While managing contracts, in-house legal teams often find themselves at a crossroads. The challenge? Balancing the relentless demands of contract volume and complexity with the necessity for compliance. 

In this tightrope walk, the traditional methods are no longer sufficient. They are time-consuming, prone to human error, and often lead to bottleneck situations, especially in larger organizations. 

The solution? Enter the realm of AI-driven contract compliance—a blend of advanced technology and legal expertise.

Contract compliance with AI streamlines processes, providing you with a depth of analysis, the ability to foresee potential compliance issues, and the agility to adapt to changing regulations and business needs. 

Let’s delve into how AI is revolutionizing contract compliance, turning a traditional pain point into a strategic advantage.

What is AI in Contract Compliance?

AI in contract compliance is about using smart programs to check and handle what's agreed in contracts. This tech is more than doing tasks automatically. It's about understanding the small details in contracts and making sure they are followed.

The scope of AI in contract compliance

“To me, AI is the next internet. If you're not using it, you're falling behind. AI is going to move rapidly in a direction where it will help a lot of us make processes more efficient. I don't think the GC goes away. AI is a tool but it doesn't replace decision making.”

‍~ Celaena Powder, VP of Legal, Seismic
‍From Security to Sales: Building Cross-functional Bridges

The scope of AI in this field is vast and continuously expanding. It includes:

#1 Automated contract review

AI tools swiftly review contracts, identify key clauses, and flag potential compliance issues. This isn't just about speed; it's about accuracy and consistency, reducing the risk of human error.

#2 Risk management

AI is really good at spotting risks by looking at what contracts say and comparing that to rules and company policies. This proactive approach helps in averting potential legal pitfalls.

Also read: Legal Risk Management: From the Playbook of 11 GCs & Leaders

#3 Performance tracking

AI keeps track of obligations and performance metrics, ensuring that all parties are adhering to their contractual duties.

#4 Data-driven insights

By analyzing contract data, AI provides valuable insights into contract performance, trends, and risk areas. This information is gold for strategic decision-making.

#5 Predictive analysis

AI is moving beyond reactive analysis to predictive capabilities. It can predict problems before they happen, which helps manage contracts in a way that stops issues before they start.

Also read: Understanding The Role of AI In Contract Analysis

#6 Enhanced decision making

With AI's ability to crunch data and uncover patterns, you can make more informed decisions.

#7 Customization and adaptability

AI systems are getting better at adjusting and learning from your own contract situations. They change their functions to fit what you specifically need.

Also read: Generative AI for Contract Management: Best Practices

Challenges in achieving compliance with AI

Using AI in contract compliance brings new ideas and improvements, but it also has some challenges. Among the common challenges are:

#1 It’s difficult to feed AI with critical data in real-time

AI systems require high-quality, well-structured data to function optimally. However, many organizations struggle with disparate data sources and legacy systems, making it challenging to feed AI systems with the necessary information.

#2 AI may face hurdles in adhering to regulatory standards

AI must operate within a complex web of legal and regulatory frameworks that are frequently in flux. Ensuring AI systems' compliance with these shifting standards presents a considerable challenge.

#3 People in the organization might not be willing to adopt AI

‍“While tools such as ChatGPT have shot to prominence in the past year, the use of it and other generative AI tools in the world of business to-date has been more cautious. Most businesses acknowledge the technology’s potential, but few have managed to really embrace its everyday use in operations. That is changing, though, as people explore the technology and better understand how it might be used in the business context.”

‍~ Clare Francis, Partner, Commercial Law, Pinsent Masons
In-house legal teams must get fit now for generative AI age

Bringing in AI solutions can face pushback, especially from teams who are used to the old way of managing contracts. This reluctance can stem from skepticism about AI's effectiveness or fear of job displacement.

#4 There could be a lack of technical expertise to implement AI 

Many organizations lack the in-house technical skills necessary for AI implementation. This lack of skills can really stop AI from being used effectively.

Also read: Overcoming Roadblocks to the Adoption of Generative AI

How can you overcome AI contract compliance challenges?

To tackle these obstacles, consider the following strategies:

#1 Enhance data management

Invest in state-of-the-art data management systems. These systems need to gather and arrange data from different places, so that AI tools can use good, combined data.

#2 Conduct regular legal audits

Doing regular checks on AI systems is important to make sure they are following the law and rules right now. These audits should be comprehensive and adaptable to changing laws.

#3 Work on change management programs

Develop and execute comprehensive change management strategies. These programs should teach and get employees interested in how AI works and why it's good. This makes it easier to switch to AI and makes people less against it.

#4 Invest in training and partnerships

Address the technical skill gap by offering specialized training to your staff. Also, work with tech companies that are experts in AI and legal tech. They can help make your AI plans better.

“The key with any training is keeping it simple.  Complex legal concepts are generally lost on the employee base.”

~ Sterling Miller, CEO and General Counsel, Hilgers Graben PLLC
Ten Things: Building a Strong Compliance Department

Also read: Tracking Contract Compliance: Best Practices + Tools

Best practices to achieve contract compliance with AI

#1 Structure your data for effective AI implementation

Start by auditing your current contract data. For example, if your company has contracts that go on for more than ten years, you might see differences in how they look and the words they use. 

Standardize this data and digitize all paper contracts. Use AI tools that understand human language well to make sure they can read contracts with tricky wording and sort them correctly.

#2 Regularly update your AI system for legal compliance

When there are new rules about protecting data, like changes to GDPR or new state laws in the U.S., you need to change your AI system to follow these new rules.

This might mean changing how the AI works to understand and handle new kinds of data rules or privacy needs.

#3 Get your team on board for successful implementation

Organize workshops where your team can see the AI tools in action. Use real situations, like when you change a contract, to show how AI can quickly point out parts that need fixing or where you might not be following the rules.

Show them how AI can make their job easier and more accurate. This way, you can prove it works, even to people who aren't sure about it.

‍Also read: How AI Accelerates Contract Negotiations

#4 Combine the efficiency of AI with the insight of human experience

Set up a way for AI to go through a contract first. It should find parts that need to be looked at based on rules you've already set.

“While many fear AI will replace them, I firmly believe it holds more potential to augment humans, especially in the legal profession. With the right oversight, tools like these can enable legal professionals to become exponentially more efficient at high-value work.” 

~ Tanguy Chau CEO & Founder of Paxton.ai
‍Unlocking The 10x Lawyer: How Generative AI Can Transform The Legal Landscape

For example, when you renew a contract, the AI can point out any new legal rules you need to follow or suggest changes because of recent laws. Then, your legal team can review these areas in detail, ensuring nothing is missed.

#5 Continuously refine your AI system

Create ways to measure how well AI is doing, like checking if it finds problems correctly or how much time it saves in contract reviews.

For example, if the AI isn't finding all the rule-following problems in contracts, use this info to teach it better. You can give it more info or change how it works. Also, talking with your team regularly can help make the AI tool even better.

Harnessing SpotDraft AI for enhanced contract compliance

SpotDraft AI is tailor-made for ensuring robust contract compliance through its advanced features:

#1 Instant contract template creation for compliance 

SpotDraft AI makes it easy to turn Word documents into contract templates quickly, which helps make contracts that follow the rules. This immediate transformation aids in maintaining consistent legal standards from the get-go.

#2 Comprehensive due diligence for compliance assurance

SpotDraft AI can check many contracts at once to make sure they all follow the law. This lowers the chance of not following the rules.

Also read: Company Due Diligence Checklist

#3 Easy access to contract data for compliance monitoring

The Smart Data Capture feature lets you quickly get important info from contracts. This helps you keep an eye on following the rules and make decisions using the newest contract info.

#4 Simplified due diligence process for efficient compliance verification

The platform can understand questions in simple English, making it faster and easier to check if lots of contracts follow the rules.

#5 AI-powered repository with LLMs for compliance information management

By utilizing large language models to capture and organize key contract information, SpotDraft AI ensures easy access to compliance-related details, enhancing the ability to maintain and verify contract compliance.

Embracing AI for future-ready contract compliance

“While it doesn’t always get the love it deserves, a robust compliance function is an important part of risk-reduction at companies of any size. As such, in-house lawyers should get behind the creation of a compliance group if there isn’t one or enhance the existing one whether it sits in the legal department or not.”

‍~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Building a Strong Compliance Department

In this digital age, integrating AI into your compliance strategy offers an innovative edge. AI-driven tools like SpotDraft AI streamline contract management, ensuring compliance with evolving legal standards while enhancing efficiency. 

Embracing AI not only simplifies the daunting task of contract compliance but also positions your organization at the forefront of legal technology innovation.

Experience firsthand the power of AI in transforming compliance into a strategic asset for your organization. Sign up for a SpotDraft AI demo.