The legal field has redlined contracts the same way for decades, but now better tools exist.
More than half of companies report losing business and slow revenue recognition due to contract review inefficiencies. Businesses can’t afford to continue combating these issues. Legal teams have the power to accelerate deal closures by creating new and better ways to manage contract negotiations, especially related to redlining.
Proposed changes, known as redlines, protect both parties in a negotiation — but they often create bottlenecks. Teams spend significant time manually reading the redlines, comparing documents and cross-referencing with the company playbook (if they even have one).
As revisions accumulate, the reviewer may need to conduct research establishing context or ask clarifying questions, not to mention the version control challenges associated with multiple reviewers. And if there’s disagreement on terms, the process repeats, extending the deal cycle and creating the potential for the deal to fall through.
While each of these review tasks is imperative, traditional manual processes lack speed, efficiency and accuracy -– something legal teams desperately need amid low headcounts and high workloads. Legal departments can leverage legal technology to revamp their redlining workflow, benefitting the business and the people reviewing the documents.
Technology — especially AI — creates new possibilities for redlining processes. Automation is one of the most powerful capabilities available to legal teams.
Instead of spending hours manually reviewing contracts, lawyers can use AI to analyze documents and automate first-pass redlines based on predefined rules and machine learning algorithms, resulting in fully reviewed and annotated documents.
For example, AI will redline clauses that deviate from standard language or preferred negotiation positions. AI can also conduct comprehensive risk assessments and flag potentially risky clauses, ranking them by severity so attorneys know how to prioritize their efforts. Reviewers of all skill levels can recognize which clauses require attention, empowering them to address the problem.
Using technology allows legal teams to return the redlined contract to the other party much quicker. Everyone saves hours on tedious manual reviews, freeing them for more strategic work and reducing cognitive strain caused by monotonous tasks.
Generative AI holds the potential to condense the deal cycle even more. Eventually, the technology will be able to write initial drafts and situation-specific redlines. However, legal decision-makers must thoughtfully evaluate generative AI solutions and their role in the workflow. Current models can create errors, even going so far as to make things up. Many models lack the nuance necessary for delicate legal work and could pose privacy concerns.
Additionally, AI should not replace people. Technology lacks the empathy, reasoning and creativity essential to legal practice but can expedite the more rote tasks, allowing people to use their unique skills for better service and client relationships.
How AI solves contract review hang-ups
AI can expedite the resolution of common problems that delay contract approvals. For example, indemnification and warranty clauses are two of the most frequent contract redlines. These items lay out the rights and obligations of the parties and have significant financial impact. The terms of these clauses are very specific and can vary widely between organizations, making it more difficult to resolve differences.
AI can help resolve these and other common issues by identifying clauses that deviate from a legal team’s standard language. It can replace those terms with preferred language faster than a human.
Another hang-up in closing business deals — the relationship between sales and legal. These teams operate in entirely different worlds, each with their own language but both sharing the common goal of closing deals and increasing revenue. A salesperson likely doesn’t understand legal nuances, while a lawyer may not appreciate the finer points of making a sale. This lack of alignment can lead to a disconnect.
AI enforces an organization’s negotiation guidelines, giving the sales team more autonomy to review and even negotiate contracts. The resulting document will require less legal review and fewer redlines before sales can ship it to the client.
How to establish an effective redlining system
There are several steps involved in implementing a new AI-powered workflow.
- Choose the right technology.
Consider the team’s unique needs. Choose a solution that solves pain points, ensures privacy and fits into the workflow.
- Define expectations.
Set clear goals for technology use. Define its use cases and performance metrics.
- Let AI handle the heavy lifting.
The technology can automatically review contracts; search for errors, omissions and deviations; flag problematic language and suggest changes, so take advantage.
- Build a complete workflow.
Once the AI finishes the first review, the legal team needs to know the next steps.
Assign someone to approve or reject recommended changes and establish guidelines for when to escalate the contract to senior counsel.
- Evaluate performance.
Ensure the new system delivers expected results and tweak processes as necessary.
The legal field has redlined contracts the same way for decades, but now better tools exist. Don’t let redlining cost business. Adopting legal technology can accelerate sales velocity while also reducing workload and risk.