Using AI chatbots for contracts – what businesses need to know

An AI chatbot is a good tool in the right hands, but otherwise may be a gamble that simply isn’t worth taking.


Early last year, when the internet exploded with news of what has been described as the AI revolution, I wrote an article exploring the potential effects of AI on the legal sector, exploring whether this may bring an end to the role of a commercial solicitor.  

Since then, I’ve been asked why businesses and freelancers would ever need to go to a lawyer if they can easily and quickly get ChatGPT or other AI platforms to produce a contract for them, and at little to no cost? 

A very short answer to this is that despite AI chatbots’ impressive capabilities, much needs to be said about their limitations and unreliability when it comes to contract drafting. The fact that the commercial legal sector is still busy a year after the article was written shows that there’s still a lot of work for human lawyers to do, even with AI around. 

In this article I examine both the benefits and potential risks of using AI chatbots, such as ChatGPT, by businesses for contract review and legal advice and share some words of advice for any business owners considering cutting costs by using AI.  

What are the benefits of using AI to draft commercial contracts?  

Businesses may be attracted by the broad and advanced capabilities of an AI chatbot and no doubt may benefit from using it in limited circumstances. 

Here, I have listed some of the benefits of using AI to help you on your way when drafting contracts:  

1. Contract review and interpretation 

Chatbots are able to summarise text quickly and cheaply. This functionality allows you to vet a draft contract received from a third party before signing by asking a chatbot to summarise key points and highlight the risks.  

The free version of ChatGPT does not let you upload the whole document, but will allow you to analyse short text, for example a clause in the contract.  

I have tried and tested this to ensure it works by running an example contract clause via ChatGPT and it summarised it well. When I asked ChatGPT to make the clause more favourable to my client, it provided reasonably good suggestions.  

However, it did exactly what I asked it to do without considering any other options, such as rejecting the clause altogether, and without considering the wider issues, such as the bargaining position of the parties, which are all details that a lawyer involved in the drafting the clause would have knowledge of.  

2. Bullet points for discussion/negotiation 

Chatbots can be a good tool to help you prepare for a meeting. For example, ChatGPT can produce a list of points for discussion with a new customer when negotiating a supply agreement. This shouldn’t be treated as a comprehensive list, but could certainly be a useful starting point and set you on the right path, allowing you to use your time more efficiently.  

3. Basic contract templates 

These have been available from the internet for a while, such as on Google Docs, but chatbots can now tailor a contract template to your specific instructions. For example, I have asked ChatGPT to produce a short-form supply agreement. It very quickly produced a simple contract which had a look and feel of a US-style agreement. I then asked it to redraft it under English law and got a much better template.  

This type of template may be useful for very low value and low risk transactions, where the parties want to paper the fact that they have entered into a contract and some very basic terms of the deal. However, it’s important to note that this certainly wouldn’t be fit for purpose for most transactions and is far from the standard of bespoke contract that a commercial solicitor will provide to their client.  

A commercial solicitor will use their legal knowledge and human experience to obtain the right information from the client which is essential to allow us to produce a sound document that records the terms of the deal and protects the client, taking into account the client’s individual circumstances.  

What are the limitations and potential risks of using AI for commercial contracts? 

I’ve already mentioned some of the limitations and risks associated with using chatbots by businesses above. In summary, these include: 

1. Unreliability 

By Open AI’s own admission, ChatGPT may give inaccurate information and it is not intended to provide legal advice. The contract template it produces may look right and answers to your questions may sound plausible, but ChatGPT is not built to be truthful or correct. Due to the way AI chatbots are trained, they often experience ‘hallucinations’ whereby a chatbot creates content that is not factually correct or does not accurately reflect reality.  

A famous example of how things can go wrong happened when a US lawyer used the tool to create a brief for submission to a court. The lawyer’s submissions contained references to previous case law which aimed to support his client’s case.  

It later transpired that several references to the case law were completely made up by ChatGPT. Unaware that ChatGPT can produce false information, the lawyer, together with his colleague who used the chatbot to carry out legal research, eventually had to explain why they should not be disciplined for submitting case law that did not exist (ChatGPT: US lawyer admits using AI for case research – BBC News).  

In addition, chatbots may not always accurately interpret complex legal language or legal specifics, and therefore need to be used with caution.  

2. Narrow application 

An AI chatbot is only as good as the person instructing it. Unless it is instructed to provide a specific response, it may not take into account the personal circumstances of the client or consider the wider transaction or a deal. As such, it may not be addressing the issues correctly or issues will not be addressed at all, potentially leaving significant gaps in a contract that could cause big problems longer term. 

3. Answers are inconsistent 

AI platforms can give you different results in response to the same prompt, giving a different position on the same issue. A reader who is not a trained lawyer may easily miss the implications of small changes and, when these aren’t identified, this could cause significant issues.  

4. Security and risk 

Businesses need to be aware of the potential security and privacy risks of inputting sensitive business information in a chatbot. Paid-for AI-powered software, which is customised to your business needs, should have the appropriate security measures built in to ensure that this information is protected. However, it’s vital to note that publicly accessible chatbots may expose your information to data breaches or misuse, so tread carefully around what data you type in.  

Tread carefully when using AI for any commercial matters, warns Alena 

It isn’t uncommon to encounter contracts that have been drafted using the assistance of an AI platform. Unfortunately, we have found that these contracts are often in need of a substantial rewrite or complete redrafting. I have come across examples of contracts that referenced arbitration rules that did not exist and legislation from jurisdictions not relevant to either party, such as Australian data protection legislation in a UK contract. Often, this can make reviewing and redrafting AI-produced contracts an even lengthier process than simply drafting it from the beginning. 

If you don’t have the resources to engage a trained Commercial Solicitor or if the value of the contract is very low, then using a chatbot for contract review may be justified on balance. Conversely, if you need something to properly manage your risk exposure, address the relevant issues and produce a document that sets the foundation of a good commercial relationship between the parties, then you should seriously consider using the services of a professional commercial solicitor, as this will be a valuable investment in the long run. By analogy, you would most likely still choose to employ a builder to build your house, even if you had all the right tools.  

I’m not saying that AI-powered tools should not be used for contract review and drafting at all, just that they need to be used by a trained commercial solicitor. An AI chatbot is a good tool in the right hands, but otherwise may be a gamble that simply isn’t worth taking. There are many paid AI-powered contract drafting tools already in existence or are being developed whose software uses reliable data to generate their responses and has appropriate security measures. If used correctly, this could be a great asset to a trained lawyer.  

I’m interested to hear views on the points raised in this article and any other suggestions on the benefits and risks of using AI chatbots, so please do feel free to get in touch via alena.makarevich@primaslaw.co.uk 

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