Contract analysis: Difference between revisions

}}Luminaries, [[thought leader]]s and [[digital prophet]]s will tell you that machines can now read and annotate contracts, such that yon poor [[legal eagles]] are no longer needed and will shortly hacve no choice but to work as [[technological unemployment|pleasure droids]] for our transistor-based overlords. Quoth one such [[digital prophet]]:

''Three hundred and sixty thousand hours of professional work carried out in seconds''. Sounds — literally — incredible, doesn’t it? Preternaturally intelligent silicon minds scanning and processing gigabytes of diverse text in an instant and analysing it for all material quirks and issues, like Zen from ''Blake’s Seven''. [[Get your coat]], [[legal eagles]].

But let’s just stop and consider what is actually going on here: a  bank seeking to reviewing tens and probably ''hundreds'' of thousands of ''its own'' commercial loans. These loans will be rendered in the hideous, overwrought prose of the banking lawyer, to be sure, but — even allowing for template variations and [[Legal evolution|evolution]] (by which I mean periodic [[Cambrian explosion]]s  of [[flannel|flannelry]] to which not even the House of Morgan is immune), ''the contracts will all be basically the same''. If there has been a modicum of [[legal design]] applied — okay, that’s quite a big if — there will be a predictable schedule of customer details and economic variables — dates, amounts, currencies, rates, and optional elections — but the ''legal terms'', however gruesomely articulated, will be homogeneous and, in any case ''within the bank’s control'': a commercial bank with half a brain won’t ''allow'' its customers to wordsmith its standard terms. If it does, then ''that'' is the problem to be solved, not “how can I possibly understand all these varied terms I have agreed with hundreds of thousands of customers?”

Note the irony: it was only thanks to this kind of technology that we can even ''contemplate'' micro-variations to standard terms: behold the [[technology paradox]]: what Andy Grove giveth, the [[legal eagle]]’s innate appetite for pedantry taketh away. Technology that allows one to ''ignore'' the [[root cause]] of the problem and carry on anyway is ''bad'' technology.  

But we digress. In any case, “reviewing one hundred thousand commercial loan agreements” really means “processing one hundred thousand tables of structured data”. This, doubtless, would take (and cost) an ''aeon'' if assigned to a battalion of [[legal eagles]], and would in the process ''drive each of the poor buggers up the wall'', but to be clear it would require ''absolutely no judgement, let alone legal acumen''. It is a matter of transcription.

More ''potentially'' transformative are emerging “[[Artificial intelligence|artificially intelligent]]” [[contract review tool]]s. These promise to take a ''foreign'' draft, received from a counterparty, and analyse it against a pre-defined [[playbook]], together with other examples which the machine has already learned from, mark it up, and return it for completion of the negotiation.

This is a much harder stunt than reviewing your own standard terms. Legal text from random strangers can, and often does, say ''anything'', and is liable to be rendered in the sort of inventively tumid syntax that only a trained professional could confect.  

'Semantically'', human languages are fundamentally ambiguous. Machines do not ''understand'' them. That's not how the [[AI]] works. “[[Natural language processing]]” means the ''mechanical'' processing of natural language, not the ''natural'' processing of language. It is a dumb, statistical, pattern-recognising process.

So however accurate a mark-up may become, there will always be a need for a human to read and approve it. A common subject for these contract review tools is [[confidentiality agreement]]s, being as they are (a) low risk; (b) ''substantially'' standard: all confis say the same basic things; and (c) ''formally'' variable: there is no limit to the profligacy with which legal eagles can waste words in articulating generic commercial requirements.

But even here, technology disappoints. By and large it has made the existing problem ''worse''. Institutions are now ''decommissioning'' contract review systems the same way they are repatriating once offshored operations functions.<ref>Isn’t it funny how you never hear about ''cancelled'' offshore operations?</ref> It is worth investigating why.

====The problem statement====

What is the problem the contract review tool is designed to solve: [[Confidentiality agreement]]s are fiddly, but low-risk agreements that one must get through as quickly as possible to get to the fruitier deal negotiations they promise. Confis tend to be an “I’ll show you mind if you show me yours” kind of affair. But — especially in this data-obsessed world — they have buried risks if you don’t watch them carefully.<ref>The [[JC]] has a whole [[Confi Anatomy|confi anatomy]] you can peruse if you would like to know more.</ref>

So you need your [[legal eagle]]s to be on their game to stop the ''stupid'' getting in. And be assured, counterparties will throw lots of stupid at you. Let’s face facts: the fellow in charge of the [[NDA]] templates is going to be a [[golgafrinchan|Golgafrinchan]], not the organisation’s [[Top Gun Lawyer]].  

So, [[confidentiality agreement]]s come in all shapes, sizes and shades of silliness. They needn’t be longer than a few paragraphs, but our American friends are given to 15-page bunker busters which, in the main, say no more than a concise one, ''but you just never know''. Hence, the need for contract review. It is all standard stuff. But it ''is'' a faff — an excruciatingly written [[NDA]] might take an hour to review, and return. This is not exactly glamorous work, though once in a while it is strangely satisfying.

But it turns out text lovingly confected by some unknown [[legal eagle]] isn’t as easy to review as all that. Even boring syntactical things like plurals, irregular verbs and parentheticals (we lawyers ''love'' parentheticals)<ref>See what I did there?</ref> are hard to code for. In time the machine will get better, but the universe of possible ways of articulating a single idea remains infinite and, while [[legal eagles]] suffer a form of locked-in syndrome with regard to many aspects of their creativity, it does not extend to methods by which they may torture prose. When it comes to textual complexity and saying things which, [[for the avoidance of doubt]], are ''not'' in doubt, lawyers are extemporisational geniuses.  

 

Parsing the fevered language of a human lawyer requires some kind of a human sense check. You would think that could be applied by the lawyer operating the tool but, most commercial [[contract review tool]]s hire paralegals, in low-cost jurisdictions, to check the output before sending it back.

Suddenly the cost proposition that swung the business case doesn’t work: you assumed you were saving an hour [[legal]]’s time, which you unitise at, say, $250. But that is a ''nominal'' cost. It is sunk.<ref>Unless you were briefing out your confis to a [[law firm]], in which case, ''really?''</ref> A new [[confi]] coming in doesn’t generate that cost, and firing the thing out to your [[contract review tool]] doesn’t save it. The cost of your own [[legal eagles]] is fixed, and notoriously hard to [[shredding|shred]] back to your business. Legal eagles just sit there, on the firm’s dime, ''whether you use them or not''. Most work very hard, of course — the [[legal eagle]] who punches out at 5pm on the smacker on ''any'' day, let alone ''every'' day is a rare bird. He ''will'' look at that [[confi]], and anything else that needs to get done, at some stage during the day. ''[[Legal eagle]]s don’t work to rule''.<ref>As it happens, the occasional [[confi]] can be a pleasant distraction: a nice re-charger after a hard morning slogging through a series of regulatory change stakeholder [[Skype]] calls. Hey, management team: why don’t you try to get rid of all the ''stakeholder management calls''? ''There'' is a question.</ref>  

But a [[playbook]] ''buggers up'' this freedom. It chains our young eagle to the ground. Scarecely can she unfurl her wings, when the [[contract review tool]] has marked-up the document ''to rule'', cleaving to every stricture of the [[playbook]], however prudish, [[tiresome]] or nonsensical. It is like Horton the goddamn Elephant, doggedly sitting on a nest up a tree. Now bearing in mind that the whole point is ''saving her precious'' [[time is of the essence|''time'' is of the essence]], it would be ''most'' odd for our young attorney now to ''undo'' those fussy, machine-generated corrections — and so we have created a cyber version of our old friend the [[anal paradox]]. And besides, why is de-stupiding the machine’s output any more useful than de-stupiding the original draft in the first place? Did ''that'' cost get baked into the business case?