The AI Liability Trap: When "Magic" Text Breaks Contracts

"Write a proposal for Acme Corp." You click a button. The AI spins for 10 seconds. A 20-page document appears. It looks perfect.

Your sales rep sends it. The client signs it.

Three months later, your Legal team gets a call. "Why are we being sued for not providing the '24/7 Dedicated On-Site Support' listed in Section 4.2?"

You check the contract. There it is. A promise you never made, invented by an AI that "hallucinated" a service tier you don't even offer.

The "Contractual Hallucination" Risk

Generative AI is a prediction engine, not a fact engine. When asked to write a "comprehensive support plan," it will predict the most statistically likely words to follow. Often, those words describe industry-standard features that your competitors offer, but you do not.

In marketing copy, a hallucination is embarrassing. In a sales proposal, it is a breach of contract.

The "Human-in-the-Loop" Mandate

To use AI safely in proposal software, you must treat it as a "Junior Drafter," not a "Senior Partner." You would never let an intern send a contract to a client without review. You cannot let an AI do it either.

Effective governance requires three layers of defense:

• Constraint: Do not let the AI write "from scratch." Force it to rewrite existing, approved content blocks. This limits the "search space" for hallucinations.
• Isolation: Never allow AI to touch the "Terms & Conditions" or "Pricing" sections. These must be hard-coded variables, as discussed in our CPQ guide.
• Verification: Implement a mandatory "AI Audit" step before the "Send" button becomes active. The rep must check a box certifying they have read the AI-generated text.

Who Owns the Output?

Beyond liability, there is the issue of copyright. If your AI generates a brilliant "Methodology" section, do you own it? Or does the AI vendor? Or is it public domain?

Current US copyright law suggests AI-generated content cannot be copyrighted. If your proposal contains unique intellectual property (IP) generated solely by AI, a competitor could theoretically copy-paste it without legal repercussion.

The Verdict: Use AI to summarize, format, and polish. Do not use it to invent. The "magic" button is tempting, but in B2B sales, boring accuracy beats creative liability every time.