Can AI Help with Contracts? An Attorney's Perspective
In today’s fast-paced business environment, cost efficiency and speed are paramount. Business owners, particularly those operating small to medium-sized enterprises, face mounting pressure to streamline operations while managing expenses. Contracts, whether for vendor agreements, employment terms, or mergers, form the backbone of commercial transactions but often come with hefty legal fees. Enter artificial intelligence (AI), a technology promising to revolutionize contract drafting, review, and management. From a cost-cutting standpoint, AI offers tantalizing benefits. But its limitations warrant scrutiny, and users should be well aware of the risks.
The Promise of AI: Cost Savings and Speed
AI-powered tools, such as contract lifecycle management (CLM) platforms like Ironclad, Kira Systems, and LawGeex, have transformed how businesses approach contracts. These platforms leverage natural language processing (NLP) and machine learning to automate tasks traditionally performed by attorneys, including drafting, clause analysis, and risk assessment. For business owners, the appeal is clear: reduced legal costs and accelerated timelines.
Cost Reduction
Legal fees for contract work can be prohibitive. According to the American Bar Association, small businesses spend an average of $7,000 to $30,000 annually on outside counsel for contract-related matters. AI tools offer a cost-effective alternative. For example, platforms like LawGeex claim to review standard contracts in minutes, identifying problematic clauses at a fraction of the cost of human review, sometimes as low as $100 per contract compared to $500-$1,000 for attorney time. Subscription-based models further democratize access, allowing businesses to manage multiple contracts without engaging counsel for every document.
Speed and Efficiency
Time is money, and AI delivers speed. Drafting a NDA manually might take an attorney two to four hours, while AI tools like Ironclad claim to generate a tailored NDA in under 10 minutes using pre-approved templates. For business owners negotiating deals under tight deadlines, this efficiency can be a game-changer. AI also excels at scale, analyzing thousands of contracts for due diligence in mergers and acquisitions. (A task that once required weeks of associate labor). Kira Systems, for instance, claims to reduce due diligence time by up to 70%.
Empowering Business Owners
Beyond cost and speed, AI empowers non-lawyers to handle routine legal tasks. Tools like Rocket Lawyer and LegalZoom provide user-friendly interfaces for generating basic contracts, enabling entrepreneurs to create legally sound documents without immediate attorney involvement. These platforms use AI to customize templates based on user inputs, ensuring compliance with state-specific regulations. For startups with lean budgets, such tools bridge the gap between legal needs and financial constraints, allowing founders to focus on growth rather than legal overhead.
AI's Legal Nightmares: When Algorithms Go Awry
While AI’s benefits are undeniable, its misuse has led to high-profile blunders, underscoring the need for caution. Attorneys and business owners alike have learned the hard way that AI is not a substitute for human judgment.
Hallucinated Citations Haunt Courtrooms
In a recent case that underscores the growing pitfalls of AI in legal practice, a California judge, Michael Wilner, encountered a brief riddled with fabricated citations, as reported by MIT Technology Review. The attorneys, relying on AI tools like CoCounsel, Westlaw Precision, and Google Gemini, submitted arguments citing nonexistent articles, prompting judicial frustration. When pressed for clarification, the firm doubled down with a new brief containing even more errors, highlighting AI's propensity for "hallucinations"—generating convincing but entirely false information. This incident, part of a broader trend infuriating judges across courtrooms, illustrates a critical flaw: AI lacks the ability to verify the accuracy of its outputs against real-world legal sources, risking case integrity and client outcomes.
Phantom Clauses in the Machine
A chilling revelation from Stanford’s Human-Centered AI Institute further exposes AI’s legal frailties, showing that legal AI models hallucinate in at least one out of every six responses. In a simulated due diligence scenario for a merger, researchers tested leading legal AI tools on contract analysis. The models repeatedly misread critical clauses or fabricated nonexistent provisions, such as imaginary termination rights or liability limits, leading to dangerously inaccurate risk assessments. As detailed in the Stanford HAI study, these errors could spell financial disaster in real-world deals, highlighting AI’s critical blind spot: it cannot reliably decipher complex contractual subtleties without vigilant human oversight.
Ethical Issues in AI-Assisted Advocacy
In a stark reminder of AI’s professional perils, a federal judge in 2025 considered sanctions against attorneys who relied on an AI tool to draft a court filing in a prison conditions case, as reported by ABC News. The AI-generated brief included fabricated case law and inaccurate legal arguments, which the attorneys failed to verify before submission. This oversight drew sharp judicial scrutiny, threatening penalties and reputational damage. The case highlights the ethical imperative under Model Rule 1.1, which mandates that lawyers maintain competence by rigorously validating AI-generated work, lest they jeopardize client trust and judicial integrity.
A Warning for AI-Driven Contracts
The allure of AI in drafting contracts and business documents is undeniable, promising speed and efficiency in a high-stakes world. Yet, these cautionary tales reveal a darker truth: AI’s penchant for inventing phantom clauses, conjuring false citations, and misleading even seasoned professionals can lead to catastrophic consequences. From unenforceable agreements to courtroom sanctions, the risks of relying on AI without meticulous human oversight are stark. Business owners and attorneys alike must heed this warning: AI is a tool, not a substitute for expertise. Failing to scrutinize its outputs can unravel deals, erode trust, and invite legal nightmares that linger long after the algorithms fade.
A Collaborative Approach: AI and Legal Expertise as Partners
AI’s value lies in its ability to complement, not replace, legal expertise. Business owners can leverage AI to reduce costs and accelerate routine tasks, but every AI-generated output, whether a draft contract or risk analysis, must be reviewed by an attorney to ensure compliance, accuracy, and strategic alignment. This collaborative approach delivers efficiency while safeguarding against errors.
Best Practices for Business Owners
To integrate AI effectively with legal oversight, business owners should:
Use AI as a Starting Point: Employ platforms to generate initial drafts of standard contracts (e.g., NDAs, service agreements), but always engage counsel to review and customize these drafts for compliance with local laws.
Combine AI with Attorney Review: Use CLM tools to flag potential issues in contracts, then rely on attorneys to interpret and address these findings, particularly for high-stakes or complex agreements.
Educate Teams on AI’s Role: Train staff to view AI as a tool for efficiency, not a substitute for legal advice, ensuring all AI outputs are escalated to counsel for validation.
Partner with AI-Savvy Firms: Work with law firms that use AI to enhance efficiency while maintaining rigorous oversight, offering cost-effective services backed by expertise.
Understand AI’s Limited Context: Recognize that AI tools typically have not accessed your business’s existing contracts. Without this context, AI cannot ensure new drafts are free of conflicts with prior agreements. Attorneys must review all relevant contracts to identify and resolve potential inconsistencies, ensuring alignment across your contractual obligations.
The Attorney’s Evolving Role
For lawyers, AI is an opportunity to redefine their value. By delegating repetitive tasks to AI, attorneys can focus on strategic counseling, negotiation, and risk mitigation, areas where human judgment is indispensable. Firms that master this integration can deliver high-quality services at lower costs, strengthening client relationships.
Conclusion
AI offers business owners a powerful tool to reduce the cost and time of contract management, from drafting NDAs to conducting due diligence. When paired with legal expertise, AI platforms enable efficiency without sacrificing quality. However, horror stories of unenforceable contracts, missed clauses, and ethical breaches demonstrate the dangers of using AI without attorney oversight. The optimal approach is clear: AI and legal expertise must work in tandem. By leveraging AI for initial tasks and relying on lawyers for review and customization, business owners can achieve cost savings, speed, and confidence in their contracts. In an era of technological disruption, the partnership of AI and human insight remains essential for success. For those tempted to let a “ChatGPT’d” contract loose in the wild, consider Novel Law, a cost-effective beacon of legal expertise that polishes your AI-drafted docs into ironclad agreements.
Minnesota’s New Data Privacy Law: A Corporate Survival Guide from Your Friendly Neighborhood Boutique Firm
The Minnesota Consumer Data Privacy Act (MCDPA), effective July 31, 2025, is approaching, and it’s time to prepare. As a boutique law firm dedicated to personalized service with the expertise to protect your interests, we’re here to guide you through this new regulation. This overview will help ensure your organization is ready to comply, avoiding any surprises from the Attorney General’s office.
Understanding the MCDPA
Signed into law on May 24, 2024, by Governor Tim Walz, the MCDPA positions Minnesota as the 19th state to enact comprehensive data privacy legislation. It establishes clear rules for how businesses must handle Minnesotans’ personal information. Think email addresses, purchase histories, or even those targeted ads that seem to know your hobbies a little too well.
The law applies to businesses that either: (1) process personal data of 100,000 or more Minnesota consumers annually, or (2) derive at least 25% of their revenue from selling data and handle data from 25,000 or more consumers. If your organization fits these criteria, compliance is non-negotiable.
Key Provisions and Implications
The MCDPA empowers consumers with significant rights, including the ability to access, delete, or opt out of the sale of their personal data. Additionally, individuals can challenge automated profiling decisions such as those affecting loan or job applications, if they believe the process was unfair. These rights reflect Minnesota’s commitment to transparency and fairness.
For businesses, even smaller ones, there are responsibilities. While some exemptions exist, most companies cannot sell data without explicit consent. You’ll also need to maintain a detailed inventory of the data you collect and ensure your privacy policies are clear and accessible. Non-compliance risks enforcement actions from the Attorney General, which could lead to penalties.
Why Compliance Matters
Consider this scenario: It’s summer 2025, and a data breach exposes your customers’ information. Without proper safeguards, an MCDPA violation could escalate costs and damage your reputation. The law serves as a reminder to treat personal data with care and accountability.
Fortunately, if your business complies with other state privacy laws, such as those in Colorado or Virginia, you’re likely familiar with many of the MCDPA’s requirements. However, its unique elements, like the profiling provision, require careful attention to ensure full compliance.
Steps to Prepare
Start now to stay ahead. Conduct a thorough data inventory, update your privacy notices, and implement a streamlined process for handling consumer opt-out requests. Adopting a “privacy by design” approach not only ensures compliance but also demonstrates your commitment to protecting customer trust.
Postsecondary institutions have an extended timeline until 2029, providing additional time to align systems and processes. Use this period strategically to build a robust compliance framework.
Our Commitment
The MCDPA underscores Minnesota’s focus on safeguarding consumer data, offering businesses an opportunity to strengthen operations and enhance credibility. At Novel Law, we’re ready to assist you with tailored advice and practical solutions. Contact us to discuss how we can support your compliance efforts, because staying proactive is far better than addressing issues after the fact.
Novel Law: Redefining Corporate Legal Services for the 21st Century SMB
At Novel Law, we believe that every small and medium-sized business (SMB) deserves access to high-quality corporate legal services without the prohibitive costs traditionally associated with them. Our philosophy is simple: democratize legal support to empower businesses to thrive in a competitive, fast-paced world. By leveraging innovative processes, technology, and a client-centric approach, we’re breaking down the cost barrier to provide foundational corporate legal solutions that are accessible, efficient, and tailored to the unique needs of SMBs.
Our Philosophy: Legal Empowerment for All
The legal landscape can be daunting, especially for SMBs that lack the resources of larger corporations. Too often, businesses delay or forego critical legal steps—such as forming entities, drafting contracts, or ensuring compliance—due to high costs or complexity. This creates vulnerabilities that can jeopardize growth or even survival. At Novel Law, we see this as an injustice. Our mission is to level the playing field by offering affordable, transparent, and streamlined legal services that prioritize the foundational needs of businesses.
We embrace a proactive, not reactive approach. Instead of waiting for legal issues to arise, we help clients build a strong legal foundation from the start. For already formed businesses, we dive deep into existing structures, contracts, and compliance frameworks to ensure everything is clean, optimized, and ready for growth. This means identifying and resolving potential liabilities, streamlining operations, and preparing businesses for opportunities like fundraising, partnerships, or expansion. By combining cutting-edge technology with seasoned legal expertise, we reduce overhead and pass those savings directly to our clients.
Our Value Add: Why Clients Choose Novel Law
Clients choose Novel Law because we deliver exceptional value without compromising quality. Here’s what sets us apart:
Cost Efficiency Without Sacrifice: We’ve reengineered the traditional law firm model to minimize inefficiencies. By using automation for repetitive tasks and focusing on high-impact legal work, we deliver premium services at a fraction of the cost of traditional firms.
Transparency and Simplicity: Legal jargon and opaque pricing can alienate clients. We provide clear, upfront pricing and communicate in plain language, ensuring clients understand every step of the process.
Tailored Solutions for SMBs: Unlike one-size-fits-all legal services, we customize our offerings to fit the specific needs of each client. Whether it’s forming an LLC, drafting shareholder agreements, navigating compliance, or auditing an existing business for growth readiness, we focus on what matters most to your business.
Client-Centric Service: Our clients aren’t just case files—they’re partners. We take the time to understand their goals, challenges, and industries, offering personalized guidance that aligns with their vision.
Speed and Scalability: In the 21st century, businesses move fast. Our streamlined processes ensure quick turnarounds, so clients can focus on growth rather than waiting on legal paperwork.
Growth-Ready Audits: For established SMBs, we specialize in diving into existing operations to ensure everything is legally sound. We review contracts, corporate governance, and compliance to eliminate risks, resolve discrepancies, and position the business for seamless growth or investment opportunities.
Our clients appreciate this approach because it allows them to secure their legal foundations—or clean up existing ones—without draining their budgets or diverting focus from their core operations. From startups to established SMBs, we’ve earned trust by delivering results that are both practical and impactful.
Why This Matters for SMBs in the 21st Century
The SMB market is the backbone of the global economy, driving innovation, employment, and community growth. Yet, in today’s dynamic environment, SMBs face unprecedented challenges: rapidly evolving regulations, increased competition, and the need to scale quickly in a digital-first world. Legal missteps—whether it’s a poorly drafted contract, a compliance oversight, an unclear ownership structure, or unresolved issues in an existing business—can derail progress or lead to costly disputes.
At the same time, the traditional legal industry hasn’t kept pace with the needs of modern SMBs. High hourly rates, bloated processes, and a focus on large corporations leave smaller businesses underserved. This gap is where Novel Law steps in. We’re relevant because we address the unique realities of the 21st-century SMB:
Affordability Enables Growth: By reducing legal costs, we free up capital for SMBs to invest in product development, marketing, or hiring—key drivers of growth.
Agility Matches Market Demands: Our efficient processes align with the fast-paced nature of modern business, ensuring SMBs can act swiftly without legal delays.
Compliance in a Complex World: With regulations constantly shifting, we help SMBs stay compliant without needing to navigate complex legal frameworks alone.
Empowering Entrepreneurs: Many SMB owners are first-time entrepreneurs. We provide the guidance and confidence they need to build or refine their businesses on a solid legal foundation.
Preparing for Scale: For established businesses, our deep-dive audits ensure that all legal aspects are clean and optimized, making them attractive to investors, partners, or acquirers and ready for the next stage of growth.
Join the Novel Law Movement
At Novel Law, we’re not just a law firm—we’re a partner in your success. Our commitment to reducing the cost barrier for corporate legal services is about more than affordability; it’s about empowering SMBs to compete, innovate, and grow in the 21st century. Whether you’re starting fresh or scaling an existing business, we’re here to ensure your legal foundation is rock-solid and ready for what’s next.
Contact Novel Law today to learn how we can support your business’s foundational legal needs or audit your existing operations for growth. Together, let’s build a stronger, more resilient future for your SMB.