AI agents for contract drafting and review: a fast first draft, and a documented reason not to skip the lawyer

Contract work — drafting a standard clause, comparing a received contract against a company’s usual terms, flagging an unusual condition — is a genuinely strong fit for an AI agent: the source material is text, the patterns are learnable, and a first draft in seconds beats a blank page. It is also one of the areas where the cost of an unnoticed error is highest, which makes it worth being precise about what "AI-assisted" should mean here.

What the research on legal hallucinations found

A study by Matthew Dahl and colleagues at Yale and Stanford, Large Legal Fictions: Profiling Legal Hallucinations in Large Language Models, published in the Journal of Legal Analysis in 2024, tested general-purpose models on specific, verifiable questions about real federal court cases and found legal hallucinations — confidently stated but factually wrong legal claims — in a striking share of responses, ranging from 58% with GPT-4 to 88% with Llama 2 depending on the model. The study also found that models often fail to correct a user’s incorrect legal assumption when asked a leading question, and that they cannot reliably tell when their own answer is one of these hallucinations.

What this sets as the realistic scope for a contract agent

None of this rules out using an agent for contract work — it rules out using it unsupervised for anything that carries legal weight. A first-draft clause, a summary of a long contract’s key terms, a flag on language that differs from a company’s standard template — all genuinely useful, all still requiring a lawyer’s review before signature, precisely because the study shows an agent cannot reliably signal when it has gotten a legal point wrong.

• →Use the agent for drafting and flagging, never for a final legal opinion or a decision to sign without review.
• →Treat any specific legal claim generated by the agent (a citation, a regulation reference, a precedent) as unverified until a person checks it against the primary source.
• →Keep the agent’s scope to your company’s own template and clause library rather than general legal research, where the hallucination rate measured in the study was highest.