The Fine Print: Understanding the Risks of AI-Generated Contracts

Artificial Intelligence (AI) has revolutionized numerous industries, streamlining processes, reducing errors, and increasing efficiency. One of the areas where AI is increasingly being utilized is contract drafting. AI-powered contract drafting tools promise to make the contract creation process faster and more accurate. However, it's essential to exercise caution when using AI for this purpose. In this article, we'll explore the risks and considerations associated with using AI to write contracts.

Lack of Legal Expertise

AI systems, despite their capabilities, lack the deep legal expertise and nuanced understanding of contracts that human lawyers possess. Contracts can be highly complex, with terms and conditions that require a thorough understanding of legal implications, regulatory requirements, and industry standards. Relying solely on AI for contract creation can lead to oversights and legal issues that a human lawyer might have caught.

Misinterpretation of Context

AI systems operate based on patterns and data, and while they can analyze vast quantities of text, they may misinterpret the context in certain situations. Contracts often require a nuanced understanding of the parties involved, the transaction specifics, and the legal environment. AI's potential to misinterpret context can lead to drafting errors and legal disputes.

Cookie-Cutter Contracts

AI contract drafting tools often rely on templates and standardized clauses to create contracts quickly. While this can be efficient for routine agreements, it can also result in contracts that lack the necessary customization for the unique circumstances of a particular deal. Cookie-cutter contracts may not adequately protect your interests or address specific issues.

Data Security Concerns

Using AI for contract drafting often involves sharing sensitive information with AI service providers. This raises concerns about data security and confidentiality. You must ensure that the AI tool you use complies with data protection regulations and industry standards to protect your clients' and your own sensitive information.

Liability and Accountability

When a contract is drafted by an AI system, questions of liability and accountability arise. If a contract drafted by AI results in a dispute or financial loss, who is responsible – the AI tool provider, the user, or both? Determining liability in such cases can be complex and legally challenging.

Ethical and Bias Concerns

AI systems can inadvertently perpetuate biases present in the data they were trained on. When drafting contracts, these biases could manifest in unfair terms or discriminatory language. Ensuring that AI-generated contracts are free from bias and adhere to ethical standards requires careful oversight.

Regulatory Compliance

Contracts often need to adhere to specific industry regulations and legal standards. AI systems may not stay current with the evolving legal landscape, potentially resulting in non-compliant contracts. It's essential to have human lawyers review AI-generated contracts to ensure they meet all regulatory requirements.


While AI has the potential to transform contract drafting by making it faster and more efficient, there are significant risks and considerations to keep in mind. It's essential to view AI as a tool to assist human lawyers rather than a complete replacement. Clients should continue to use human lawyers for their legal needs, especially when dealing with complex, nuanced, or emotionally charged matters that require human judgment, ethics, and the personal touch that AI cannot provide.

For more information about how RC Kelly Law Associates can help you with your next contract, visit www.rckelly.com or call us at 215-896-3846.