Michelle Cirson (00:01)
Hello, thank you for joining me.
today's topic is an interesting one because I'm so archaic when it comes to contract reviews. I still print them out in hard copy and I mark them up with a highlighter and then I...
do the redlining thing and our paralegal copy paste them into a departure schedule. But obviously for efficiency sake, we have been looking at ways that we can eliminate the copy paste process. So ways that we can find really efficient ways to speed up the process for our clients.
also for our own sanity because we do so many contract reviews. during this process, it's come to light that a lot of our sub bies' toolbox members and even other subcontractors who are not members who are using AI for contract review purposes. And there can be some really beautiful ways that this can make things much more efficient for you. But there are also some dangers in this process as well. So I wanted to talk to you today about what some of the dangers are that you should really be looking out for, also
some of the ways that you can harness AI to speed things up and to QA and double check things and make sure there's not been any funny business in terms of versions and whatnot.
So the first thing wanted to say in terms of the dangers of using AI for contract review purposes is you need to be so careful where you put people's documents and not just because you might get in trouble, but because sometimes if you're, say for example, a comm subby working on a defence project or if the design that you've got has some kind of ability to turn the power off in a critical facility like a hospital or something like that.
There are ways that the data from what you put into AI can be harvested and used for purposes that you might not be able to control or even have any line of sight over. So I do think that ⁓ first and foremost you need to be really careful about what you put into AI. Now if that information was to get into the wrong hands and guys I'm trying not to sound like a tinfoil hat person here where I'm talking about this but this is the reality of
what can happen is if you don't have line of sight over where the data goes that you're putting into AI.
The least bad consequence is that you could get in trouble under the contract. The worst consequence could be that some kind of hostile country grabs that data and uses it against us. So just bear that in mind when you are putting documents into software, you really need to know where you're putting things. Now. ⁓
Aside from data harvesting, the biggest risk I see that you have with using AI for the purposes of reviewing your contracts is that AI will frame your opinion of something or frame how good you think your deal is. And one thing I've noticed with AI is that if you try to change its mind, it's really difficult to change AI's mind about something because it seems to really double down if you say, well, if...
What you're saying is this, what about this? Does that change your advice? And AI will always look to sort of reinforce that it was correct in the first place. it is something I've seen happen quite a bit. And I've done some pretty vigorous testing with asking AI particular questions. For example, I stuck a question in there about finding a section in the Corporations Act.
Commonwealth legislation and AI gave me the wrong answer and I said to it no I reframed the question again and it still gave me the wrong answer. I then copy pasted the correct section of the Act into the AI that I was using and I said
What about this? And it's still maintained that it was right the first time. And then I had to go so far as to say, Hey, listen, AI, I know you value your opportunity to learn from your mistakes. I'm telling you that you're wrong in this situation. I'm giving you the correct answer. Can you see now why I'm telling you that you're wrong and why this is the correct answer? It was only at that point that it changed its narrative with me and agreed that it was wrong.
Now, it has occurred to me that it's possible that I could have been testing it and giving it the wrong answer. And had I been doing that and it had listened to me, then there's a good chance that I could have talked AI into thinking I was right and it was wrong. So you can really get in your own head about this stuff, right? So.
The one thing I want you to just be aware of is that AI will take you really literally. And depending on the prompts that you give AI, it can give you answers that you think are comprehensive and correct, but are actually an answer to a question you didn't think you asked. So, uh,
Recently I was looking at a contract that I'd drafted and I had put in additional definitions into the template that I was using. And so I asked AI to look at the rest of the document and tell me if any of the definitions I used were redundant in the dictionary. Like, are there any definitions in the dictionary that are not used in the rest of the contract? I thought that I was clear in that prompt and the AI that I was using came back and said,
The word principle is not used in your document. I thought well, that's really strange. I'm almost certain that the word principle would be used in my document. So I can troll left inside the document and quickly found a clause where the word principle is used. And I thought, well, that's really strange. I've asked this very intelligent software a direct question here and it's answered incorrectly. And I said to the AI, what about clause 4.7? I can see it sitting right there. Can you see it too? And it came back and said to me,
I misunderstood your prompt, I thought you wanted me to tell you if there were any double ups in definitions within the dictionary. So the AI had only searched the dictionary. Guys, this is really splitting hairs, but I want you to see how easily the questions that you ask AI can be misconstrued by the software itself. You're not on the same page with the question you've asked the AI. But also, if you just rely on that answer and assume that you've asked it,
the correct question and that it's given you the correct answer. You're to be lured into a false sense of security where you might go ahead with a deal thinking that a particular set of contract terms apply and it's actually not the case. So what I would say with AI is if you are going to use AI, please start with your own brain.
the context of the deal, the nature of the site, your scope of work, the way you do business, and understanding of your customer, and look at the contract before you go to putting it into the software.
Once you have a lay of the land, give you the analogy, it's like when you go up to a beautiful lookout and you want to look out at the horizon and get a full picture of what's out there and understand the lay of the land versus you walk up to the lookout with your eyes closed and you walk straight up to the binoculars and you just put your eyes on the binoculars. That is what I think the equivalent of just putting a contract into AI before you even read it yourself is doing. ⁓
One thing that I think AI is probably likely to overlook, this is a situation that I've had cross my desk a couple of times in the last couple of weeks. We had a contract that had three parties to it. It had the principal, the builder and the subcontractor were all party to a contract.
I don't think AI would point that out to you. It's something that should be really obvious. If you gave a lawyer a contract, one of the first things they would look at is who are the parties to this contract? Who are you actually getting in bed with to do a deal? But...
if you give AI a document, it assumes you know who you're contracting with. And from what I've seen, it doesn't actually point out those critical aspects of the contract that you might overlook. So incredibly important that you still have your own systematic approach to doing contract reviews where
as a baseline you're identifying the lay of the land or what the outlook on the horizon is before you go sticking your eyes in those binoculars because the AI will frame your opinion of the deal you're doing and it will frame what it thinks you should think is important but AI doesn't know how you do business it doesn't know what's important to you it doesn't know what your risk appetite is there are so many factors and variables when it comes to doing a deal
The biggest problem I see subcontractors have is there's a standard form contract that has legal jargon in it that they're not sure they understand what it means. That is your scope for being able to use and utilize AI to help you understand what you're reading. So I would go into your contract review by first looking at the contract in the context of the deal you're doing and doing your basic checks first.
Then I would say if you have a checklist or if you have even your top 10 contract clauses that you would ask to have changed in most builders contracts, then if you can give that to AI and say, show me the clauses that relate to this in the contract. And then I would still have a list of not negotiables where you've got certain clauses like maybe it's a director's guarantee, maybe it's bank guarantees. ⁓
Maybe it's that you need the ability to be paid for unfixed goods. Maybe it's that you're a scaffold subcontractor and you need a PPS registration more than anything else. It's the lifeblood of your business is making sure that your assets and personal property come home with you at the end of the job. So understanding the nuances of your trade, you need to give that information to AI so that it can tell you the right answers or at least give you helpful answers that might guide you in finding something useful.
you
Now, in terms of the top 10 clauses that you might get the most bang for buck for in terms of construction contracts, I actually go through each of the most common clauses that I need to change for most trades in contract reviews. And in some instances, it's because the Australian standard contract is 30 plus years old now.
and
nobody wants to update it. So lawyers keep getting paid to do heavily amended Australian Senate contracts. ⁓ In some instances it's because the way that we operate in construction has certain traditions like retentions.
liquidated damages, nasty clauses you just don't have in other industries that we need to rein back and manage. But for the most part, the changes that we make to construction contracts, to builders contracts, are the ones that help you administer the contract so you can mitigate your risk.
But the other thing I wanted to tell you about too with using AI to do departure schedules
is when AI puts your departure schedule together, it's very likely it's going to give you everything including the kitchen sink. And that is not going to be helpful for you. If you go and start a negotiation with a builder ⁓ and your negotiation is framed around a bunch of departures that you don't really need. So you will not put your best foot forward. In fact, you're probably going to contaminate the deal because you'll go forward with a whole bunch
of legal jargon that you don't properly and intimately understand. So if you're going to put departures to your builder, please at least understand what you're asking for and why. If you can't articulate to your builder what you're asking for and why...
you will end up in a situation where your builder just will not listen to you. They won't be interested in what you've got to say and they will see through it. I know as a lawyer and a judicator where we get submissions that are so clearly written by AI.
part of my brain switches off. I stop thinking I am talking to or listening to or having submissions given to me by a party and suddenly what happens in your brain is you're like ⁓ this is all AI. You know I could have read this myself ⁓ had I asked this question. It's not actually ⁓ somebody's
dialogue that they're speaking to you anymore. So just expect that builders are going to do that too. Builders will see you in heartbeat. They will be absolutely inundated by these departure schedules that subcontractors are very likely giving to them and you know, you can end up with a real situation when your builder stops talking to you. So if you are going to put a departure into a departure schedule and ask a builder for a change to their contract,
you need to look first at the hierarchy of contract risk controls. And this is based on the hierarchy of controls in construction.
The first thing we do is what is the likelihood that something is going to occur and what are the consequences if it does occur. Now if that's likely to happen, if there's a problem that's likely to unfold, say for example it's a latent condition and you're a bulk earthworks subcontractor, it's going to be a high value clause for you to make sure you have an entitlement to claim for latent conditions.
So likelihood is way up there. What are the consequences? Well, it could cost us two or three times as much to do the work as we're going to be paid. That's pretty catastrophic in terms of the way contract consequences would play out. So you would then come to the hierarchy of contract risk controls and go, what can I do to eliminate this risk? Well,
It could be that you are relatively sure that there's not going to be contaminated dirt, but you know that this particular site is out there at Malulah Bar.
Chances of anything happening will probably be groundwater. You could eliminate or exclude dewatering from your scope of works and so therefore you have used a very good bloke easy way to eliminate a risk by simply excluding a service that you would provide under a contract that would Be unable to be ascertained before you get started. So this little diagram on our socials think we put it up a couple of days ago, but this is the crux of the
way that we go about our contract review process is what is the likelihood, what are the consequences and if the consequences are up there then use the hierarchy of contract risk controls to work out if there's a way you can get this off your departure schedule. If there is not and I would say that if you get to this point here and
the contract admin involved in dealing with this contract risk is so far out of the stratosphere that you just can't justify the admin risk. ⁓ Then perhaps consider not doing that job because you might end up in a situation. where you can't eliminate the risk or get that risk down to a swallowable.
type of scale for you to continue with the job. So just circling back to AI in terms of managing that for you, you can't expect the robot to know whether or not you have an appetite for risk and you should not let it make decisions on your behalf about what is the likelihood, what would the consequences be and what would you be prepared to deal with. Now the other thing that AI is unlikely to pick up on
But you could ask it this question squarely and hopefully it would bring something up of assistance is whether or not there are any personal.
clauses in the contract like directors guarantees and things like that I'm sure it would find a directors guarantee but we had one recently where the subcontractor was named as an individual as a party to the contract so it was right there in neon lights on the very front page of the formal instrument of agreement but AI didn't pick it up
Look, I have a lot of clients say to me, they'll come to me for a contract review, I'll give them the departures. We go through the process of reading the departures together so they understand exactly what they're asking for, why they're asking for it and how to explain it to the builder. So the builder will understand where they're coming from and it won't ruin the relationship.
And they will say to me at the end of the contract review process, Hey, we put this contract into chat GPT and it did not pick up any of this stuff that you found. So that is because the software cannot read your mind, does not intimately understand how you do business and does not understand the context of the deal. So you do have to actually give it that. So you might consider using a checklist for that process. There is software available, which I've been using recently to trial and test.
but I'm not sold on it, to upload your checklist, a spreadsheet with column headings, and then your contract. You upload it into the software and you say to the software, can you please use my checklist, locate the clauses the checklist is asking you to find, and then ⁓ put any relevant clauses into the spreadsheet using the headings that I've given you.
That will only get you to step one. So where I was telling you that I print out my contract and I mark up what is relevant, the AI is going to give you the big long diatribe list of everything relevant, not the things that you need to change.
it's possible that the AI might just give you clauses and not relevant definitions as well. So you need to understand this thing has limitations. It needs a human to be across what is going on with it. So a little bit of assistance can sometimes be more dangerous than if you just pick it up, read the contract, and if you're out of your depth, reach out for help.
In summary, what I would really like for you guys to take away from this is I recognize you're going to have a crack at using AI because unless you love doing contract reviews because you're a lunatic like me, you are going to to spend less time doing it.
So if you are going to use AI, you need to be clever about how you use AI and that would be by giving it the right prompts, giving it accurate prompts, not first just putting the document into AI and getting the AI to tell you what to do with the document. You need to be telling AI what you need it to do with the document because you already understand the context of the document itself and go into it with a really good, thorough understanding of what are your top 10 things that you need changed.
every builder's contract.
