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Allen & Overy has created an artificial intelligence contract negotiation tool, as the magic circle law firm pushes forward with technology that threatens to disrupt the traditional practices of the legal profession.
The UK-headquartered group, in partnership with Microsoft and legal AI start-up Harvey, has developed the service which draws on existing templates for contracts, such as non-disclosure agreements and merger and acquisition terms, to draft new agreements that lawyers can then amend or accept.
The tool, known as ContractMatrix, is being rolled out to clients in an attempt to drive new revenues, attract more business and save time for in-house lawyers. A&O estimated it would save up to seven hours in contract negotiations.
More than 1,000 A&O lawyers are already using the tool, with five unnamed clients from banking, pharma, technology, media and private equity signed up to use the platform from January.
In a trial run, Dutch chipmaking equipment manufacturer ASML and health technology company Philips said they used the service to negotiate what they called the “world’s first 100 per cent AI generated contract between two companies”.
The legal sector is grappling with the rise of generative AI — technology that can review, extract and write large passages of humanlike text — which could result in losses of jobs and revenues by reducing billable hours and entry-level work for junior staff.
But David Wakeling, A&O partner and head of the firm’s markets innovation group, which developed ContractMatrix, said the firm’s goal was to “disrupt the legal market before someone disrupts us”.
“If we look at the impact of AI in law, it is happening and it’s likely to happen in a pretty big way in the next few years, and we are seeing it as an opportunity,” he added.
The firm is also planning to offer the service to the clients it gains from its $3.5bn merger with US outfit Shearman & Sterling, said Wakeling, which is due to complete by May.
The legal sector has been one of the fastest industries to adopt and experiment with generative AI technology off the back of the success of Microsoft-backed OpenAI’s ChatGPT and Google’s Bard. However, while some firms have heavily invested in new products, many are waiting to see what tools will win out.
A&O had previously introduced an AI-powered chatbot for use within the firm. Other law firms including Addleshaw Goddard, Travers Smith and Macfarlanes have also rolled out generative AI pilots internally.
A&O would not detail specific financial terms around the contract negotiation tool but said clients would pay an annual subscription fee per licence, with a minimum purchase of five users. The law firm is aiming to have subscriptions with hundreds of companies by the end of next year.
The product will also be available more widely to companies through Microsoft’s enterprise software marketplaces, Azure and AppSource, in the first half of 2024. Microsoft said the project would “deliver significant value to [A&O] customers”.
Concerns have been raised around using generative AI in the legal sector because of issues related to data privacy and client confidentiality, as well as so-called hallucinations, where a model generates incorrect information.
Wakeling said that hallucinations could happen with ContractMatrix, but they were significantly reduced because of the templates its underlying technology had been trained on. He added that client data was also not used to train the AI models that underpin the software, and inputs and outputs are encrypted.
However, if clients wished to make the tool more effective and personalised, A&O said it could work with a business to fine-tune the model and train on their data.
“We are seeing it as a big open market opportunity . . . because in-house lawyers need efficiency and productivity gains as well,” Wakeling added. “They can be that much quicker and that much more efficient than their competitors. And you would expect that to be attractive to clients because it’s generally a bit cheaper, a bit faster, a bit better.”
Additional reporting by Tim Bradshaw
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