Contracts are essential to business operations, requiring legal teams to review them thoroughly and swiftly. As a company expands and its business relationships evolve, the growing volume and complexity of contracts intensify the challenge. This increase places significant pressure on legal teams who must balance the need for detailed review, risk mitigation, and quick turnarounds demanded by business partners to advance deals and partnerships.

Legal professionals review agreements to protect organizational interests and ensure compliance. However, with heavy workloads, contract reviews often become a bottleneck. A recent Gartner survey reveals that 40% of corporate legal departments acknowledge their review process is too slow to meet business demands.

This struggle intensifies as legal teams face increasing workloads with limited budgets - and thus limited headcount growth. The 2023 Enterprise Legal Management Report found that an average in-house counsel spends 4.5 hours every day manually reviewing contracts. Legal teams urgently require solutions to accelerate review while reducing mistakes that could expose their company - as well as other stakeholders - to financial, legal and reputational damages. According to the ACC’s 2023 Legal Technology Report, 75% of in-house lawyers aim to more effectively leverage software to transform contracting.

Reviewing just one service contract typically takes several hours. With greater complexity, it might take a day, or even a week. In LegalOn’s 2023 survey of in-house legal teams, half of respondents reported spending 3 hours or more reviewing a single contract.

In the past, the only available tools to help legal teams with contract review were Contract Lifecycle Management (CLM) platforms. However, difficult implementations and complex user interfaces have led to many customer “horror stories” and unhappy users. Legal teams need technology that is specifically engineered to enhance the speed and precision of pre-signature contract review. 

A new class of AI contract review tools brings long-awaited innovation to contract processes through automation and legal intelligence. The shift to AI solutions is already underway, and the impact is tangible; 98% of LegalOn customers report saving significant review time, and 90% report improvements in accuracy and risk detection. The future of contract review has arrived.

This guide will explore the world of AI contract review software, answering common questions about functionality, applications, benefits, limitations, and key selection criteria for legal teams exploring these automation solutions.

What is AI Contract Review Software?

AI contract review software is redefining how legal documents are analyzed, offering a sophisticated blend of artificial intelligence and natural language processing to transform the contract review process. This innovative technology is capable of identifying potential legal risks, highlighting key clauses, and recommending adjustments. As such, it can significantly speed up the contract review process. AI Contract Review Software is designed to augment the analytical capabilities of experienced lawyers with the speed and consistency only achievable through advanced algorithms.

By leveraging artificial intelligence and natural language processing, AI contract review software aims to complement and enhance manual review processes for accelerated, comprehensive, and cost-effective analysis of legal agreements. Simply put, AI contract review software amplifies legal teams’ productivity and precision, enabling them to turn around business-critical agreements, faster.

How Can AI Help with Contract Review?

Purpose-built AI contract analysis and review software serves as a force-multiplier for modern legal teams. The technology absorbs administrative tasks and speeds analysis to boost productivity beyond conventional capacity. Rather than an extra cost-center, smart integration of AI amplifies limited resources. AI empowers legal teams to:

1. Turnaround Contracts Faster

AI-powered software instantly identifies and resolves contractual risks to accelerate the review and negotiation process. Pre-loaded and customizable playbooks facilitate standardized review while intuitive AI assistance and precedent search simplifies drafting. This expedites end-to-end cycle times, enabling legal teams to save time and swiftly advance deals for their business partners.

2. Focus on Higher Value Work  

By automating mundane, tedious tasks like surface-level reviews, AI minimizes manual effort, allowing legal professionals to focus on judgment-intensive strategic initiatives. Instant analysis and revisions amplify efficiency. More time for strategic tasks lets legal teams handle more high-value work internally, reducing cost and boosting job satisfaction.   

3. Control the Risks That Matter – With Consistency

AI can proactively uncover legal, compliance, and financial risks in contracts. AI can also be customized to an organization’s own standards for more targeted risk reduction. Some AI can make it easy for all users in an organization to review contracts for the same risks, respond to negotiations in the same way, and make revisions using the same language – this helps organizations be confident about what is in their contracts and avoid spiraling complexity. 

AI contract review helps legal teams move past overloaded and error-prone manual processes, so that they can sustainably review high volumes of business-critical contracts.

Who Uses AI Contract Review Software?

AI contract review platforms predominantly serve corporate legal departments and law firms managing high contract volumes with tight deadlines and limited legal budgets. Our 2023 survey findings underscore a significant trend in legal teams: ~80% are either already leveraging or are open to considering AI for contract review purposes. This reflects a growing recognition of AI's potential to enhance the efficiency and accuracy of contract review processes within corporate legal teams.

In-House Legal Departments 

Facing a river of contract requests and limited growth in headcount, in-house teams seek automation to scale operations.

• Smaller Companies with fewer than 500 employees: Small legal teams often lack the time and resources to build out their own playbooks and clause libraries, and they see boosts in efficiency from using contract templates and playbooks that are built by experts and ready to use off-the-shelf. 
• Mid-Sized Companies: In addition to efficiency gains, mid-sized companies see greater standardization of risk management, with their own in-house templates and AI ensuring company-specific issues are checked before signature,  driving greater compliance in the future.
• Enterprise: Large companies are beginning to integrate their own comprehensive playbooks with AI software, resulting in even greater efficiency and improved risk management. Further, playbooks can be rolled out to sales and procurement teams and to support a global business.

Contract Management, Procurement, and Compliance Teams

Across industries, contract managers, procurement managers, and compliance officers are responsible for ensuring that their contracts conform to company and legal standards. These teams are responsible for a wide range of contractual issues, including managing liability, protecting intellectual property, ensuring data security and privacy, and enforcing compliance with legal requirements and company standards. Here, AI can help teams check compliance responsively against evolving requirements within a variety of  sectors, including: 

• Finance
• Banking
• Healthcare 
• Technology
• Pharmaceuticals & Life Sciences
• Energy & Utilities 
• Automotive & Manufacturing
• Logistics & Warehousing
• Retail & Wholesale
• Media & Entertainment
• Construction
• Real Estate
• Government
• Education

Law Firms

AI contract review tools have emerged as valuable assets for law firms of all sizes that are looking to save costs and increase revenue.  For smaller firms, contract review software can help firms take on more clients, review and negotiate faster, and do so without hiring more associates. . For larger firms, contract review AI can enable taking on lower complexity work at more affordable rates that clients are willing to pay, rather than giving it up entirely, and demonstrating a commitment to efficiency and cost-effectiveness. . By reducing the time spent on line-by-line review, contract review software liberates attorneys to focus more on their highest value advisory work. Further, this new software enables firms to help their clients in building and operationalizing their playbooks to enable more consistent treatment of key terms.

Types of Contracts Suited for AI Review  

Companies and firms of varying sizes see the benefits from AI contract review software in different ways. Smaller legal teams tend to have fewer defined contract playbooks that define negotiating positions and language to resolve issues. These teams often see the value in using pre-built industry-standard AI playbooks made and trained by contract lawyers alongside the technical staff within AI contract review software companies. At larger organizations, many legal teams have established their own standard agreements with corresponding playbooks. As such, larger companies frequently seek to customize their AI contract review software in line with their current standards. Both pre-built and customized AI playbooks offer significant value, but have different timelines to see efficiency gains. Teams using pre-built playbooks often see value on Day 1, while larger teams looking to customize their AI by building and training playbooks will see value as soon as they operationalize their standards and depending on the implementation speeds of the provider they choose.

Below we’ve outlined the different types of contracts suited for AI alongside the time to value:

Out-of-the-Box Review with Pre-Trained Playbooks 

Time to Value = Day 1

Playbooks are often at the top of an in-house team’s wishlist, but establishing them takes significant time and coordination. To meet this challenge, some AI contract review software companies have invested in building out a Legal Content function alongside their technical AI staff. These teams invest time and knowledge in building out AI-enabled playbooks to help their customers see value on a variety of contracts, Day 1. At LegalOn, the team has built a comprehensive suite of AI playbooks. These are tailored for both buy-side and sell-side negotiating positions across a wide range of contract types, including the following examples:

• Non-Disclosure Agreement
• Data Processing Agreement
• Data Use Agreement
• Master Services Agreement
• Service Agreement
• Service Agreement with Deliverables
• Consulting Services Agreement
• SaaS Terms of Service
• Software Licensing Agreement
• Master Purchase Agreement
• Purchase of Goods Agreement
• Manufacturing and Supply Agreement
• Office Lease Agreement
• Modified Gross Lease 
• Triple Net Lease
• Venue Rental Agreement
• Distribution Agreement
• Letter of Intent
• Business Associate Agreement
• Material Transfer Agreement
• General Provisions

Integrating Clause Libraries and Contract Policies

‍Time to Value = 1-3 months or more depending on software 

Some companies have started to establish clause libraries, templates, and contract policies for issues and contracts that are mission-critical to their business. However, these resources are often siloed and not comprehensive, leading to ad hoc reviews of many contracts. AI contract review software can help centralize legal positions and apply them more efficiently and consistently. Some software with preconfigured playbooks accelerate time to value by providing a starting point for teams to customize and expand, even for unfamiliar contract types.

‍Custom Playbooks

‍Time to Value = 3 months or more depending on software

The most mature legal organizations may have built out comprehensive playbooks for one or more of their highest volume contract types, such as NDAs, Sales Agreements, or Vendor Agreements. These playbooks are built in Word, Excel, or OneNote and provide clear direction for the reviewer, including preferred and fallback positions and language. Often, these manual playbooks can be difficult to use and update, leading to inconsistencies and delays. Legal teams see immense time savings and compliance improvements after building their company’s playbooks in AI contract review software. Some AI vendors offer services to custom develop AI playbooks, while others require legal teams to build and train the AI systems themselves

Constraints and Limitations of AI Contract Review

AI contract review software serves as an acceleration tool rather than an outright replacement for legal professionals or comprehensive CLM systems. The technology is best applied to help detect and fix contract risks and non-standard terms, leaving the final judgment to human decision makers. While AI contract review software has immense capabilities, it also has limitations that companies should keep in mind when setting expectations:

Cannot Replace Lawyers

AI serves as an enhancement tool rather than a substitute for legal expertise. Human expertise is still required for judgments like negotiating leverage, deal context, balancing priorities, and litigation risk.. In other words, AI performs high quality first-pass reviews, not final approvals.

Time Required for Customization 

Organizations looking to build out their own agreement templates and custom playbooks will need to invest time in building and customizing their AI contract review software. Once the AI has been trained, the efficiency gains from custom agreements and playbooks can be substantial, but it is important to understand that customization can take time and up-front investment. To realize faster time to value, legal teams can opt for solutions that work on pre-built AI playbooks and can be customized incrementally over time.

Not a Contract Lifecycle Management (CLM) Solution

While AI contract review aims to transform the pre-signature process, contract lifecycle management software focuses on post-execution contract administration spanning storage, meta data tagging, and obligation management. CLMs also offers some pre-signature capabilities like contract generation and approvals. 

By contrast, AI contract review software focuses narrowly on the pre-signature review process. It brings specialized contract automation to accelerate review velocity itself - a function that CLM platforms lack the sophistication to match.

As such, AI contract review software and CLM should be viewed as complementary rather than competing use cases. Using AI contract review software and CLM in tandem enables optimization across the entire contract lifecycle.

What to Look for in AI Contract Review Software

Given the recent proliferation of AI tools, buyers should be advised that not all AI contract review software solutions are equivalent. When assessing options, prioritize these key dimensions:  

1. Purpose-Built for Pre-Signature Contract Review 

Look for tools explicitly engineered for pre-signature reviews, rather than contract lifecycle management (CLM) platforms that lack review specialization. While CLM solutions may cover some basic review capabilities, dedicated software here brings superior focus. Ideally, seek AI software explicitly engineered to enhance pre-signature review speed, accuracy, and risk mitigation. 

When evaluating AI solutions for accelerating contract review, prioritize these core features:

• Automated First-Pass Review: Your platform should detect nuanced clauses and terms tailored to the contract type, highlight deviations, and provide risk assessment based on your negotiating position and risk preferences.
• Search and Comparison: The software should enable easy search across past contracts and compare legal language section-by-section to identify deviations from precedents, even for differently structured agreements.
• Precise, Context-Aware Redlining: Your platform should be able to make word by word redlines, not just copy and paste whole clauses, to avoid overwhelming the counterparty with changes. 
• Off-The-Shelf Review: No legal team has a fully built out playbook for every possible contract type. And many only have a partial playbook even for their most common agreements. Your AI contract review software should work off-the-shelf so you and your team can start reviewing against industry standards right away, without training or other costly time involvement required.
• Custom Playbooks: The platform should allow the creation of customizable playbooks to standardize contract review processes across the legal team, based on your organization’s best practices.
• Ready-to-use templates: Drafting new contracts from scratch is hard and can cost you countless hours scouring the internet looking for the right templates to use. Find a platform that allows you to kickstart your drafting process with ready-made templates that adhere to best practices.
• Version control: Edits matter; therefore, your platform should be able to track changes and revisions made to your contracts to compare edits across multiple versions.
• Fast: your contract review software should be fast, able to review an agreement in seconds. If it can’t do this, it won’t save you time. Some contract review software can take 5 minutes, 10 minutes, or even longer to review an agreement. You will find these types of wait times very disruptive to your workflow.

2. More than a Generative AI Wrapper: Infusion of Proprietary AI and Legal Expertise

In contract review software, there is a big, defining difference between software that only has AI (e.g. relies on GPT)and software that has AI and also genuine legal expertise included. The nuances of contracts and the implications of their clauses require a depth of understanding that AI alone can fail to navigate. It’s therefore critical to choose a platform built on foundational legal models and content validated by seasoned attorneys. 

When evaluating AI solutions, look for those which are: 

• Grounded in legal expertise: What does a good contract review look like? At its core, contract review hinges on seasoned legal experience to identify precisely what to be on the lookout for
• Paired with attorney-drafted language: Upon spotting a concern, your AI contract review software should not just flag it, but also provide appropriate legal language to enact an appropriate modification. These suggestions should be based on language drafted by attorneys, not by AI, since even one word can entirely change the meaning of a clause. Additionally, having concise notes explaining legal reasoning can be invaluable when presenting the rationale to the other party. Again, you want these practice notes to be written by attorneys, not AI, since AI often hallucinates credible sounding but inaccurate information. A 2024 paper by Stanford researchers found that AI legal hallucinations are alarmingly prevalent, occurring 69% of the time or more, depending on the AI model.
• Able to provide practical guidance to weigh the risks: Not all flagged concerns hold equal weight. Determining whether to amend a clause requires practical guidance on the implications of said risk and its relevance to your unique situation.
• Informed by market norms: Awareness of broader market norms plays a crucial role in contract negotiations. You’ll want insights into which risks are most pivotal and the prevailing market standards for various contract terms.

Always inquire about the origins of the solution’s legal content, and if possible, speak to some of the experts. Understanding the knowledge behind the digital curtain can provide a clearer picture of the platform’s reliability and depth.

3. Security and Compliance

When selecting an AI contract review tool, it's important to ask vendors about security and compliance. This helps ensure the software meets your organization's needs for protecting sensitive data and adhering to legal and regulatory requirements.  

Key questions to consider include:

• Has the tool been audited to confirm it meets security best practices? Look for evidence of independent audits.
• What compliance certifications has it achieved? Common relevant certifications include SOC 2, ISO 27001, and GDPR compliance.  
• Where is client data stored? It should be hosted in secure data centers or cloud infrastructure.
• What access controls govern data access? Strict role-based access and monitoring helps prevent breaches.
• How is client data isolated? Data should be logically separated and encrypted via best practices.
• Is your content used for AI and machine learning training? If so, are you comfortable with the security and privacy practices in place? 
• Does the provider have a track record you can count on and trust?

Vetting cybersecurity and compliance posture safeguards your contracts and lessens organizational risk. Documenting vendor security measures also shows due diligence if ever questioned.

4. Day 1 Functionality

For many companies, it’s important to understand how long it will take to see a return on investment. Some AI contract review solutions, like LegalOn, boast Day 1 functionality. They do this by investing in their own team of lawyers to create contract review playbooks, clause libraries, and practice notes. These lawyers work alongside the company’s technical team and their knowledge and content is trained into LegalOn’s AIThis training means that new customers get to skip doing their own training and setup and move to getting results and realizing returns faster. While allowing further customization over time, pre-tuned legal agreements fuel rapid initial productivity gains, saving teams months of training effort trying to build from scratch.

The Contract Review Productivity Curve with AI Software  

At the core of seeing real time savings and productivity gains are predefined guidelines and rules outlining the step-by-step process for reviewing contracts, often called contract review playbooks. Our 2023 survey found that 60% of legal teams do not have any playbooks at all or merely have a general clause library. Only 25% have some form of comprehensive playbook. 

Playbooks enable consistent standards-alignment checks before signing. When integrated with AI contract review systems software, they accelerate and strengthen reviews. However, building extensive playbooks requires significant time investment, which can delay the productivity curve and ‘time to value’ for legal teams working with AI contract review software.

This is why it’s so valuable for legal teams to work with AI contract review software that has pre-built playbooks that have been developed and refined by experienced lawyers. With pre-built playbooks, legal teams can see value out-of-the-box on Day 1, and then further enhance the value of their software investment over time with customized playbooks for their most essential and high volume contracts.

‍Out-of-the-Box Productivity with Pre-Trained Models and Pre-Built Playbooks

Certain AI contract review tools come pre-loaded with models already trained on industry best practices and common contractual risks. Instead of requiring months of training, these pre-tuned solutions provide swift time-to-value by instantly applying mature models upon deployment.

The pre-trained knowledge in issue spotting and fallback positions fuels fast efficiency gains, allowing legal teams to further customize over time. Solutions featuring robust pre-existing training resources tend to elevate productivity faster.

LegalOn has made significant investments in pairing legal experts with AI experts, making our AI contract review software better and easier to use with pre-built Playbooks and helping customers see value on Day 1.

Customization and Training Investment Required:  

Alternatively, some AI systems require customers to do their own AI training and playbook integration post-purchase before yielding significant benefits. This entails considerably more effort, and often results in quality and execution failures.. Due to this prolonged training period, returns are uncertain.

Many companies value contract review that is aligned with their risk preferences, so that they see alerts about issues they care about and don’t get unnecessary “noise” about issues that don’t matter to them. That doesn’t mean, however, that you should have to do all the work training an AI or setting up alerts yourself. At LegalOn, we believe it’s important for our customers to see value both on Day 1 with our pre-trained playbooks and with easy options to add customization for specific issues or agreements.

LegalOn for AI Contract Review Software

With thousands of clients worldwide, LegalOn stands out as  a global leader in AI contract review software grounded in both technology and legal expertise. 

Origins: LegalOn was founded in 2017 by two corporate lawyers seeking to modernize contract review by combining AI with attorney experience. Today, LegalOn operates globally with businesses headquartered in the US and Japan. The global team spans legal veterans and AI engineers, using the latest advances in this rapidly evolving field.  

Purpose-Built AI: Unlike tools relying on generalized language models, LegalOn develops contract-specific AI trained on legal documents to spot issues that other software miss. 

Practical Guidance: The software seamlessly blends AI with practical recommendations crafted by experienced lawyers, so users understand contractual risks and constructive alternatives to negotiate confidently.

Secure and Compliant: LegalOn is a leader in security standards, operating with SOC2 Type II certification and stringent contract data safeguards. By leveraging Microsoft Azure's secure AI platform, we protect contract confidentiality and prevent client data from being used in generative model training. Additionally, through rigorous in-house content development and legal oversight of our AI models, we maintain tight control over output accuracy and consistency, mitigating AI hallucinations.  Our comprehensive approach serves as a benchmark for using AI securely and within the ethical rules of legal practice. Legal teams can feel confident trusting LegalOn with sensitive contract data.

Continuous Evolution: By constantly integrating customer feedback and the latest AI innovations, LegalOn produces the most cutting-edge contract review software.

LegalOn is one of the fastest growing legal technology companies in the world, transforming how legal teams worldwide tap AI to conquer contract review challenges. The balanced mix of AI and attorney elevates both speed and accuracy in the race to keep business-critical agreements moving.

Book a demo today to see it for yourself on real contracts you review daily.