AI Drafted Contracts are the “Latest Greatest Thing!” or are They?

Generative AI contract management and drafting tools are increasingly accessible and widespread, and many companies are experimenting with these tools to draft full legal agreements. For start-ups and businesses with limited resources, the appeal is obvious: AI can produce contracts quickly and at a fraction of the cost of traditional legal drafting. What once may have required days of attorney time and high legal fees can now theoretically be generated in minutes with a simple prompt…or can it?

AI is super cool...but there are risks.

The reality is that there are significant risks. AI-generated agreements frequently contain drafting issues that ultimately make them vulnerable or legally unsound. To put it simply, AI lacks legal judgment, contextual understanding, and knowledge of specific client needs. It can generate provisions that appear polished on the surface but in reality are deeply flawed when placed under scrutiny by an experienced legal professional.

Common Issue 1: One recurring issue is the inclusion of multiple conflicting provisions. AI has no understanding of “what is actually needed” but rather uses masses of data points obtained from multiple documents. The program doesn’t “understand” what the provisions mean; instead, it is simply adapting and regurgitating those provisions into the new document.

For example, a recent AI-generated supply agreement included three different payment mechanisms for the same transaction: upfront payment, milestone-based installments, and payment upon delivery after invoicing.

With three competing payment obligations for a single transaction, the contract leaves the payor guessing or picking and choosing and thus sets the stage for future disputes.

AI contract drafting can damage your company!

Common Issue 2: Another regular issue is language that reads like legal boilerplate (e.g. standard legal language) but is, in fact, incoherent or legally meaningless. AI may generate complex wording that mimics the tone of a lawyer’s drafting, but it lacks the actual knowledge to reproduce actual contractual language. This can make agreements unnecessarily confusing and difficult to interpret.

For example, a recent AI-generated commercial contract included the following dispute resolution provision: “Any dispute, controversy, or claim arising out of or relating to this Agreement, or the breach, termination, or invalidity thereof, shall be finally settled by arbitration in São Paulo, Brazil, in accordance with the rules of the American Chamber of Commerce or other mutually agreed, renowned Chamber of Arbitrations.” Uh oh!

The dispute resolution clause above has several problems. First, it does not identify the exact set of rules governing arbitration proceedings between the parties. More importantly, there are no such rules of the “American Chamber of Commerce,” and it is unclear what would be considered a “renowned Chamber of Arbitrations.” Finally, it is highly unlikely that parties resolving a dispute in Brazil would choose to apply American-based arbitration rules. An attorney with even minimal experience in drafting arbitration provisions would not make these errors.

Be cautious and don't land here!

In conclusion, the underlying issue is that AI generates text based on patterns, not legal reasoning. It predicts what “sounds” like a contract without understanding enforceability, legal doctrine, or commercial practicality. Given the risks, companies should treat AI-generated contracts with significant caution. Despite these technological advances, the good old fashioned attorney review remains essential to make sure agreements are clear, consistent, and tailored to the business’ needs.

Curry Andrews, Attorney