It might seem like ChatGPT is the perfect tool for reviewing contracts, after all, it’s really good at summarizing information… Right?

In reality that’s not really the case — in fact, it’s quite the opposite. Using ChatGPT (or Claude, or Gemini for that matter) can easily land you in hot water.

These tools are prone to hallucinations and fabricating information, as shown in a recent case involving attorney Richard Bednar, who was reprimanded in court for including citations and cases that didn’t exist.

But does that mean you can’t use AI for contract review at all? Not exactly. You can use AI for this purpose — just not general-purpose chatbots like ChatGPT. Instead, you should rely on specialized contract-review tools, like ContractCrab. Let us explain.

Why You Should Review Every Contract

But before we get into how to review contracts with AI, let’s quickly talk about why you should review every contract in the first place.

Every vendor agreement, service contract, and NDA that lands on your desk needs a careful review — and skipping that step is where most small businesses get burned.

For example:

• A minor auto-renewal clause can lock you into an unexpected year of payments.
• An unlimited liability provision can expose your business to damages far beyond the value of the contract.
• Even a simple typo in the name of the contract or a discrepancy in the dates on two pages can lead to disputes and render the contract invalid.

Issues like this show up in contracts routinely — so much so that, according to statistics, 70% of businesses in the US will have run into legal issues at one point or another.

In fact, the U.S. lawsuit system costs businesses an estimated $160 billion each year, and one in five small businesses is projected to lose more than $5,000 to legal issues in 2025–26.

The bottom line: Not reviewing contracts can lead to legal problems that could cost your business a lot of money.

How do Lawyers Review Contracts?

To understand why ChatGPT isn’t the right tool, we need to understand what contract review process is, and how lawyers approach it.

Lawyers compare what they’re reading to hundreds of similar agreements they’ve seen in the same jurisdiction and flag anything that stands out.

ChatGPT doesn’t have a specialized knowledge base of legal work; it operates based on general knowledge.

Lawyers understand that legal interpretations are contextual. For example, a dangerous clause in one contract may be harmless in another because of how the other provisions interact.

ChatGPT doesn’t have this level of nuance. Instead, it tends to approach contract review in a one-size-fits-all way, which can result in advice that’s either overly cautious or, worse, misses something potentially risky.

Lawyers, like any professionals, constantly study the latest developments, laws, and cases, and update their knowledge.

ChatGPT’s GPT-5, for example, has a knowledge cutoff of October 1, 2024. That means it has no idea about anything that happened after that date — new legislations, updated regulations, or recent case law. This cutoff will be updated in future releases, but the model will likely always be at least a year behind.

Risks of Using ChatGPT to Review Contracts

Using ChatGPT for contract review creates fundamental risks that you can’t really prompt-engineer your way out of. Namely:

• Hallucinations. It’s important to understand that AI chatbots don’t retrieve information; they generate text from scratch. This doesn’t sound bad until you consider that, when the model is unsure or lacks knowledge, it fills the gaps with nonsense that sounds realistic.

• Inaccuracies. ChatGPT wasn’t trained on your jurisdiction’s common contract templates, which means that the model may sound authoritative and give you legal advice while completely misclassifying harmless language or overlooking genuinely dangerous provisions.

• Relying on outdated data. Because it has a fixed cutoff that will always lag behind by at least a year on average, ChatGPT doesn’t know if laws have changed since then. This can cause it to make incorrect suggestions.

• Data-security risks. Last but not least, AI chatbots aren’t exactly known for respecting data privacy. In fact, it’s quite the opposite — companies developing AI chatbots are known to utilize conversion transcripts for model training. This isn’t exactly reassuring when sending confidential information, such as contracts, to ChatGPT.

Did you know? There are documented cases when a ChatGPT has revealed sensitive information it learned from users. The most famous case happened In 2023, when Samsung engineers shared proprietary source code and internal meeting transcripts with ChatGPT, OpenAI used that data to pretrain the next model, which retained it and revealed the source code in another conversation.

What’s the takeaway?

This might make it seem like hiring a lawyer is always the better strategy. However, there’s one major downside — lawyers are expensive.

Lawyers spend an average of 92 minutes reviewing a single contract, and in the U.S. they typically charge between $150 and $500 per hour, which means that, on the low end, you’re going to pay $225 per contract, at least if you’re working with a qualified lawyer in the US.

Although this is cheaper than the potential penalties you could face in court over a bad contract, it is still expensive and likely more than most small businesses can afford. So, what’s the solution? 

The good news is that there are specialized AI contract-review tools, such as ContractCrab, that avoid all of the shortcomings mentioned above — and they can cost as little as $0.15 per contract.

What are AI Contract Review Tools?

Unlike ChatGPT, AI contract review software is trained using structured legal datasets. This, in turn, fixes the biggest issue that ChatGPT and other chatbots have, which is that they can make stuff up.

Here are a couple more aspects that make contract review tools reliable:

• Contract review software uses something called deterministic checks. Essentially, these are rule-sets that the system uses to check for issues. For instance, there will be a rule to flag a missing liability cap. ChatGPT might catch that too, but it also might not, because it doesn’t have a baked-in workflow to follow.

• Contract review tools are designed to be secure. They use end-to-end encryption and many also feature SOC 2 Type II controls, while data from contracts is never used for model training.

• Contract review tools are updated regularly because they have processes in place to make sure that when legislations change, the new laws are added to the tool’s knowledge base. In other words, they don’t suffer from a fixed knowledge cutoff, unlike ChatGPT.

A Better Alternative to ChatGPT: ContractCrab

ContractCrab is an AI-powered contract review tool which eliminates the shortcomings of ChatGPT, and other general-purpose chatbots.

Here’s how it works:

1. You visit their website and upload your contract (the tool supports PDF, DOCX, or TXT files, and there’s a free trial available).
2. ContractCrab’s specialized, fine-tuned AI analyzes your contract and compares it to a database of similar legal documents and applicable laws in your jurisdiction.
3. Based on that analysis, it compiles a review summary.
4. You receive that summary minutes after initiating the review process.

In real time, the AI will provide:

• A breakdown of the contract’s potential issues
• Suggestions how to fix them
• And all inconsistencies or irregularities will be clearly highlighted

You can try the tool for free with their trial, and even though it’s more accurate than ChatGPT for contract reviews, it’s actually cheaper — unless you’re reviewing a very high volume of contracts. On a pay-as-you-go plan, it’s only $3 per contract.

If you review more than about 10 contracts a month, they also offer subscription plans that make more sense financially: $30 for the Light plan or $75 for heavier use.

Bottom Line

If you’re using AI assistants like ChatGPT to review contracts, it’s not the best idea. While these tools can produce summaries that seem insightful, they’re actually often full of holes — for one, you’re running the risk of encountering hallucinations — chatbots often invent information when they’re unsure.

That can leave you exposed to real legal risks, fines, or even litigation.

Specialized AI contract-review tools like ContractCrab, on the other hand, are a much safer choice for legal workflows.

These tools were purpose-built for legal work, use fine-tuned AI models, have curated datasets of legal documents to compare contracts against, and even use specialized interfaces that make it much easier to review contracts in bulk.