#201 - AI & Business Contracts - should you go there?
Let’s talk about AI and business contracts. If you're like me, you're always on the lookout for tools that could streamline our work processes, save us time and of course, save us a bit of money. But when it comes to something as critical as business contracts, should we actually entrust this task to AI? This discussion is more important than ever, considering AI is becoming an indelible part of our lives, whether we like it or not.
To give you some context, when I talk about AI in this realm, I refer to the likes of generative AI and anthropic AI, such as chatbots like ChatGPT and Claude AI. They're great at churning out content, but when the stakes are high and involve the legalities of business contracts, there's a lot to consider. Let's unpack this a bit.
The Role of AI in Developing Business Contracts
Firstly, should AI take the lead in creating business agreements? For me, that's a hard no. AI is not designed to be current with the law. It openly admits that its knowledge is roughly 18 months outdated. So, relying on AI to draft legally accurate contracts is risky at best.
Furthermore, legal documents need to capture the nuances of your business—the way you operate, your unique challenges and what's important to you. This is where human judgment and expertise come into play. I've seen AI-generated contracts come across my desk, riddled with outdated legalese and irrelevant references. Simply put, they're not fit for purpose, at least from a legal standpoint.
AI for Automating Business Contracts
Now, what about using AI for automation, perhaps by updating contracts with client details? I'm more sceptical here. There's a significant risk of breaching confidentiality and violating privacy laws. Once you feed data into an AI system, that information is no longer confidential.
Reputable CRMs, like Dubsado, can help bypass this issue, offering automation solutions that comply with privacy laws and ensure your data is secure. I'm all for using technology to improve efficiency, but it has to be done judiciously and within legal bounds.
AI for Contract Review and Analysis
But does AI have a place in reviewing or analysing contracts? The short answer: It might, if used with caution. AI can potentially help save time by identifying specific clauses or red flags, provided you’ve redacted any confidential information beforehand.
Asking AI targeted questions, like identifying warranties or termination clauses, could indeed aid efficiency. However, this requires you to have a fair understanding of what you're looking for. Thus, while AI can assist in analysis, a thorough human review remains essential.
The Positive Side of AI
Despite the pitfalls, AI does hold potential for business owners—especially when it comes to improving efficiencies. For tasks like brainstorming content ideas or generating social media posts, AI can provide valuable assistance. However, always remember that AI's output will only be as good as your input, so a good degree of oversight is still necessary.
While AI offers some intriguing prospects, when it comes to the complexities and nuances of business contracts, I would advise caution. The technology isn't yet advanced enough to replace the tailored, up-to-date expertise required in legal practices.
As we tread this fast-moving landscape, let's focus on harnessing AI to benefit our businesses, but always within the parameters of due diligence and legal compliance.
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[00:00:00] Tracey: Hello everyone. Welcome to episode 201 of the Rise Up in Business podcast. This is the first episode since we have switched to fortnightly episodes. And I'm so excited to be bringing this one to you, particularly because now I'm addressing some of your questions at the end. So stay tuned until the end.
[00:00:37] And I'll be diving into answer two questions that I've received this week. Today, I'm going to talk about AI and business contracts. Should you go there? This really is an important topic to discuss, particularly because whether you love or hate AI, it's not going anywhere. It's here to stay. We've got to be honest.
[00:00:57] So my view is we may as well understand it to some extent and know how to leverage it if it suits our business or if it's on brand for us. When I talk about AI, I'm talking about the generative AI and the anthropic AI. So things like chat GPT and Claude AI, for example, they're the context of this discussion today.
[00:01:20] As soon as I start researching into AI and the different types of AI, my gosh, it's like you almost need a PhD to understand it. And I do not understand it to the depth that it goes to. And I suspect probably most of you lovely listeners don't either because it seems to be. Very big hole of knowledge that once you go down there, you're not coming out anytime soon.
[00:01:45] So I just wanted to preface at the beginning, the context of AI that I'm talking about. And it really is that generative type of AI and the anthropic that comes up a lot in discussions that I have with my clients. So let's talk about [00:02:00] AI and whether it has any place. When it comes to your business contracts, I don't know about you, but I use AI to some extent in my business, I use AI to produce transcripts of my Zoom meetings with my clients.
[00:02:17] I use AI for brainstorming when I'm tossing around ideas for content, or if I'm tossing around an idea for an article or a blog, I use it for brainstorming and inspiration. That's pretty much the extent of how I use it though. I have clients that use AI for things like developing content, social media posts, articles, blogs that they might share on their website.
[00:02:43] But the clients that I talk to about it, don't simply go to AI and say, here, can you draft me my social media for the week? They actually have. Brand voice to insert. They've got thoughts and unique ideas to insert. So they give a whole heap of data or information and they ask the AI to produce something based on that.
[00:03:04] So along that vein, the idea for this podcast discussion came to me a little while ago when I was approached by someone who wasn't a client. There was someone completely new to my business and said, I have developed this contract for my business using AI.
[00:03:20] Can you please have a look over it? Tell me if it needs any changes. So really, they were trying to cut costs and I'm completely respectful of budget and costs, but they just wanted me to go in and make sure it was lawful, legally binding and had all the correct law. So that was really interesting to me.
[00:03:37] I've never been approached in that way before. And even if this person hadn't said to me, I used AI the second I laid my eyes on this document, I knew straight away where this had come from because it was awful. It was written in archaic language, so something from the 1920s [00:04:00] over in England. It had really old-school headings.
[00:04:05] It had outdated legal references. Didn't reference the Australian consumer law. It wasn't able to nuance the sequencing that's required under the Australian consumer law for our contracts to be legally binding. And it goes without saying clearly it wasn't on brand. So it was an awful document. And I
[00:04:27] Took the time to provide feedback to this person and provided a fee proposal for what it looks like for us to develop this from scratch and unfortunately, we haven't heard back from that business owner. I've got to say it's a bugbear of mine when people don't have the manners or the common courtesy to at least say thank you to business owners.
[00:04:47] When we take time to look at something and prepare a proposal. bit of a sidetrack here on this podcast episode, but it really is a bugbear of mine to not have the decency to say, thanks so much. I'm going in another direction or thanks so much. Doesn't suit me right now just to say thank you and acknowledge the work and time.
[00:05:04] Another person's put into something. This comes up a lot when I talk to my creative clients too, because I know it's a bugbear for them. When they put time and effort into creating beautiful proposals for people to just go to them. So please don't do that. You'll hear me say here a lot that be the client you want to attract, be a good client, be a respectful, courteous person with good manners.
[00:05:25] And that's who you'll attract. But anyway, I digress. So I haven't heard from that person. No surprises, I suppose. But It prompted me to think about this being a topic that I wanted to bring on to the podcast so that we can start the conversation around AI and its place with our business documents.
[00:05:42] So whilst there is a place for AI in businesses when we talk automation and we talk social media and we talk content inspiration all of the things the million dollar question is does AI have a place when it comes to business contracts and I'm going to dive into this because in true lawyer fashion.
[00:06:04] My answer is it depends so it depends on what we mean when we say does it have a place with business contracts and that's either going to be, does it have a place when we're developing our business contracts or does it have a place when we're inputting client data into our contracts and automation or does it have a place when we talk contract review.
[00:06:24] And analysis. So they are the three areas I'm going to address because they're the most meaningful areas I think that can bring value to you as a small business owner. So the first one, does AI have a place when we're developing our business agreements?
[00:06:40] It's a hard no from me. I'm going to explain why. AI is not designed to be up to date with the law. It openly says that its knowledge is about 18 months outdated, so not current. It doesn't hold itself out to be current, so it's not current, so we can't rely on it to be giving current advice. It's not on brand.
[00:07:01] You can try to get it to draft in plain English, but it's not on brand and it can't nuance is what I've discovered. And what it also can't do is read your mind to understand. how your business operates, what your pain points are, and what's important to you. And what I've discovered in playing around with AI is the output is only as good as the input.
[00:07:22] So if you don't know what clauses you're asking it to include, if you don't know what to look for, and if you don't know what the up to date legal requirements are, you can't expect AI to output that. So we can't input it because you don't know. So it can't output it with any reliability. So there's that.
[00:07:40] We don't know what we don't know as business owners, of course. So you don't know what your contract needs to have included. So you don't know what you're looking for when you're looking at what AI produces for you. So I feel like you're going in blind, asking AI to draft a contract, whether it's a confidentiality agreement, non [00:08:00] disclosure agreement, client services agreement, website terms, you don't know what to look for.
[00:08:04] So you don't know if what AI is giving you is right. And unless you're all over the law in these areas, you don't know if what it gives you is current either. There are a lot of changes on the legal landscape that are impacting small businesses at the moment and in next week's podcast episode, I'm actually going to dive into the most important legal changes right now that you need to know about as a small business owner.
[00:08:26] So stay tuned for that. we don't know what we don't know. So we don't know if what we're getting from AI is any good. That's the truth. So for that reason, I'm saying it's a hard no from me when it comes to using AI to develop your contracts, your client service agreements, your employment agreements, any of them.
[00:08:45] It's a hard no from me. But that brings me to the second area that I want to address. And that is once you've got your properly tailored contracts for your business, does AI have a place in automating or issuing those contracts or updating with client details or nuancing with client details?
[00:09:04] I hear clients talk a lot about automation. Some people love automation and think Anything at all that they can automate. They want to automate. I think automation like AI has its place, but we need to be mindful and intentional about how we use it because there are problems with it. And there's risk as well.
[00:09:23] I might say. So I think when it comes to AI for inputting data into contracts or automating, for me, it's a no. But I think that CRMs have a place. So customer relationship management tools, a lot of my clients use Dubsado, for example, which in my view, legally is a better way to go about automating and streamlining how you're entering client data into those contracts and documents.
[00:09:53] Once they've been drafted, not AI, one of the. Big things I want to flag here [00:10:00] is when you are inputting data into AI, you might be breaching confidentiality obligations you have to clients, and you might be breaching the privacy laws. So this is a big one. So as soon as you input that data into AI, you're disclosing it.
[00:10:16] It's not confidential anymore. So you're in breach potentially. So there's a real, concern about how you use AI. And this is why I'm saying for customer data and automation, AI is not the way to go with your CRMs, like Dubsado, for example, you could be confident that they comply with the privacy laws and your data is secure.
[00:10:38] So by ensuring you're using reputable CRMs, you're not breaching privacy legislation and you're not breaching confidentiality. That's a big one, so keep that in mind. But then it comes down to the third area I wanted to talk about,
[00:10:49] which is whether AI has a place for contract review or analysis. And my answer here is it might. It depends what you're looking for. So if you have a document that you want to upload into an AI system, so let's say it's Claude AI, the anthropic AI, it may be that you can redact the confidential and sensitive data in the document and ask questions.
[00:11:12] So it might be that you're looking for a particular red flag, or you're looking for a particular clause. And you're using the AI to save time and increase your efficiency. So it might be something like once you've redacted the sensitive and personal data, it might be, what are the warranties that I'm agreeing to here?
[00:11:31] What is the termination process here? Can you help me identify the steps for dispute resolution? For example, that could be a useful way to quickly identify throughout the entire document where those things are coming up. So you can really quickly consider whether or not this is a contract you can agree to, whether or not there are some terms here that you need to negotiate.
[00:11:54] For example, this isn't really applying to using AI for your own [00:12:00] documents. This is using AI to analyze contracts or documents that you're given to help you make an assessment as to whether you want to agree to that. It happens a lot when clients come to me and say, look, I've been given a contract by a large client.
[00:12:14] They don't use small business terms and conditions. They only use their own. Therefore I need to make sure I can agree to this. I do this a lot for clients. I will review and advise. Saying, yes, this is fine. Here's the six key issues that you really need to be aware of, or red flag here and here.
[00:12:29] We need to be mindful of that. Or these particular clauses are really inconsistent with the way you operate. So I give that advice. So it may be that you can ask those questions of a clawed AI, for example, if you know what you're looking for. And that's the caveat here. I think there is a place for AI to improve efficiencies.
[00:12:49] If you know what you're looking for. You can't ask it something like, is this a good contract? Should I sign it? Because like I said a moment ago, what I've discovered is that the output from AI is only going to be as good as the input that you can input into it. So you have to ask really targeted questions.
[00:13:07] And so that means that you really need to have an understanding of contracts, red flags, key essential terms in order to make the most of using the AI. So I hope you have found that helpful in answering the question. I think you'll have no doubt gauged by now that my overarching position is no, don't use AI if you are developing your own contracts, and don't use it for issuing client contracts or inputting your client data.
[00:13:37] And I've explained why, but there are uses for AI in business, and I think that it could be really exciting if we use it and harness it properly, being really aware of the risks around intellectual property, the fact that the advice or input that it gives us can't be relied on without vetting it and checking it, particularly references to the law, [00:14:00] but if we're looking at things like improving Efficiencies and cutting time when it comes to brainstorming and content ideas, then we may be able to use it to benefit the business in that way.
[00:14:13] I'm now going to dive into two questions I've been asked this week, which is what I'm doing now on these refreshed episodes of the podcast since we reached episode 200 a fortnight ago. So the first question that has come up this week that I thought would be worth sharing with you is, do I review employment contracts?
[00:14:31] And, oh my goodness, yes. Like most contracts that small businesses need, I absolutely review them and give you honest hand on heart advice and comments as to whether or not it's great. It's good. It's not great. Needs to be redone, whatever it is. I'm always honest. The law is always changing and the employment law landscape is no exception to that.
[00:14:51] And in next fortnight's episode, I'm going to be diving in to share with you. The most important legal updates that small businesses need to know right now. And it'll be no surprise to know that employment law gets a big mention in there. So do I review them? Yes, I do. I also draft them for you. So employment agreements, contractor agreements, advice on superannuation, advice on working from home provisions, all of that is in my wheelhouse.
[00:15:17] The second question, which is really interesting and a great question is what are click wrap terms and conditions? And oh my goodness, this is one of those times where I talk about this so often. At least I feel like I do. I feel like a rabbit on about this all the time. But as we all know, with the algorithm, with Instagram and LinkedIn, not everyone sees our content all the time.
[00:15:39] So whilst I feel like I talk about it all the time, you may not have ever heard me mention it. So what are click wrap terms and conditions? Clickwrap applies when you are selling something on your website, services, courses, products, or whatever it might be. And when you get to the payment page, after someone's entered their details before they can hit buy now or pay [00:16:00] now there's a box and they need to tick the box to say by ticking this box, I agree to these terms and conditions.
[00:16:07] Those friends are the clickwrap terms. Click the box. That means they're legally binding. So it's when you tick the box to agree to terms and conditions. I hope you have enjoyed this episode. I've loved sharing my thoughts on AI in the context of business documents with you.
[00:16:23] And I really love sharing with you answers to questions that I'm asked. So if you have questions, if there's something that you would love to have me address on the podcast. Please reach out via email, website, Instagram and LinkedIn. I'm very active on all of those places. And I would love to hear from you.
[00:16:40] Thank you so much for listening. catch you next time.
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