract or multiple)
On-demand contract 6%
generation 4. Negotiation assistance
RFX preparation or 5% 5. Benchmarking
response
AI-influenced workflow 4%
continued over >
Contract benchmark 4%
AI-influenced workflow 4%
Negative 3% 5%
2% 1%
My organization Me personally
Nervousness remains
Facing the unknown, the reaction of some is fear or trepidation. That is
the case with AI, in that a significant number are concerned about its use
by a counter-party. Those fears are mostly undefined – some suggest
it is somehow unethical, others believe it will lead to erroneous data
or possible intellectual property exposures.
Ironically, even though they may reject AI for use within Figure 12: Does a counterparty’s use of AI influence
their organization, they somehow see it as providing your approach to working with them?
competitive advantage to the counter-party.
Yes 8%
As Figure 12 shows, almost 20% say that a counter- 17% +105%
party’s use of AI influences their approach to working with
them. A small proportion of these (overwhelmingly from No 55%
organizations that are themselves established users) view 52% -5%
it positively and see it as a source of greater value, as well
as indicating the counter-party’s innovative spirit. Unsure 37%
30% -17%
The fact that the number caring about this question has
doubled in the last six months is interesting and 19% of June 2023 January 2024
respondents report that they now ask their customers or
suppliers whether they are making use of AI in the process.
It is unclear what they do with this information or whether
they typically receive an honest answer.
Sector variations
There are varying rates of AI adoption across sectors, with a range of both
pioneering leaders and the more cautious, emerging adopters. Here we
outline details the specific AI capabilities leveraged by sector leaders and
outlines strategic plans for future AI adoption.
Leading sectors in AI adoption Emerging sectors in AI adoption Future plans for AI adoption
These sectors are prioritizing AI capabilities such as: These sectors are more cautious in their approach to Between 5% and 20% of respondents, particularly from
• Summarization, Analytics, and Insights: Generating AI adoption. They exhibit a slower pace in embracing AI the Technology and Software, and Services Outsourcing
concise summaries and insightful analytics from solutions, indicating potential barriers or strategic decisions and Consulting sectors, have defined plans for utilizing AI.
individual or multiple contracts to delay adoption. And approximately 50% are in the stages of
policy development, particularly within the Legal,
• Drafting Contracts or Clauses: Automating the creation
Telecommunications and the Healthcare, Pharma and
of legal documents to enhance efficiency Banking, insurance and
Chemicals sectors.
• Risk and Compliance: Ensuring risk assessment and financial
compliance management in individual or multiple The distinction between AI leaders and emerging adopters
Public sector and
contracts. government across sectors highlights the diverse adoption timelines
and integration strategies. While leaders actively harness
Particularly, the Technology and Software sectors indicates Engineering, construction AI for strategic benefits, emerging adopters are gradually
that the evolution of AI has impacted its legal technology and real estate integrating AI into their operations.
strategies by 50.8%, indicating a significant impact on
operational and strategic decisions.
Legal
Technology and
software
Business services
and consulting
Regional variations
The integration of AI into the contracting process reveals
varying adoption and other rates across different regions.
Employee enthusiasm towards AI in contracting Figure 13: Organizations implementing AI in
On a scale from 1 to 5: any part of the contracting process
Oceania shows the highest enthusiasm at 4.1,
indicating a positive reception towards AI in contracting.
Europe follows with an enthusiasm level of 3.8, suggesting
a favourable attitude towards AI technologies. Europe
North America Asia
Asia and the Middle East both demonstrate a moderate
enthusiasm level of 3.5, reflecting cautious optimism.
22%
North America exhibits a slightly lower enthusiasm level
of 3.3, indicating a need for further engagement and 30 % 36%
understanding of AI benefits in the contracting process.
16%
Training and skill set in AI
The data indicates that the USA, UK, and India are Middle
demonstrating leadership in skills acquisition and East Oceania
development. The data offers insights into how individuals
in the USA, UK, and India acquire their skills, with a 11%
notable emphasis on practical experience across all three
countries. In the UK, the most significant proportion 44%
of respondents have gained their skills through practical
experience, while 40% in India and 33% in the USA have
combined formal training with practical experience.
This trend suggests a strong inclination towards
experiential learning and the application of skills in real-
world contexts.
Conclusion
AI has potential to transform the process and value of contracting,
but we are in the early stages of a journey. There is considerable
skepticism to be overcome and even early adopters are reassessing
their initial expectations and optimism.
The fragmented nature of the contracting process and Perhaps the bright spot of this report is the extent of
related data availability is one limiting factor. Another is the enthusiasm for personal use of AI. The experience gained
cost associated with implementing AI, when the potential must surely translate to growing ideas and enthusiasm
benefits remain uncertain. Then there is the innate caution for the efficiencies and insights that can be gained in
of the legal and contracting community, which has never the workplace. But perhaps those who perceive AI as a
been at the forefront of technology adoption and change. revolutionary force should scale back their aspirations:
Right now, there are few signs of executive intervention to this study suggests that in the context of contracting, it will
overcome that hesitation. be evolutionary in nature. There are still foundations to be
laid before the true potential can be realized.
For adoption to accelerate, there is a need for successful
use cases. Many of those will only become apparent with
experimentation, often undertaken on a small scale to justify
the cost and disruption of wider deployment.
AI
4
a
6 7
b
-8 -3
c
-5
23 d 2022
14
-12 e 2023
22 2024
AI
Integration of AI in the financial The evolutionary impact of AI Despite the availability of various tools, market solutions
often lack comprehensive, end-to-end capabilities. As
services sector in procurement and supply chain a result, many procurement leaders are opting to create
by the Deputy General Counsel of a global bank management bespoke tools tailored to their needs.
AI offers opportunities to improve the way we work and how by an Executive Vice President of a leading The Future of AI in Procurement
we serve our customers. Over the last 12 months, there has procurement consultancy
Democratization and connectivity The most exciting
been a step change due to advancements in generative AI. Introduction prospects for AI in procurement lie in its potential for
In the rapidly evolving field of procurement and supply democratization and enhanced connectivity. AI empowers
However, we are yet to see a meaningful impact of AI on
chain management, perspectives on AI and its potential individuals across organizational levels, making advanced
legal or contracts work – at least from an immediate internal
applications are continuously changing. The advent of tools accessible to a wider audience. The envisioned future
perspective. But here we can turn to the legal sector to
AI tools like GenAI has sparked considerable interest in is a connected ecosystem where unstructured networks
explore AI in the services and advice they provide by helping
AI’s capabilities, leaving professionals both excited and and data are seamlessly interlinked, facilitating informed
drive its use to generate efficiencies.
apprehensive. This case study explores how AI is beginning decisions and streamlined processes.
From an in-house legal perspective, we need to become to reshape procurement and supply chain management,
familiar with the tools available using our own data set to
drive use case generation. Here there’s an opportunity for
highlighting the benefits, challenges, and future prospects.
The most exciting prospects
generative AI to improve knowledge-sharing and cut down AI’s emerging role for AI in procurement is its
on duplication of work. There may also be a business case Transforming core operations AI’s ability to process and potential for democratization
for creating a legal ‘contract’ data lake that could assist in analyze vast amounts of data is revolutionizing key areas and enhanced connectivity
aligning materials to a common standard – for example, such as risk management and negotiation. Its proficiency
a design and simplification model – or creating things like is not limited to data analysis, AI also serves as a strategic
playbooks to accompany contract terms or templates. ‘copilot’, enhancing decision-making processes with Navigating uncertainty The journey towards realizing
unprecedented precision. Furthermore, AI’s capacity to AI-driven transformations in procurement and supply chain
In summary, there are firm grounds to believe AI has a generate insightful outputs and answer complex questions management is loaded with uncertainty. While the timeline
compelling value point, but it first needs to be developed introduces a new level of efficiency and insight. is unclear, the path forward emphasizes the importance of
and used in an ethical and responsible manner before we see practicality and strategic integration.
the tool used more commonly in legal or contracts work • Expectations and ambitions The demand for AI in
procurement is both pragmatic and ambitious. Users seek Conclusion
AI tools that can seamlessly integrate and analyze internal The integration of AI in procurement and supply chain
There may be a case for data to produce comparative reports and insights. management represents a balancing act between
creating a legal contract Leaders in the field are reevaluating their entire procurement leveraging innovative potential and addressing the practical
data lake to align materials workflows, finding that AI could potentially perform tasks challenges of application in a dynamic sector landscape.
to a common standard as effectively as human counterparts. As professionals navigate these waters, the role of AI will
undoubtedly continue to evolve, promising significant
The development dilemma A critical decision is whether transformations in the way procurement and supply chain
to develop proprietary AI tools or rely on market solutions. operations are conducted •
© World Commerce & Contracting 2024. All rights reserved
Foreword Definitions Survey Introduction The contracting GenAI Constraints Issues with Our Current Personal Nervousness Sector Regional Conclusion Case 20
audience lifecycle on use accuracy expectations reality attitudes remains variations variations studies
Case study 3
AI in contract management: Copilot for contract summarization Moreover, the potential for AI ‘hallucinations’ or generating
incorrect information necessitated a cautious approach,
In-house tools or ChatGPT? The initiative to implement an AI Copilot focuses on
emphasizing the need for human oversight and validation of
transforming dense legal documents into digestible
by head of contract and vendor management AI-generated content.
summaries. This task requires a careful review of the
multinational energy company
technology’s output to ensure that while simplifying the System approach: singular versus multi-system A
Summary language, the essence and accuracy of the legal documents significant strategic decision faced by the organization was
This case study explores the journey of an organization are preserved. The goal is to make these summaries choosing between a singular or a multi-system approach.
in implementing AI to enhance its contract management accessible to non-experts without sacrificing the depth While a singular system offers simplicity and potentially
processes and strategic decision-making meetings. The of information, a balance achieved through continuous lower costs, the multi-system approach provides specialized
focus is on leveraging AI to summarize contracts, create refinement of the AI’s understanding of legal terminology. functionality and reduces the risk of information silos.
presentations, and improve efficiency while addressing The organization recognized that dedicated systems might
Secure cloud environment and information integrity
challenges such as accuracy, legal jargon, data security, better serve complex lifecycle tasks, suggesting a blended
and the potential for AI-generated misinformation. Operating within a closed cloud environment, the proprietary strategy that leverages the strengths of both approaches.
The study also investigates the strategic choice between ChatGPT version is designed with strict data security
measures, ensuring sensitive information remains protected. Customization or standardization in IT solutions
adopting a singular system versus a multi-system approach
The organization prioritizes the control of permissible Customized solutions offered a shorter implementation
for handling diverse tasks, alongside considerations for
information within this secure space, vigilantly monitoring timeframe and a higher degree of personalization, crucial for
customized versus standardized IT solutions.
for any AI-generated inaccuracies or ‘hallucinations’ that meeting specific organizational requirements. This approach
could compromise decision-making or strategic planning. was found to be at least as effective as standardized
AI’s ability to summarize solutions from large matrix companies, with the added
AI implementation challenges and solutions benefit of easier integration and enhanced overall efficiency.
complex legal documents
Accuracy and tone The initial challenge was the AI’s
without compromising the ability to accurately interpret and summarize complex legal
Conclusion and future directions
meaning was a challenge documents without compromising the essential meaning. The implementation of AI in contract management and
To address this, the organization focused on refining AI strategic meetings has demonstrated significant potential
algorithms to understand legal terminology better and to enhance operational efficiency, decision-making, and
Introduction
rephrase clauses in a more user-friendly manner. This strategic planning. Key to success has been the careful
The organization embarked on an initiative to integrate consideration of accuracy, legal language simplification,
requires a delicate balance between simplifying language
AI capabilities to streamline its operations, specifically in data security, and the strategic choice between system
and retaining the legal document’s intent.
summarizing contracts and preparing concise presentations. architectures and IT solution customization. Moving forward,
This initiative aimed to replace dense legal jargon with more Data security and information integrity Given the the organization aims to further refine AI capabilities to
approachable language, relying on technical expertise to sensitive nature of contracts and strategic discussions, generate more accurate and reliable outputs, emphasizing
ensure accuracy. The AI application, powered by an in- the organization placed a high priority on data security continuous improvement and adaptation to changing needs.
house ‘Copilot’ and ChatGPT, operating within a closed and the prevention of unauthorized information access. The open question regarding the optimal system approach
cloud environment, ensuring data security and compliance The AI’s operation within a ChatGPT closed cloud remains a focus for strategic evaluation, as the organization
with sourcing strategy and governance meetings with environment was crucial, coupled with strict firewall continues to explore the balance between integration,
strategic partners. protections and adherence to data privacy standards. specialization and customization to meet its evolving
objectives •
© World Commerce & Contracting 2024. All rights reserved
Foreword Definitions Survey Introduction The contracting GenAI Constraints Issues with Our Current Personal Nervousness Sector Regional Conclusion Case 21
audience lifecycle on use accuracy expectations reality attitudes remains variations variations studies
Case study 4
Leveraging AI for strategic conducting proofs of concept, fostering internal acceptance, Navigating beyond NDAs with AI The negotiation and
and establishing robust governance frameworks. creation of Non-Disclosure Agreements (NDAs) concerning
organizational transformation and Determining clear responsibilities for AI implementation AI usage present a good starting point; however, there are
contracting innovation is crucial, as is the role of change management. plenty of opportunities for innovation in various contract
by a partner at a leading consulting firm focused Effective change management can significantly enhance models.
on digital strategy, tech platforms, data and organizational systems by not just improving individual
Compliance and AI playbooks Many AI capabilities are
cybersecurity features but transforming entire operational frameworks.
already embedded in applications, featuring varying levels
Introduction Revolutionizing contracting with AI of intelligence. People are somewhat familiar with these
capabilities. AI offers various ways to ensure compliance
In the rapidly evolving landscape of technology and Looking towards the future, AI has the potential to
with organizational playbooks, showcasing its ability to
business, AI stands out as a beacon of potential and dramatically alter the field of contracting, especially in
embed intelligence within existing applications.
innovation. However, the understanding and integration legal contexts. AI enables a more intelligent assessment
of AI into organizational processes remain unclear for of risks and application of knowledge throughout the Call to action
many. Common misconceptions associate AI merely with contract lifecycle, shifting the dynamic of drafting contracts
The future of AI in contracting and organizational strategy
digitization or automation, underestimating its capacity to with lawyers. By focusing on data-driven decisions,
calls for a reimagined approach to participation and value
act as a strategic tool capable of revolutionizing operations AI facilitates the identification of ineffective areas, moving
creation. Stakeholders should not only engage with AI
and decision-making processes. This case study delves beyond perceptions to tangible outcomes. However, it’s
proactively but also advocate for a standardized and
into the challenges of AI adoption, the strategic value it crucial to acknowledge that while AI can enhance speed
strategic integration of AI capabilities. Embracing the fear
holds within organizations, and its transformative impact and efficiency, its effectiveness is contingent on the maturity
of failure and learning from it is essential for growth and
on the future of contracting. and strategic engagement of the organization with the
innovation. By doing so, organizations can move beyond
technology.
The challenge of AI adoption limited implementations and explore the full potential of
Practical insights AI in creating strategic value and transforming contracting
Despite the promising advantages AI offers, a significant
processes.
barrier to its adoption is the prevalent lack of understanding Hesitance in sharing AI implementation experiences
and fear of failure. Many individuals and organizations are Both clients and organizations often show reluctance Conclusion
hesitant to embrace AI, treating it as just another document in discussing their journeys with AI, delaying collective
AI possesses the transformative power to redefine
or a checklist item rather than recognizing its strategic learning and growth.
organizational strategies and contracting practices.
potential. This reluctance often stems from a fear of
Legal involvement in AI agreement negotiations Legal However, realizing this potential requires a shift in
making mistakes and a lack of internal acceptance and
departments play a pivotal role in negotiating agreements perception, from viewing AI as a mere tool for automation
governance structures to support AI integration.
that govern AI use, emphasizing the need for clear to recognizing it as a strategic asset capable of driving
Strategic implementation and change management understanding and strategic involvement. innovation and efficiency. Organizations that embrace AI,
manage change effectively, and engage in continuous
Mature organizations demonstrate a more profound
comprehension of AI’s capabilities, adopting a systematic Embracing the fear of learning will be well-positioned to lead in the future
approach to its implementation. Key steps include
failure is essential for
landscape of business and technology •
growth and innovation
© World Commerce & Contracting 2024. All rights reserved
Foreword Definitions Survey Introduction The contracting GenAI Constraints Issues with Our Current Personal Nervousness Sector Regional Conclusion Case 22
audience lifecycle on use accuracy expectations reality attitudes remains variations variations studies
Case study 5
with AI The integration of AI in legal practices presents a dual- The role of AI in transforming legal operations is undeniable,
edged sword. On one hand, it offers the promise of with a potential shift towards data-driven legal practices.
by a partner in big four legal’s ‘Transform to enhanced efficiency and accuracy in legal operations. The adoption of AI can redefine contract management,
Operate’ service On the other, it introduces uncertainties regarding the moving from an adversarial to a relational approach and
Introduction delegation of responsibilities to third-party AI services fostering negotiation-friendly environments. Furthermore,
In an evolving legal landscape, the integration of AI into versus internal implementation. The involvement of data AI’s ability to handle diverse data formats and identify
legal operations is becoming increasingly indispensable. science and IT experts in developing AI capabilities for misinformation paves the way for innovative legal services.
As the sector navigates through the challenges of adopting legal operations underscores the growing intersection
between technical and legal expertise. Conclusion
these technological advancements, a notable shift towards
The integration of AI into legal practices signals a
AI-driven processes is observed. This case study explores Challenges and fragmentation transformative era for the sector, promising increased
the multifaceted implications of AI integration in legal
Despite the potential benefits, the adoption of AI in legal efficiency, accuracy, and novel approaches to traditional
practices, focusing on AI capabilities such as playbook
practices faces several challenges: challenges. However, this transition is accompanied by
management, clause analysis, and risk assessment, and
• Return on Investment (ROI) Firms investing in skepticism and operational uncertainties. As legal firms
addresses the skepticism and uncertainties surrounding its
Contract Lifecycle Management (CLM) tools have navigate these changes, the collaboration between legal
adoption.
reported mixed outcomes regarding the tools’ efficiency and technical experts will be crucial in achieving the full
AI capabilities in legal operations and impact on ROI potential of AI technologies •
Legal firms are progressively exploring AI capabilities • Workflow adaptation The effectiveness of AI tools is
to streamline operations and enhance efficiency. Key AI contingent on their alignment with existing workflows AI in legal operations presents
functionalities include: and processes
the promise of enhanced
• Playbooks AI-driven playbooks assist in standardizing • Security concerns Data privacy and security remain
legal procedures, offering a repository of strategies and significant concerns, with some firms hesitant to share
efficiency and accuracy
guidelines for various legal scenarios sensitive information with AI systems. but with the uncertainty
• Clause upload and analysis AI tools can read and of delegating responsibilities
interpret clauses from contracts, extracting and to third-party AI services
processing obligations to assist in legal reviews
• Risk analysis By analyzing contracts and legal
documents, AI can assess potential risks from a legal
perspective, providing valuable insights for decision-
making
• Metadata extraction The ability to extract metadata
from contracts facilitates a deeper understanding of
contractual obligations and commitments.
Case study 6
Case study 7
The rapidly changing landscape Particularly intriguing is how these tools can interact with content and helping lawyers be more concise in their
AI to be faster and offer more thoughtful insights into writing. While some of what we are seeing is interesting and
of commercial contracting documents. Companies such as Walmart have worked hard may have potential, existing AI copilot tools still very much
by Kirk H Samson, Senior Director at Nexdigm to fully eliminate contract negotiation for lower-complexity need a human ‘captain’ to do quality control and ensure
(extracts from an article published by the State Bar agreements by partnering with an AI negotiation software accuracy.” The regulatory environment is trying to catch
of Wisconsin) and chatbots that free their procurement staff to focus on up to AI’s potentially incredible breadth of use, but legal
Northwestern Mutual is one of many companies that higher-end (and higher-value) contracts. Pharmaceutical technology advancements are already well embedded in
accelerated the shift to electronic signatures and cloud- companies are leaning on AI-drive software programs to contracting processes and legal firms.
based storage solutions during the pandemic and has do initial negotiations for highly complex contracts such
as clinical trial agreements. Companies such as Lawgeex, Changes in technology and global business practice can be
continued to embrace them even after its workforce has
Legal Robot, and Casetext have been building legal text daunting for attorneys to keep up with, but the advantages
moved to a more hybrid environment, says Monica Riederer,
models for years that are now capable of doing mid-level they present are substantial. As many commentators in
Vice President, Digital & Enterprise Operations Counsel
legal work that would have been done by associates in the legal technology field have said, AI is not going to take
with Northwestern Mutual. “The pandemic gave us all a
previous decades. More important, they do it at a better attorneys’ positions, but attorneys who can effectively use
unique opportunity to rethink how we were approaching the
price point and free up attorney time to do more challenging AI might be the ones who take their competitors’ clients.
in-house practice of law and recommit to going paperless.
tasks. Given the continuing concerns regarding automation and
Now that many of us have experienced a much more digital
issues such as AI hallucination, which is when generative
practice, we’re committed to exploring and embracing
According to Riederer, “We’ve been exploring generative AI creates outputs that are nonsensical or false but are
technologies that can make us more effective and efficient.”
AI tools that could help drive efficiency in the contract presented as fact, the involvement of an expert human in the
Key pieces of the legal technology revolution are already review and negotiation process. While we’ve seen the loop is going to continue to be crucial to ensure accuracy
well accepted in legal practice. Electronic discovery potential value for less complex contracts, so far they are and appropriateness of any AI-generated output or content.
(sometimes referred to as eDiscovery) systems have become less effective with more sophisticated contracts. We’ve
found that many of these tools do a reasonably good job The effective use of these technology tools allows for global
widely accepted; the sector is valued at over $11 billion
accurately summarizing contract provisions and identifying collaboration and improved transparency in the commercial
globally and will continue to grow. Applications that do
gaps, but in order to be truly effective, these tools need to contracting process and can free legal experts to focus on
document comparison and term comparison on complex
be trained and fine-tuned so they can reflect a company’s the most interesting and challenging work for which their
documents are invaluable tools for legal offices and have
individual risk profile and suggest the best alternative experience and education are crucial. No slowdown is on
been embraced for years.
language or create an actual redline. At this stage, these the horizon for these transformations.
tools appear to be best at issue-spotting and conducting
Elevating one’s comfort level with the technology and
AI text models are now an initial review, but there is clearly still a need for the
globalization of legal services will be as important as
capable of mid-level legal work subject-matter expert ‘human-in-the-loop’ to determine
how to appropriately address those issues or fill the gaps in
continuing legal education for attorneys working in the
freeing up attorneys for more a way that is consistent with the company’s individual risk
contracting environment. They represent a great opportunity
for commercial contracting attorneys to adapt, expand, and
challenging tasks appetite.”
provide innovative and comprehensive legal solutions in an
Riederer says, “We’ve also been experimenting in a very increasingly interconnected and fast-paced global business
limited and controlled way with the use of generative AI environment •
through various copilot tools for tasks like summarizing
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