Introduction: The Essential Role of a Contract Playbook in Commercial Enterprises

In the dynamic world of commerce, contracts are the foundational elements that govern relationships between businesses, clients, suppliers, and partners. They outline obligations, protect interests, and ensure legal compliance. However, managing contracts effectively can be a complex and time-consuming task, especially as a company grows and the volume of agreements increases.

A contract playbook serves as a strategic tool that simplifies this complexity. It's a comprehensive guide that standardizes the contract management process across an organization. By compiling preferred clauses, negotiation strategies, fallback positions, and approval workflows, a contract playbook empowers teams to handle contracts efficiently and consistently.

Why Should Commercial Enterprises Have a Contract Playbook?

Enhances Efficiency and Speed: With standardized templates and clear guidelines, teams can draft and negotiate contracts more quickly, reducing bottlenecks and accelerating deal closures.
Ensures Consistency and Compliance: A playbook promotes uniformity in contract terms and language, minimizing the risk of errors and omissions. It helps ensure all agreements align with company policies and legal requirements.
Empowers Non-Legal Teams: By providing accessible instructions and explanations of legal concepts, business units like sales and procurement can manage routine contracts without constant legal oversight, freeing up the legal team to focus on higher-value tasks.
Reduces Risk: Standardized clauses and approved fallback positions help mitigate legal and financial risks by preventing unfavorable terms from slipping into agreements.
Facilitates Better Negotiations: Equipped with negotiation strategies and rationale for key positions, teams can negotiate more effectively, maintaining the company’s interests while fostering positive relationships with counterparts.

How to Use AI to Build Contract Playbooks

In the realm of contract management, large language models (LLMs) like GPT have emerged as powerful allies for legal and business teams. These AI models excel at understanding and generating human-like text, making them exceptionally useful for creating comprehensive contract playbooks. By leveraging GPT, organizations can efficiently draft standard clauses, develop alternative provisions, and simplify complex legal jargon into plain language that's accessible to non-legal stakeholders. Additionally, GPT can assist in formulating negotiation strategies and providing rationales for contract positions. This not only accelerates the playbook development process but also enhances consistency, accuracy, and adaptability, enabling teams to manage contracts more effectively and focus on higher-value tasks.

Sometimes the most efficient way to leverage these powerful tools is to do something called prompt engineering.

Prompt Engineering in Layman's Terms

Prompt engineering is the art (yes, art) of crafting effective prompts or questions to communicate with AI language models like GPT (Generative Pre-trained Transformer). These AI models generate responses based on the input they receive. By carefully designing your prompts, you can guide the AI to produce the kind of output you want.

Why Is It Useful?

Better Results: A well-crafted prompt can yield more accurate and relevant answers.
Efficiency: It saves time by reducing the need for follow-up questions or clarifications.
Control: It allows you to steer the conversation or output in a desired direction.

An Everyday Analogy

Think of prompt engineering like giving instructions to a search engine or even another person:

Vague Prompt: "Tell me about animals." (This could result in endless possibilities.)
Specific Prompt: "Provide a brief summary of the habitat and diet of African elephants." (This gets you more precise information.)

Using Prompt Engineering to Build a Contract Playbook

You can leverage prompt engineering to efficiently create a comprehensive contract playbook. By crafting specific prompts, you can guide AI tools to generate content, ideas, and structures that align with your needs.

Extracting Existing Rules

There are several ways to use prompt engineering to develop a contract playbook from scratch. If you have existing contract templates designed for your firm, the most straightforward way is to use your existing standard contract and create rules from it.

All contracts are essentially sets of rules.

You can play around with pulling those rules individually.

Example: a Limitation of Liability Clause

Suppose you are a consultant and you have a standard consulting agreement you use with your clients. In your agreement you have a limitation of liability clause that states the following:

To the fullest extent permitted by applicable law, neither party shall be liable to the other for any indirect, incidental, special, consequential, or punitive damages, or any loss of profits or revenues, whether incurred directly or indirectly, arising from or related to this agreement or the services provided. In no event shall either party's total aggregate liability under this agreement exceed the total amount paid or payable by [Client/Customer Name] to [Company Name] during the twelve (12) months preceding the event giving rise to the liability.

Using the tips I provided above, I engineered the following prompt:

Prompt: "Read each sentence of the clause and extract all the requirements of the clause as individual statements.”

The results are below.

First Sentence:

"To the fullest extent permitted by applicable law, neither party shall be liable to the other for any indirect, incidental, special, consequential, or punitive damages, or any loss of profits or revenues, whether incurred directly or indirectly, arising from or related to this agreement or the services provided."

Limitation Scope: The limitations apply to the fullest extent permitted by applicable law.
No Liability for Indirect Damages: Neither party shall be liable to the other for any indirect damages.
No Liability for Incidental Damages: Neither party shall be liable to the other for any incidental damages.
No Liability for Special Damages: Neither party shall be liable to the other for any special damages.
No Liability for Consequential Damages: Neither party shall be liable to the other for any consequential damages.
No Liability for Punitive Damages: Neither party shall be liable to the other for any punitive damages.
No Liability for Loss of Profits: Neither party shall be liable to the other for any loss of profits.
No Liability for Loss of Revenues: Neither party shall be liable to the other for any loss of revenues.
Damages Incurred Directly or Indirectly: The exclusion of liability applies whether damages are incurred directly or indirectly.
Arising from the Agreement: The limitation applies to damages arising from this agreement.
Related to the Services Provided: The limitation applies to damages related to the services provided under this agreement.

Second Sentence:

"In no event shall either party's total aggregate liability under this agreement exceed the total amount paid or payable by [Client/Customer Name] to [Company Name] during the twelve (12) months preceding the event giving rise to the liability."

Aggregate Liability Cap: Neither party's total aggregate liability under this agreement shall exceed a specific monetary cap.
Calculation of Liability Cap: The liability cap is equal to the total amount paid or payable by [Client/Customer Name] to [Company Name].
Time Frame for Calculation: The amount is calculated based on the twelve (12) months preceding the event that gave rise to the liability.
Applies in All Events: The liability cap applies in all circumstances ("In no event" shall liability exceed the cap).

Thus, contract clauses can pack a lot of meaning in a small number of words. All these rules (15 in total), were packed in only two sentences.

2. Extracting Fallbacks

You may be tempted to say “Ok, let’s brainstorm some fallbacks and be done.” Not so fast. Trying that may give you irrelevant answers.

Using the same conversation with GPT, I attempted to coax an answer which would write a bunch of fallback I could then cherry-pick.

Prompt: Build “a table with one rule per row and brainstorm fallback clauses for each rule.”

Some were useful fallbacks we see IRL:

Set a Specific Cap: Agree on a maximum amount recoverable for loss of profits.

Many were not.

I improved my results by having it brainstorm questions instead.

Why? With enough of the right questions you, the humans, will actively think of what is important in terms of the allocation of risk for your company and overall strategy.

Why do you want to take this risk? Have you thought about what it will cost your firm compared to the potential reward? If the worst comes to pass, can you survive it under the new conditions?

Those answers ultimately become your fallbacks and will streamline your contract negotiation.

Examples:

Should we consider service level agreements (SLAs) with distinct liability terms?
Should we consider tiered liability caps based on different types of breaches or obligations?
Is the 12-month period appropriate for the nature of the agreement?

These questions can better illustrate a company’s scope and scale of risk appetite than merely hoping GPT can provide the answer by itself.

Tips for Effective Prompt Engineering in This Context:

Be Specific: Clearly define what you want the AI to generate. Specific prompts yield more relevant results.
Use Plain Language: Craft prompts in simple language to avoid confusion and get clearer outputs.
Iterate Prompts: If the initial response isn't ideal, refine your prompt and try again.
Leverage Examples: Include examples in your prompts to guide the AI toward the desired output.
Set the Tone and Style: Indicate if you want the content formal, casual, detailed, or summarized.

Example Workflow Using Prompt Engineering:

Identifying Key Clauses:
Prompt: "List the essential clauses in a software licensing agreement and explain each in simple terms."
Creating Standard Language:
Prompt: "Draft a standard confidentiality clause suitable for an employee contract."
Developing Negotiation Strategies:
Prompt: "What are common counterarguments to limitation of liability clauses, and how can we respond to them?"
Simplifying Legal Concepts:
Prompt: "Explain the concept of indemnification in layman's terms for non-legal staff."
Designing Approval Workflows:
Prompt: "Outline a step-by-step contract approval process for a company without a legal department."

By integrating prompt engineering into the development of your contract playbook, you can efficiently produce comprehensive, user-friendly content that meets the needs of all stakeholders. This approach not only saves time but also leverages AI capabilities to enhance the quality and effectiveness of your playbook.