Arbitration In IndiaOver-Automation in Contracts

September 10, 20230
Risks of Over-Automation of Contracts

The automation of contract processes has been a significant step forward in legal tech, offering numerous advantages such as efficiency, accuracy, and cost-savings. However, over-automation—the excessive or inappropriate use of automation in contract management—can serve as hidden dynamite, posing serious risks to business organisations.

Below are key points that outline why over-automation in contracts can be perilous.

Loss of Human Oversight
  1. Quality Control: Automation can lack the nuanced understanding of a human reviewer, missing subtleties or complexities that could be crucial in a legal setting.
  2. Interpretational Errors: Automated systems may not understand the context in which certain terms or clauses are used, leading to incorrect interpretation and application.
Legal Compliance Issues
  1. Jurisdictional Mismatch: Automated contracts might not adapt to different jurisdictions, making them non-compliant with local laws.
  2. Constant Legal Updates: Laws and regulations change frequently. Over-automation may result in contracts that are not updated in line with recent legal changes.
Increased Complexity
  1. Too Many Variables: Excessive automation may introduce a myriad of variables and conditions, making the contract hard to comprehend.
  2. Debugging Challenges: The more automated a contract is, the harder it can be to identify and correct errors or malfunctions.
Security Risks
  1. Data Breaches: Automation often involves digital storage of sensitive data, which becomes vulnerable to hacking attempts.
  2. Unauthorized Changes: Automated processes might permit unauthorized modifications if not securely designed, putting the contract’s integrity at risk.
Real-World Consequences
  1. Financial Loss: Non-compliance, errors, or data breaches due to over-automated contracts can result in significant financial penalties.
  2. Reputational Damage: Mistakes or breaches could tarnish an organisation’s reputation, affecting customer trust and business partnerships.
  3. Operational Disruptions: Over-reliance on automated contracts could lead to operational paralysis if the automation system fails.
How to Avoid the Pitfalls
  1. Balanced Approach: Use automation for repetitive, straightforward aspects but maintain human oversight for complex, nuanced areas.
  2. Regular Audits: Periodically review the automation process to ensure it’s aligned with legal requirements and organisational needs.
  3. Security Measures: Adopt strong cybersecurity practices to protect contract data.

Automation in contract management holds immense potential for enhancing efficiency and accuracy. However, it’s critical for business organisations to be aware of the hidden dynamite that is over-automation. A well-thought-out, balanced approach that blends automation with human expertise can help companies reap the benefits while mitigating the risks.

The legal design thinking suggests to adopt the aforesaid challenges by replacing the mode of over automation with mechanism of Living Contracts.

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