The rise of AI in contracting: the revolution is now

Artificial intelligence (AI) is primed to transform the world of contracting fundamentally. As a recent report from World Commerce & Contracting (WorldCC) reveals, AI technologies have the potential to overhaul every stage of the contract lifecycle completely. However, adoption remains in the early phases, with only 21% of survey respondents implementing AI in any part of their contracting processes.

For those pioneering organizations, the gains are already apparent and substantial. The experience of these early AI adopters provides a glimpse into the immense benefits now within reach – if key barriers can be addressed to enable widespread implementation. With competitive pressures growing, AI looks set to accelerate innovation and rapidly boost productivity across the contracting field.

Let's examine the key insights from WorldCC's global AI survey and position organizations to capitalize on this impending AI revolution.

The Current State of AI in Contracting

While AI adoption is surging across various industries, contracting has lagged. WorldCC's report signals that usage remains limited to date. In addition to the 21% who have implemented AI in part of the contracting process,10% more are in active implementation phases. But this still leaves 61% who have yet to adopt AI (and 8% who are unsure). There is a sizable gap between the transformative potential articulated by early adopters and the current perception and priority level given to AI by many contracting organizations.

This is further evidenced in the varied organizational approaches towards one of the newest AI advancements – large language models like ChatGPT. 38% of respondents remain unfamiliar with ChatGPT, while 17% have banned its use entirely over security, privacy and quality concerns.

However, 31% are actively developing policies and guidelines to harness such AI tools appropriately. This highlights how some organizations are taking proactive steps to evaluate, validate and strategically implement AI. The leaders increasingly view these disruptive technologies as opportunities to capture competitive advantage rather than existential threats.

For AI to truly revolutionize contracting, what are the barriers that are causing hesitation for many organizations?

The survey reveals that contracting organizations perceive various concerns that make them apprehensive about fully embracing AI technologies. The top barriers include:

• Cybersecurity and privacy fears given the sensitive contractual data involved.
• Uncertainty about the ultimate quality and accuracy of AI's work.
• There is a lack of organizational prioritization and insufficient budget allocation to explore AI's potential.
• Limited internal expertise in AI to develop and implement an effective AI strategy.
• Concerns about potential job losses as AI takes on more manual and repetitive tasks employees perform.

These barriers signal several prerequisites to smooth the path to greater AI adoption in contracting:

1. More extensive education on AI's actual capabilities and limitations. Many concerns arise from inflated expectations or a lack of understanding of AI technology.
2. Development of organizational policies, protocols and controls addressing ethical AI design, security, privacy, quality assurance oversight, and re-training to minimize skill displacement.
3. Partnerships with qualified AI vendors and service providers to secure the right technology, tools and guidance tailored to an organization's needs.
4. Executive buy-in and strategic prioritization to direct time, budget and talent towards exploring AI-enabled transformation.
5. An openness to new ways of working, with AI as a collaborator rather than a replacement. Roles must evolve beyond tasks made obsolete.

The right strategic foundation, organizational culture and executive commitment can overcome obstacles to AI adoption.

The Benefits and Use Cases Driving AI Implementation

So what benefits are pioneering organizations already attaining, and what use cases are gaining traction? The survey provides quantitative and anecdotal evidence.

The top realized gains include:

• 68% time reduction of contracting lifecycles. AI tools have proven adept at accelerating the most time-intensive aspects of contracting – from metadata extraction to risk detection. This frees up employee time from repetitive manual work.
• 46% cite AI as a new source of innovation. As learning systems are exposed to more data, AI solutions often expose novel efficiencies tailored to an organization's needs.
• 38% have achieved cost savings by optimizing resources and minimizing errors. However, cost should not be the primary driver of AI adoption in contracting.

Beyond speed and innovation, AI improves consistency, enhances analytics, and reduces errors by automating manual work prone to human error or oversight.

In practice, AI adoption is gaining momentum across the contract lifecycle:

• 44% have implemented AI for metadata extraction from legacy agreements. This automates an extremely tedious task.
• 39% use AI for clause extraction to accelerate contract review and risk detection.
• 38% apply AI-enabled analytics for insights into contracts.
• 33% use AI for on-demand clause creation, reducing drafting times.
• 30% use AI-powered clause and risk rating to highlight potential issues to address in negotiations.

Overcoming Misconceptions of AI

AI is one of the most misunderstood technologies. Science fiction-driven misconceptions coupled with exaggerated marketing claims have distorted perceptions of what AI can accomplish.

This makes it crucial to cut through the myths and hype. So what are AI's inherent capabilities and limitations?

• AI excels at narrow tasks under constrained conditions. General intelligence comparable to humans does not exist.
• AI lacks human context, common sense and advanced reasoning skills. Humans must provide extensive guidance/prompts.
• AI has no emotions, self-awareness, or subjective experiences. Treat it as an intelligent assistant, not an independent expert.
• AI can process and find patterns in vast datasets too complex for humans. This reveals insights we cannot easily discern.
• AI can beat humans at certain structured tasks, like playing chess and Go. But it cannot replicate imagination or creativity.
• AI makes mistakes without the right data, training and human checks and balances. It is not infallible.

By understanding what AI can and cannot do, organizations can identify the most valuable applications while avoiding pitfalls from overreliance. AI works best when humans leverage its strengths and compensate for its limitations.

The Rise of Generative AI

Recent advances in generative AI propelled by models like DALL-E 2, GPT-3 and ChatGPT have captivated the public imagination. Yet generative AI has also stirred controversy within contracting fields like law.

How are contracting professionals responding? The survey found divergent approaches:

• 38% remain unfamiliar with ChatGPT, indicating it has not yet gained widespread awareness.
• 17% have banned use over security concerns and fear of legal or ethical risks. They view the technology as too unpredictable.

The risks surrounding tools like ChatGPT cannot be ignored. As public models trained on uncontrolled data sources, they do raise concerns:

• Potential confidentiality issues when using ChatGPT freely to draft sensitive contracts.
• Questionable accuracy and falsified citations. The AI can "hallucinate" false facts.
• Lack of version control. Being a free public tool, ChatGPT changes constantly without notice.
• Unclear legal liability. Reliance on AI-generated work product raises liability questions.

However, prudent policies can mitigate these risks:

1. Treat generative AI as an assistant to augment professionals, not replace them. Use it to spark ideas and accelerate drafts.
2. Rigorously verify any facts, citations or data against known reliable sources before relying on them.
3. Provide highly detailed instructions and feedback to improve responses. More context yields better outputs.
4. Use enterprise-grade models that permit secure collaboration while retaining IP rights over data.

With the right human oversight and collaboration, generative AI promises to enhance productivity on focused aspects of contracting work. But understanding its limitations is crucial.

Sentiment Towards AI in Contracting

With these transformative capabilities and risks under consideration, what is the overall sentiment towards AI among contracting professionals? The survey signals a generally optimistic perspective, with younger professionals under 30 reflecting the highest enthusiasm levels with average scores of 4.1 out of 5.0.

This largely positive sentiment bodes well for an AI-enabled future. But more education could cultivate greater acceptance and eagerness.

The Factors Accelerating AI Adoption

What will compel more organizations to embrace AI? Competitive pressures are growing as pioneers achieve quantifiable benefits. The COVID-19 pandemic has also intensified the focus on remote productivity and automation.

As AI solutions proliferate, contract professionals will need fluency in AI collaboration to stay relevant. AI literacy will become imperative.

Leaders also emphasize that AI should not be feared as a job killer but embraced as a productivity multiplier. The roles may change, but well-trained professionals who adapt will remain critical.

With the migration to cloud-based contract lifecycle management systems also accelerating, integrated AI capabilities will increasingly become standard features. Organizations will be compelled to adopt and learn to utilize them effectively.

Preparing for an AI-Enabled Future

1. Initiate an education program to demystify AI across leadership and staff. Address specific concerns or misconceptions through training.
2. Conduct an assessment to identify high-value AI applications that can boost specific bottlenecks and pain points. Prioritize projects with defined ROI.
3. Develop protocols for testing, validating and monitoring AI systems to ensure they deliver transparency, fairness, accuracy, accountability, and error prevention.
4. Create partnerships with specialized AI vendors and advisors to acquire the right enterprise-grade solutions for your needs, along with implementation guidance.
5. Encourage openness to new ways of working as AI augments capabilities. Consider requisite re-training to maximize benefits.

Organizations that proactively develop strategies to capitalize on AI will gain a distinct competitive advantage in the years ahead.

The Transformative Power of AI in Contracting

In conclusion, the insights from WorldCC's global survey highlight that the AI-driven contracting transformation is no longer a distant speculation. Pioneering organizations across sectors are already achieving quantified gains from AI adoption.

AI is poised to overhaul legacy contracting processes by automating repetitive tasks, unlocking previously inaccessible insights, and opening new possibilities of innovation tailored to each organization's needs.

Leaders emphasize that AI should be viewed as an ally to professionals that expands capabilities, not as a threat. But smooth adoption requires concerted change management and strategic planning to address security, ethics, transparency, training, and new ways of working.

With competitive pressures rising, organizations must progress from AI scepticism or uncertainty to confident implementation. Partnerships, enterprise-grade solutions, and a spirit of open experimentation will enable organizations to keep pace with AI's rapid evolution.

By laying the right foundations today, contracting organizations can capitalize on AI's immense potential to drive the field to new heights of productivity, collaboration, and innovation.

Join AI Contracting Week from Monday, 25 September to Thursday, 28 September 2023, where we will explore the transformative potential of Artificial Intelligence (AI) in shaping the contracting landscape.