AI Contract Analysis from an Open Source Standpoint

Contract management in enterprises is key to strong partner relationships, business activities, and compliance with laws and regulations. Contract management relies heavily on manual reviews by legal professionals, which can be time-consuming, error-prone, and costly. New contract management solutions use smart document analytics, artificial intelligence (AI), and natural language processing (NLP) to automate some tasks in the contract lifecycle. Generative AI now makes it possible to apply technology to the labor-intensive contract management process.

Watsonx.ai is an IBM cloud-based generative AI platform. It uses NLP and machine learning to analyze and understand text data, like contracts. In contract analysis, you can use watsonx.ai to automate clause extraction and classification, compare clauses to guidance, and generate alignment recommendations.

This blog gives an overview of how the watsonx platform can help manage contracts, improve document analysis, and save time and money.

Extracting and classifying clauses

The first step in analyzing contracts with watsonx.ai is to extract and classify key clauses, including payment terms, delivery terms, warranties, indemnification, and dispute resolution. Watsonx.ai uses NLP techniques to find and extract key terms and phrases related to these clause types.

After the clauses have been extracted, watsonx.ai can then classify them into their respective categories. For example, payment terms can be grouped into categories like payment amount, method, schedule, and conditions. Delivery terms can be classified into categories such as delivery date, delivery location, delivery method, and delivery conditions.

With watsonx.ai, extraction uses semantic analysis of contract topics, providing a clearer view of clauses beyond traditional AI or template-based contract processing.

The next step in the process is to compare the extracted and classified clauses with any guidance provided for the clause. Guidance can come in the form of legal precedents, industry standards, or regulatory requirements. By comparing the clause with guidance, watsonx.ai can help identify any potential compliance issues or conflicts with relevant laws and regulations.

With watsonx.ai, this previously manual and time-consuming activity can be automated to augment and accelerate the work. Watsonx.ai also helps in reviewing the guidance documents themselves to identify gaps, areas of improvement, coverage, or elaboration.

Generating recommendations

Finally, watsonx.ai can generate recommendations for aligning the clauses with guidance. These recommendations may include ideas to reword or reorganize the clause, add or remove specific terms or conditions, or include language to help ensure compliance with relevant laws and regulations.

A great example of where watsonx.ai can truly transform the contract process is the redlining of the contracts. Watsonx.ai can review contract clauses to find redline items and generate and execute recommendations to align them with the guidance.

Summary

Watsonx.ai has the potential to revolutionize the way you approach contract analysis. By automating the process of extracting and classifying various types of clauses, comparing them with guidance, and generating recommendations for alignment, watsonx.ai can help businesses, legal professionals, and individuals save time, cut costs, and meet relevant laws and regulations. As technology keeps evolving, you can expect more innovative uses of watsonx.ai in contract analysis and beyond.