How is AI Changing Contract Abstraction?

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contract abstraction

The application of AI has changed the way contract abstraction is being done. Traditionally it requires significant resources to sort through vast amounts of data manually. As companies continue to invest in technology, this portion becomes faster and more efficient over time. That’s not to say that contract analytics isn’t without its own challenges. For a number of years, Artificial Intelligence techniques have been used to augment the traditional manual contract abstraction process.

These AI-assisted systems have leveraged machine learning and natural language processing techniques, including automated understanding and summarization of contracts, as well as methods for performing legal analytics. When it comes to assisting in the process of contract abstraction, AI generally offers the following benefits during a contract abstraction.

Do More with Less

The most useful application of AI in contract abstraction is to take on roles that humans cannot (and do not want to) perform. This includes tasks like finding and resolving issues at the functional requirement or business process level. Automated tools can be both more thorough and efficient than humans, which means they keep costs down while still making sure there are no gaps in coverage and compliance requirements.

Finding and documenting requirements automatically leaves human analysts free to spend time on higher-level tasks like analysis, design, and implementation of product features rather than up-front unit testing-level work such as specifying every individual line’s expected behavior. The time savings can be considerable: some estimate that using AI to extract requirements will provide on average a 50% increase in productivity.

Provide Compliance On-Demand

Regulations require that certain types of data be tracked and available for auditing purposes. Finance, healthcare, government programs like Medicare & Medicaid, and insurance underwriting – all these industries have strict mandates around record retention and accessibility via the blockchain. Manual methods are slow and error-prone because humans can only work so fast while also being careful enough to avoid costly mistakes.

AI tools can work at speeds far beyond human capability while still identifying false positives or missing required information with ultra-high accuracy rates (low false positive or negative rate). Since they do not tire or need breaks, they do not face the same limitations as humans who often face physical challenges like reproduction and severe health conditions (flu, pneumonia, etc.) or mental fatigue.

Allow for Greater Collaboration

Human analysts need to focus on one task at a time because even two people communicating simultaneously presents too much information for the brain to keep track of. AI tools can be multi-tasked with different algorithms working together at the same time without significant loss of accuracy or continuity.

For example, given enterprise data files that must comply with specific contract standards such as ISO26262 automotive industry standards, it might be necessary to examine both software code and actual device operation in order to compare how those activities comply with requirements and what changes would be required to make that happen. Both these functions are very difficult for humans to perform at the same time, but an AI tool can pull together different streams of data and provide real-time analysis on both simultaneously.

Enable Greater Privacy Protection

When companies share sensitive information with each other or grant outside parties access to their systems or databases, they need comprehensive privacy policies in place that meet regulatory requirements.

These usually take the form of legal contracts spelling out exactly what each party is allowed to do with any given piece of data (to whom it can be released, how long it must be stored, etc.) as well as penalties for improper disclosures or misuse of that information.

Since privacy policy creation has not been automated in the past, policies have been known to be out of date when they are implemented or simply ignored because enforcement was too difficult. This puts businesses at risk for noncompliance and damages their reputations when sensitive information gets into the wrong hands. AI tools can not only assist in drafting new privacy policies that meet regulatory requirements but also monitor existing contracts to make sure they accurately reflect current practices.

Streamline Business Process Validation

Business processes usually exist below the level of a contract by themselves. The activities performed by a business process may change over time but still manage to accomplish its goals within certain constraints such as delivery deadlines, costs, and other factors. AI tools can automate regression testing against process specifications, whether those exist as formal documents or are merely implicit in the heads of workers.

The worker’s activities can be observed by an AI tool to determine if they are following the correct steps, timing, and other constraints. That information can then be compared to process specifications (either hard-coded or entered by employees) to validate that business processes still perform as intended.

Speed up Invoice Auditing

Businesses often make mistakes when processing invoices, either accidentally charging the wrong items against the wrong contract (or even charging against no contract at all). This adds time and money because any errors must eventually be discovered, which means dealing with customer complaints, reversing incorrect charges, and potentially taking revenue hits.

Businesses can use AI tools to recognize invoices submitted by customers that are out of the ordinary, check them against internal databases, and automatically flag problem invoices for human review. A typical company may end up with thousands of invoices every day, but only a fraction might actually be incorrect.

The contract abstraction expertise required to find those within that sea of data is beyond the ability of humans, especially since some companies have hundreds of thousands or millions of customers. Only AI tools are capable of quickly recognizing errors in invoice submissions on such a scale.

Support Better Contract Management

Contracts contain information about who should perform what actions under what conditions which must remain accessible but secure from unauthorized users. This presents problems because the perfect storage method doesn’t exist. A contract can be documented as a series of steps that should be taken, but it’s also necessary to store other information about why those steps are there, who created them, and so on. An AI tool can not only show which contract elements are associated with each other (i.e., where one is required for another) but also help establish access controls based on function or field values without human intervention.

Enable Faster Compliance with Regulatory Changes

Compliance with ever-changing regulations always requires businesses to make operational changes, from revising internal policies to reworking business processes and even rewriting contracts to reflect new requirements. The time required to make those changes is often too long for regulators to accept as compliance, especially when it comes to new laws or amendments. AI tools can assist in making compliance happen faster by recognizing the impact of regulatory changes on contracts and initiating any processes associated with a revision. This would allow contract abstraction to go smoothly and businesses to meet legal requirements while still allowing them enough time to go through all necessary steps.

Do Follow:

Managing Contracts with Software: The Constant Challenges


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