Can I Use AI to Review Confidential Third-Party Contracts?

Dear Will & AiME,

Our legal and operations teams are starting to use AI tools to summarize supplier and partner contracts. These aren't our internal documents—some are third-party agreements with confidentiality clauses. The tools are efficient and helpful, but does feeding these documents into an AI system pose any legal risk?

— Contracts Manager in Seattle

Short answer 💡

Yes, using AI to review third-party contracts can create legal risk if it involves disclosing confidential information to an external system or violates contractual restrictions. Businesses should confirm both the contract terms and the AI tool’s data practices before using AI on sensitive agreements.

Dear Contracts Manager in Seattle,

AI tools are quickly becoming part of day-to-day contract workflows, especially when teams want fast summaries or issue-spotting. But not all documents are equal. When you're working with contracts or confidential documents from vendors, partners, or other third parties, you'll want to think carefully before putting them through external systems.

Step 1: Do Your Contracts Allow AI Review or Third-Party Disclosure?

Many third-party contracts contain confidentiality provisions that limit how the information can be used, especially when received under NDAs. Even if your use of AI is internal, submitting a contract to an AI tool hosted by a third party may be considered a disclosure. That doesn't necessarily mean you can't use AI, but it does mean you need to verify:

• Does the contract allow (or restrict) disclosures to service providers like AI vendors?

• Are there limits on use, including for analysis, derivative works, or redistribution?

• Would using an AI platform that stores data violate a "no third-party access" clause?

Step 2: What Happens to Your Data Inside the AI Tool?

After you've reviewed the contract, turn to the AI platform's terms of use. Consider these questions:

• Does the tool retain input data?

• Is it used for model training or analytics?

• Can you opt out of data storage or sharing?

• Are your documents encrypted in transit and at rest?

For example, if you use a free or public version of a generative AI platform, it's likely that your prompts, including full contract language, are being logged or reused to improve the model. That may be fine for your own non-sensitive documents, but for third-party contracts with business-sensitive terms, that's likely outside the bounds of what's acceptable.

Safer Ways to Use AI for Confidential Contract Review

If AI is going to be part of your contract review process, make sure your infrastructure is up to the task. Some options that keep you on solid ground:

• Enterprise-level AI tools with data isolation, no training by default, and contractual confidentiality commitments;

• Private or hosted large language models that stay within your firewall;

• Custom review workflows that limit prompts to redacted or abstracted content.

Also, train your team on when and how AI can be used for contract analysis. Ensure that you have developed policies for what documents can be uploaded to AI systems.

Bottom Line

AI can streamline your contract workflows if used thoughtfully. But when it comes to analyzing third-party contracts, especially those protected by confidentiality, you need to confirm two things:

• Is this use permitted under the agreement?

• Is the AI tool configured to protect what you're analyzing?

If the answer to either is uncertain, take a step back and get clarity first. The goal isn't to avoid AI, it's to avoid surprises.

— Will & AiME

Three Takeaways:

1. Third-party contracts may restrict how you use AI tools for review. Always check confidentiality clauses first.

2. Many public AI tools retain user inputs. Use enterprise platforms or private systems for sensitive agreements.

3. Internal policies should define what kinds of contracts can be analyzed with AI and under what conditions.