In an era where artificial intelligence is reshaping industries, it's tempting for micro and small-to-medium enterprises (SMEs) in the tech sector to turn to generative AI for various tasks, including drafting legal documents. After all, the allure of quick, cost-effective contract creation is strong, especially for growing businesses with limited resources. However, when it comes to legal documents, particularly contracts that form the backbone of your business relationships, relying on generative AI can be a risky gamble with potentially severe consequences. 

 

The Rise of Generative AI and Its Promises 

Generative AI, exemplified by tools like ChatGPT and Microsoft’s CoPilot, has captured the imagination of businesses worldwide. Its ability to produce human-like text based on vast amounts of data has led some to believe it could revolutionise legal document drafting. The promise is enticing: instant contract generation at a fraction of the cost of traditional legal services. For tech startups and SMEs operating on tight budgets, this seems like an attractive proposition. 

 

The appeal is understandable. Generative AI offers: 

 

  • Speed: Contracts generated in minutes rather than days or weeks 
  • Cost-effectiveness: No hourly rates or retainer fees 
  • Accessibility: Available 24/7 without the need to schedule appointments 
  • Simplicity: User-friendly interfaces that don't require legal expertise 

 

However, as we delve deeper, it becomes clear that these apparent benefits come with significant risks and limitations that could jeopardise your business's legal standing and financial health. 

 

The Limitations and Risks of Using Generative AI for Contracts 

 

Lack of Legal Expertise and Context 

Generative AI, while impressive in its language generation capabilities, lacks the nuanced understanding of law that comes from years of legal education and practice. It cannot interpret complex legal principles or apply them to specific business contexts. As highlighted by the Law Society of England and Wales, "It is important to note that generative AI, like all forms of AI, lacks the capability to understand its output and meaning in the same way that humans do. This means that generative AI cannot autonomously validate or audit the accuracy of its results. It may even create false outputs". 

 

Potential for Outdated or Incorrect Information 

AI models are trained on historical data, which means they may not be up-to-date with the latest legal developments, regulations, or case law. In the fast-moving tech industry, where regulations can change rapidly, this could lead to the creation of contracts that are no longer legally compliant or enforceable. 

 

Issues with Consistency and Coherence 

While AI can generate text that appears coherent on the surface, it may struggle with maintaining logical consistency throughout a lengthy legal document. This can result in contradictory clauses or terms that don't align with the overall intent of the contract. 

 

Risk of Hallucinations and Fabricated Content 

One of the most concerning aspects of generative AI is its tendency to "hallucinate" or generate false information. As Sam Altman, CEO of ChatGPT maker OpenAI, stated last year, “The thing that I try to caution people about the most is what we call the ‘hallucinations problem’, The model will confidently state things as if they were facts that are entirely made up.”. In fact a study by Stanford University found that AI legal models hallucinate in 1 out of 6 or more benchmarking queries. Even more alarmingly their research also found that “general-purpose chatbots hallucinated between 58% and 82% of the time on legal queries”. In a legal context, this could mean the inclusion of non-existent laws, fake case citations, or entirely fabricated clauses that have no legal standing. 

 

Inability to Understand Nuanced Legal Language and Implications 

Legal language is often deliberately precise and nuanced. Generative AI may miss subtle distinctions that can have significant legal implications. It cannot understand the broader commercial context or anticipate potential disputes that an experienced lawyer would foresee and address in the contract language. 

 

Real-World Consequences 

The risks associated with AI-generated legal documents are not merely theoretical. There have been several high-profile cases that highlight the dangers: 

 

  • In May 2023, two lawyers in the United States were fined $5,000 each for submitting a legal brief that contained fake case citations generated by ChatGPT. This incident, reported by Fortune, underscores the potential for AI to fabricate information that can mislead courts and damage legal proceedings. 
  • In December 2023, a litigant-in-person in a UK case was found to have used a generative AI tool to unknowingly generate fictitious case citations in a tax tribunal. 
  • A recent report by Thomson Reuters highlights that AI-generated contracts often contain unenforceable clauses, potentially rendering entire agreements void or subject to costly disputes. 

 

These examples demonstrate that the consequences of relying on AI for legal document drafting can be severe, ranging from financial penalties to reputational damage and legal vulnerabilities. 

 

The Importance of Human Expertise in Contract Drafting 

Given these risks, it's clear that human expertise remains crucial in contract drafting, especially for tech SMEs where contracts often involve complex intellectual property rights, data protection clauses, and specific industry regulations. 

 

Human lawyers bring: 

 

  • Legal knowledge and experience: Years of study and practice that inform every decision in contract drafting. 
  • Understanding of specific business contexts: The ability to tailor contracts to your unique business needs and industry standards. 
  • Ability to navigate complex legal landscapes: Especially important for tech companies dealing with international clients and varying jurisdictions. 
  • Ethical considerations and professional responsibility: Lawyers are bound by ethical codes and professional standards that AI cannot replicate. 

 

Balancing Technology and Human Oversight 

While generative AI may not be suitable for drafting contracts, technology still has a valuable role to play in the legal field. The key is to use AI tools that are specifically designed for legal applications and are overseen by human experts. These tools can assist with: 

 

  • Document organisation and management 
  • Initial contract review for common issues 
  • Highlighting potential risks or inconsistencies 
  • However, the final drafting, review, and approval should always involve human legal professionals who can apply their judgment, experience, and understanding of your business needs. 

 

Introducing Cloud Contracts 365: A Human-Centric Approach to Contract Drafting 

At Cloud Contracts 365, we understand the unique challenges faced by tech SMEs when it comes to contract drafting. That's why we've developed a solution that combines the efficiency of technology with the irreplaceable value of human legal expertise. 

Our contract drafting tool doesn't rely on generative AI. Instead, it uses contract templates created by experienced human lawyers, specifically designed for tech companies. This approach ensures that every contract generated through our platform is based on solid legal foundations and industry-specific knowledge. 

What sets Cloud Contracts 365 apart is our innovative approach to contract creation. We take our best-in-class templates and employ automation through our contract drafting wizard to significantly speed up and standardise the contract drafting process. This means you can create accurate, up-to-date contracts in seconds, eliminating the risks associated with cloning old contracts that may contain outdated terms. Our system not only ensures accuracy but also efficiency, saving you thousands of pounds in legal fees. 

Crucially, our contract templates are not static documents. They are continuously updated and reviewed to reflect changes in legislation and industry-specific terms. For example, this includes staying current with Microsoft-specific terms such as New Commerce Experience (NCE), Claiming Partner of Record (CPoR), and other evolving partner requirements. This ongoing maintenance ensures that your contracts are always aligned with the latest legal and industry standards. 

 

As you use our platform, you'll benefit from step-by-step guidance through the contract drafting process. This guidance isn't generated by AI – it comes directly from lawyers with significant experience in commercial and tech contracts, ensuring that your contracts are not only legally sound but also tailored to your specific business needs. 

 

Our approach addresses the limitations of generative AI by providing: 

 

  • Up-to-date legal knowledge: Our templates and guidance are regularly reviewed and updated by legal professionals. 
  • Consistency and coherence: Every contract follows a logical structure designed by experts in tech law. 
  • Contextual understanding: Our system is built to understand the nuances of the tech industry and its legal requirements. 
  • Reliability: No risk of hallucinations or fabricated content – every clause and term is vetted by human lawyers. 
  • Efficiency: Rapid contract creation without compromising on quality or accuracy. 
  • Cost-effectiveness: Significant savings on legal fees while maintaining professional standards. 

 

With Cloud Contracts 365, you get the best of both worlds: the speed and efficiency of automated processes, backed by the expertise and oversight of experienced legal professionals. This unique combination ensures that your contracts are not just quick to produce, but also robust, up-to-date, and tailored to the specific needs of your tech business. 

 

Conclusion 

While generative AI has its place in many aspects of business, the drafting of legal documents, particularly contracts, is not one of them. The risks of using AI for this critical task far outweigh any perceived benefits of speed or cost-saving. For tech businesses, whose success often hinges on the strength and clarity of their commercial agreements, it's crucial to rely on solutions that combine technological efficiency with human legal expertise. 

 

Cloud Contracts 365 offers exactly that – a platform that harnesses the power of technology to streamline the contract drafting process, while ensuring that every document is grounded in real legal expertise and tailored to the unique needs of tech businesses. 

 

Don't gamble with your company's legal foundation. Choose a solution that values human oversight and industry-specific knowledge. Explore how Cloud Contracts 365 can provide you with legally sound, efficient contract drafting that gives your business the protection and clarity it needs to thrive.