How Does Contract Analysis AI Work?

Contracts are not only foundational for a range of business processes and tasks, but they can also offer key insights into new opportunities and unseen risks.

However, gaining a deeper understanding of the business implications of a contract using manual methods can be a significant drain on time and resources, and can leave businesses open to oversight and human error.

In recent years, technological developments have opened up a host of new ways to leverage AI and machine learning within everyday operations. AI contract analysis is a key tool for this and offers a wealth of benefits; not only in the form of driving operational efficiency but also in helping businesses gain a deeper understanding of their contracts.

In this blog, we will look at how AI contract analysis software (also known as contract intelligence software) works, and how it can benefit businesses across sectors.

What is AI contract analysis?

AI contract analysis utilises machine learning technology to provide in-depth scrutiny of contracts, including leases, loan agreements, and telecom contracts. It is designed to perform tasks such as data extraction, lease audits, review, and interpretation.

The AI-driven software processes a contract and extracts the data contained within it, creating a centrally stored and fully searchable database. Beyond extraction, the contract intelligence software also interprets the information and offers actionable insights, risk assessments, and decision-making recommendations.

The result is a comprehensive and user-friendly repository of contract data, plus vital analysis of contract contents that facilitate informed decision-making, effective management and execution of obligations, and an overview of potential business opportunities.

Why choose AI contract analysis software?

AI contract analysis software offers an array of benefits to businesses that not only improve operations and drive efficiency but also boost performance and power competitive advantage. When choosing AI-driven software for contract analysis, it’s important to ensure your chosen solution offers the following benefits:

Efficiency – AI systems are considerably faster than manual processes, providing deep and thorough analysis in a fraction of the time. This means that staff can instead focus their time on actioning contract obligations and performing value-adding activities.

Accuracy – Contract intelligence software is precise and mitigates the risks of oversight or misinterpretation inherent in human review. AI-driven contract analysis can uncover insights and risks that human reviewers are more likely to miss and can capture the essence of clauses to provide simplified and alternative readings.

Consistency – When reviewing and analysing contracts manually, accuracy and consistency are dependent on many factors, with different team members using different approaches and environmental factors affecting attention to detail. With AI contract analysis, consistency and efficiency are guaranteed, with every document being processed in the same way every time.

Adaptive learning – Machine learning systems evolve over time, learning from earlier contracts and user feedback to improve their accuracy and relevance. AI contract analysis software therefore adapts to businesses’ industry-specific language and unique contract structures, taking into account historical instances to inform future recommendations and interpretations of data.

Scalability – Effective AI contract analysis systems have the capacity to scale up or down depending on the business needs and trajectory, without significant incremental costs. This means that businesses are able to grow and expand their operations with minimal disruption to their contract management and analysis activities.

Reporting – With contract analysis AI systems, custom reports can be created quickly and effectively, with visualisations, dashboards, and easy-to-digest summaries of key contract data. This allows for better communication between teams, improved analysis across different business metrics, and enhanced decision-making processes.

Integration – An effective contract intelligence system offers integration options, allowing businesses to benefit from interoperability between systems. With functionalities to integrate into third-party DMS, ERP, or BI systems, AI contract analysis systems ensure that extracted data is accurate and can be consumed across the business.

Security – the contents of business contracts are often sensitive, therefore robust data security measures should be built into AI contract analysis systems to ensure peace of mind and protection of confidential contract terms.

How does AI contract analysis software work?

AI contract analysis software utilises several different technologies to complete different tasks. These include:

Natural Language Processing (NLP): NLP is fundamental to AI contract analysis software, as it enables AI to process language and understand it in much the same way human beings can. In contracts, this is used to dissect the complexities of written language in documents, provide interpretations, and analyse meaning within contract terms.

Deep Learning Models: Advanced AI systems operate in ways similar to the human brain, utilising neural networks to classify and understand intricate contractual terms and their implications, adapting to various document formats. Deep learning models enable the system to adapt to different languages, industry terms, and contract structures to enable analysis of a limitless number of contract types, as well as handle complex, nuanced, and variable data extraction tasks that exceed the performance of manual data extraction and analysis.

Optical Character Recognition (OCR): When using physical or scanned documents, OCR technology is pivotal in converting images into machine-readable text. This means that AI can read pictures and scans of documents in the same way a human brain can, as well as convert text into usable data that can be searched with keywords and thoroughly analysed.

AI contract analysis software uses these technologies to extract, understand, and analyse contracts. To do this, it follows a process which includes these steps:

AI is given old contracts to study

the programme is provided with a corpus of old contracts to learn from, in order to understand the nuances of each document and recognise the common contract structures and language that is used.

Builds a database of key terms

From these old contracts, the system builds a comprehensive database of key terms, clauses, and patterns, which will inform analysis and recommendations.

Creates rules to act on

using the database, the system creates rules for interpretation, categorisation, and analysis. This means that the rules the system uses are firmly based on an individual business’ historical contracts, instead of pre-specified assumptions.

Utilises rules and data bank to analyse new contracts

by applying these rules in conjunction with its vast data bank, the AI contract analysis software analyses and categorises new contracts.

Recommends actions when reviewing contracts

post analysis, the AI reports to the reviewer on its findings, including recommended potential actions, risks inherent within the contract, or areas of concern.

The more the AI contract intelligence system is used, the more data it can draw upon, meaning its accuracy, efficiency, and relevance of recommendations are improved.

Using this process, in a fraction of the time that manual analysis would take, AI contract analysis software can provide businesses with accurate and valuable insights into their contracts and guide them towards mitigating risks and uncovering new opportunities.

To find out more about AI contract analysis or to arrange a demonstration, please contact us today.

FAQs about AI contract analysis