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Contract AI: Application Areas of AI in Contracts

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Contracts are a ubiquitous element in business life. They document past successes, define current obligations, and provide a roadmap for future opportunities. The management of these crucial documents poses a significant challenge for organizations, especially when their numbers run into the thousands. In the era of artificial intelligence (AI), however, a transformation is underway. This article explains how to accelerate contract processes with AI, thereby reducing manual labor, risks, and costs.

Revenue Losses from Contracts

Contracts cover the basics of business transactions. Organizations initially struggle simply due to the sheer number of contracts to monitor, many of which lack uniformity and are difficult to update or manage effectively. Moreover, these contracts often contain important but disparate information like renewal dates and renegotiation terms, which require extensive manual labor to properly record or digitize.

Very few companies have a database with all the information about their contracts, let alone an efficient way to extract all this data from the contracts. There is no quick method to view, for example, complex outsourcing agreements. It requires a significant amount of manpower to not only create and review the contracts themselves, but also to read out the archived contracts and the transactions governed by these contracts. Inefficient contract review and contract management lead to substantial value loss. 

Estimates suggest that companies lose between 5% and 40% of value in a business incident due to inefficient contracts. Likewise, World Commerce and Contracting reported that ineffective contract management results in an average company losing over nine percent of its annual profit.

AI Changes the Way We Handle Contracts

Companies wishing to avoid this loss of value are relying on artificial intelligence for contracts. It facilitates the extraction, organization, and analysis of contract data. It allows companies to review contracts more quickly, find large amounts of contract data more easily, reduce potential contract disputes, and increase the number of contracts negotiated and concluded. Here, one can find solutions for automated contract review with artificial intelligence.

Using contracts has three fundamental impacts:

Firstly, it changes the toolsLaptop-viele-Apps that companies use for contract management. Advanced AI-based software can identify contract types based on pattern recognition and extract key variables like clauses, deadlines, and parties involved. It enables companies to tag individual contracts according to certain criteria. 

Picture shows a laptop with a lot of textSecondly, AI influences the content of contracts. It ensures consistent compliance with corporate policies across all contracts, which is crucial in today's complex business world. With the advent of ChatGPT and the increasing ability of lawyers to handle AI, both contract creation and contract review will be faster and better implemented in collaboration with AI (Legal AI) in the future.

Design ohne Titel (1)Thirdly, AI improves the processes around contracts. AI-based contract software analyzes and sorts contracts faster than a team of lawyers. This allows lawyers and in-house counsel to focus more on strategic legal advice rather than on tedious contract reviews or on the analysis and management of existing contracts.


Contract AI: Use Cases

AI-based contract software optimizes and simplifies complex and structured processes. Key use cases include contract analysis, information extraction, analysis of contract clauses and metadata, and risk management and compliance with corporate policies in contracts. In this case, the umbrella term of Legal AI in contracts is often used.

Use Case 1: AI for Archived Contracts

AI quickly searches through a large number of contracts, extracts key metrics, and summarizes important contract metrics. It can identify contract types, extract important terms and metadata, and categorize clauses. This saves a significant amount of work for a host of lawyers. And not only that. The AI can repeat this process countless times without tiring. The company therefore always has the required contract information at hand to initiate any necessary measures in the event of risks.

Use Case 2: AI for Contract Review

AI increases efficiency and speed in contract review as it analyzes thousands of pages in minutes. It reduces the risk of human error and ensures a more thorough and consistent review of contracts. In addition, AI identifies patterns and trends that may elude the human eye, thus highlighting potential risks. Furthermore, the use of AI allows the legal team to focus on more complex and strategically important tasks. The use of AI in contract review also empowers other teams in the company - regardless of the legal department - to review contracts. 

What are the Benefits of Contract AI?

1. Accelerate Responsiveness 

Companies accelerate their responsiveness many times over with AI. Especially in the event of unpredictable events such as a change in law, a sudden increase in the prime rate, or even a pandemic, contracts affected by the event can be identified immediately and measures can be initiated.

2. Improved Risk Management

In the field of risk management and compliance, AI can extract obligations from different types of agreements. It classifies them with ease into operational and financial categories, identifies and evaluates compliance and regulatory conditions, and conducts impact analyses based on various regulatory changes. This capability is crucial for assessing and minimizing risks.

3. Time Savings - Cost Reduction

Analyzing contracts is time-consuming, especially when there is a multitude of contracts. Assigning this work to an AI results in a great time savings. When you look at the hourly wage of a lawyer, this results in a significant cost reduction.

4. Improved Competitiveness

Due to higher effectiveness in contract negotiation and management and consistent compliance with corporate policies, risk management is improved, repetitive tasks are minimized, costs are lowered and better contract terms are negotiated. This leads to an enhanced competitiveness for an organization.


The introduction of AI in work around contracts undoubtedly represents a major advancement for a company. The ability to efficiently process and manage large volumes of contracts while simultaneously reducing manual labor has significant impacts on a variety of industries. Companies that rely on AI benefit in terms of efficiency, profitability, and risk management. They herald a new era for optimized business transactions.

Would you like to learn more about AI in contracts and their application? Download our comprehensive Legal AI Guide with extensive explanations. 

the big legal ai guide

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