The Risks of Using AI for Contract Drafting and Review

AI is changing the legal world fast — tools that review documents on their own and platforms that write full contracts seem very helpful. Many businesses like the idea of AI because it can save time and money. But using AI for important, binding contracts can be risky, and mistakes might lead to costly problems later.

Contracts manage business relationships, decide who is responsible for what, and set rules for what happens when things go wrong. If a contract has errors, missing parts, or unclear language, that can lead to lawsuits, regulatory trouble, or big financial losses. That’s why legal professionals caution against depending only on AI for contract work. In this blog, we cover the key risks of using AI to draft and review contracts—and explain why human legal oversight is still essential.

AI Cannot Replace Legal Judgment

AI tools do not possess legal reasoning, despite being designed to mimic human writing. A contract is not just a collection of clauses. It is a strategic tool that statutes, case law, and industry norms shape. AI might produce text that looks good but will fail to read jurisdictional nuances, litigation risk, or fairness principles.

For example, an AI tool might write an indemnity clause that looks correct but leaves out important legal rules in certain industries. Without a real lawyer’s judgment, a contract can look good on paper, but leave your business at risk in practice.

AI can process information, but it can’t replace the experience, judgment, and strategic thinking of a skilled lawyer.

Incomplete or Outdated Legal Knowledge

AI models are trained on large datasets, but their accuracy is only as good as the information available at the time of training. They lack real-time updates on new statutes, court decisions, or regulatory changes.

If AI writes a job contract without the latest Texas labor laws or federal rules, it could cause legal problems, fines, or worker complaints. A human lawyer routinely stays current, which AI cannot do by itself.

Overgeneralization and Boilerplate Problems

AI tends to generate generalized one-size-fits-all provisions. While boilerplate language helps start a draft, every deal has special risks. For example:

• A restaurant franchise agreement needs clauses about food safety and brand integrity.
• A construction subcontract requires detailed language about delays, change orders, and lien rights.
• A technology licensing deal must include who owns the ideas, rules for cybersecurity, and data privacy laws.

AI can’t write contract terms with the same deep industry knowledge as a skilled lawyer. This often leads to contracts with general language that doesn’t protect your needs.

Hidden Ambiguities and Drafting Errors

AI can generate text that sounds professional but contains ambiguities, contradictions, or gaps. Contract disputes frequently arise from unclear language. A misplaced modifier, undefined term, or contradictory obligation can cost millions in litigation.

For example, an AI tool might create a non-compete agreement that is too broad or unclear about where it applies. This could make it invalid under Texas law. Judges may choose not to enforce contracts that are not clear. AI can make this happen more often because it does not know how judges read and use the rules.

Confidentiality and Data Security Concerns

Many AI tools run on cloud systems that may save or use your documents to improve their software. If you upload private business data like trade secrets, financial info, or client details, you risk losing control over who can see it.

If an AI provider suffers a data breach or misuses your information, you may have little recourse. On the other hand, law firms are legally obligated to protect client information and can face serious penalties if they fail to do so.

Lack of Accountability

Lawyers are accountable for the advice they provide when drafting or reviewing a contract. They carry malpractice insurance and are subject to ethical duties. However, AI providers usually disclaim responsibility for errors in their generated text. If an AI-drafted contract fails and you end up in court, you cannot hold the AI company liable. Because there is no one to blame, businesses often must handle all money, legal, and reputation problems on their own.

Inability to Negotiate or Strategize

Contracts are outcomes of negotiation, not just documents. Good contract lawyers think about their power, expect the other side’s concerns, and carefully write terms to give the best protection. AI cannot negotiate with opposing counsel, assess bargaining positions, or advise on when to push back or concede.

For example, an employer may include a non-compete clause that spans multiple states and industries.

AI will not warn you if a rule might not be legal in Texas or help you write clearer, stronger rules. Only experienced attorneys can tailor employment contracts that withstand judicial scrutiny.

False Sense of Security

One of the most concerning aspects of AI is that it generates text that appears authoritative. Business leaders may assume an AI-drafted contract is reliable simply because it appears polished. This false feeling of safety can make companies sign papers without checking carefully. This can cause problems they could have stopped with expert help.

Regulatory and Ethical Risks

Some industries—health care, finance, government contracting—have strict rules. AI isn’t designed to ensure compliance with laws like HIPAA, FINRA, or federal contracting rules. Using AI without human review can lead to regulatory violations, fines, investigations, or loss of licensure. Also, businesses relying on AI without disclosure may face ethical or reputational backlash.

AI Is Only a Tool, Not a Substitute

AI can add value in contract work. It can help organize documents, find keywords, or generate first drafts of low-risk agreements. But it should never replace the judgment of a skilled human attorney. The best practice is to use AI as an assistant—not as the decision-maker. Lawyers must stay in control, making sure every clause fits the law and protects your goals, all while anticipating potential trouble.

Our Houston Contract Lawyers at Feldman & Feldman Can Help Safeguard Your Business

Using AI to write or check contracts may seem fast and easy, but it can lead to big problems. Companies that take shortcuts could end up in court, lose money, or hurt their reputation. If your business uses AI for contracts, remember it’s just a tool—not a replacement for a real lawyer. Contracts are too important to leave to AI alone.

For smart, safe business deals, talk to the Houston contract lawyers at Feldman & Feldman. We offer experience, legal skill, and industry insight that AI can’t provide. Contact us today for help writing, reviewing, or negotiating contracts that protect your business.