Contracts: the legaltech status quo

Contracts are a huge part of the legal industry. Given their importance to law firms and clients, it’s worth examining the current status quo regarding contracts and legaltech.

This article summarises the status quo and whether it’s better or worse than what came before. Understanding this is key to understanding what comes next for legaltech and contracts.

The Status Quo

The contract lifecycle process

The lifecycle of a contract looks like the below:

The contract lifecycle tech

Today most law firms use a combination of tools throughout the contract lifecycle. This post focuses on incumbent legacy technology / processes, rather than the new kids on the block (to be covered in later posts).

Before we can understand what’s next, it’s best to understand what’s now.

The usual cocktail of tools used throughout the contract lifecycle are the following:

1. Create: word processing software, usually Microsoft Word. More recently firms are experimenting with automated construction of contracts via user interfaces that pose a series of questions to generate boilerplate (e.g. choice of governing law and jurisdiction, number or parties etc) and “global” changes (e.g. pluralising sentence structures where there n + 1 parties) throughout a template document. Such tools include Thomson Reuters’ ContractExpress for example.
2. Approve: email and teleconference to discuss, negotiate and agree changes between lawyers and clients on both sides.

1. Redline software assists review by producing automated mark-ups showing all insertions, deletions, and movements of text between the original/current draft and subsequent draft/drafting comments (aka redlines, blacklines and delta views (see below screenshot example)). Example products include WorkShare Compare and ChangePro Litera.

1. Sign: clients sign a hardcopy printed signature page, scan it as a pdf and return it by email to their lawyer. The lawyers will agree that one or the other collect the signed signature pages (usually the lawyer responsible for “holding the pen” (i.e. responsible for the first draft and on-going word processing of agreed changes and version management)) and attach both sets of signed signature pages to the agreed form of the contract via pdf, which is then dated (often by manuscript amendment to the compiled pdf). If you’re lucky a firm might use electronic signature software (e.g. DocuSign)… but this remains uncommon for most large commercial transactions, partly because the law remains slightly grey and differs between jurisdictions, which is a blocker to multi-jurisdictional transaction usage.
2. Execution: this is a largely manual process. Each party’s lawyers ought to explain what needs to be done when by whom and how. The parties then set off and begin fulfilling their obligations under their contract. At this point, lawyers often drop out of the picture except to the extent something goes wrong or requires legal interpretation, at which point the client will typically draw upon their own in-house lawyers before contacting external legal resources. It’s usually the client’s responsibility to upload their contracts (or the relevant data) to a contract management system that might offer management and analytics regarding their obligations. That process is usually manual and sometimes, but not in all cases, executed by lower skilled / cheaper labour nearshore or offshore depending on the size of the organisation. Whoever undertakes it, the task is manual (typically copying and pasting data or toggling buttons to summarise a contract in a third party tool), time-consuming and commensurately expensive.
3. Track: again, largely remains a manual process and lacking lawyer involvement. This means the parties need to rely on each other and stay on top of their corresponding obligations, any relevant dates or procedures stipulated by the contract. Like the above, clients can choose to use software to assist. For the lawyers, this step usually involves saving the final draft and signed copies to a document management system (e.g. iManage Work or NetDocuments) where it will gather digital dust until the client encounters a problem.
4. Renew / Exit: also largely manual and, unless the contract provides for automatic termination/renewal, depends on a party communicating a desire to terminate or renew an agreement. In either case, lawyers return and draft any ancillary documents (e.g. a termination notice or amendment/new agreement) necessary to give effect to those intentions (using the same process and technology described in (1) to (4) above).

Is today’s tech better than what came before?

Or a digital equivalent without much improvement to the underlying process

What came before today’s stack?

Before today’s tech stack, contracts would often be typewritten, reviewed in hardcopy and marked up with changes in pencil or pen before being posted back to the other side.

Face to face meetings were more common, both between lawyers and clients and between both sides. Given the slower speed of these communication channels, the expectations were less than today: negotiations could reasonably take several weeks or months to conclude. Scarcer opportunities to change the documents naturally increased the cost of doing so, encouraging a focus on the “must haves” over the almost infinite “nice to haves” available in any negotiation.

Is today better than yesterday?

The lawtomated team has experience at several large law firms and in-house. We’ve often spoken to senior lawyers and clients to gauge whether technology has improved the contract lifecycle versus what came before. More often than not the response is surprising!

On the one hand, lawyers and clients like today’s ability to quickly iterate contracts, identify changes using tools such as redlines and communicate the foregoing at speed via email.

On the other hand, they also feel this encourages / enables piecemeal rapid-fire negotiation styles that actually drag out negotiations and / or makes them unnecessarily frenetic and overly dense.

The result? Each party sweats every point, no matter how significant. In the noise of the “nice to haves” consensus on the “must haves” can be significantly delayed or overcomplicated.

Pros + Cons of Incumbent Contract Lifecycle Tech

In our experience some of the pros and cons of today’s contract lifecycle technology include the following:

The upsides

• Lawyers and (to a lesser extent given that they pay the bills) clients are always available, wherever and whenever due to email and smartphones. This enables easy access to expertise or decision makers, playing into our culture of instant gratification and fast feedback loops.
• Drafting changes can be almost instantaneously marked up and/or identified using redlines, in turn enabling swifter contract analysis during negotiation.
• Negotiations (theoretically) speed up because of how easily mark-ups are iterated using a combination of powerful word processing software, redline tools, email, and internet-enabled constant availability/access.
• Signings take place virtually, wherever and at whatever times deemed necessary (i.e. via the exchange of pdf signed signature pages or electronic signature).
• Knowledge management is theoretically easier. Lawyers and clients can store vast quantities of documents and, to differing degrees, search, organise and summarise this content. Note this remains an area ripe for disruption by newer technologies that leverage the latest developments in enterprise search, graph databases, machine learning, and artificial intelligence. However, for the most part, this is a very recent development for most law firms. We’ll tackle these in subsequent posts.

The downsides

• The ease of sending a “quick email” rather than taking stock to consider and consolidate “must-haves” into a single mark-up leads to Columbo style negotiations whereby each side instead drip feeds piecemeal comments to the other.

• The above is worsened because the cost of changing a document is virtually nil in non-human resource: simply word process a change, redline and email yet more changes to the other side!
• Ironically, the above point means negotiations can become more costly in terms of time and money. Although total duration in days / weeks for negotiation might be shorter than ever before, the density and intensity of those negotiations easily increase because of Columbo style negotiations encouraged and enabled by current technology.
• The “always on[line]” email and smartphone-enabled technology erodes any semblance of work/life balance. It’s now perfectly reasonable to have a conference call at 4 a.m. on a Sunday for the fifth night in a row — there’s literally no excuse for being offline in today’s interconnected market. Combine this with the increased pace of increasingly global transactions and it begins to look suboptimal that clients are entrusting such high-value work to sleep deprived lawyers.
• All of the above means an increase in both (1) the number of individual changes and (2) the sources of such change. Together these exponentially increase the likelihood something will slip through the cracks and go wrong. To put this into context, on a single transaction (never mind the other 2–3 transactions a lawyer will be working on simultaneously) its commonplace to navigate 100+ emails a day on 5–10 different contracts with comments for each contract being sourced from 10–15 different stakeholders.

Conclusion

Incumbent tech enables, but exagerrates the worst aspects of contract negotiation

The concepts behind each stage in the contract lifecycle remain largely unchanged, yet technology has evolved.

Whether incumbent tech improves the quality of the contract lifecycle is debatable. Ostensibly today’s tech in the contract lifecycle presents a fast-paced and efficient process, yet dig a little deeper and that might not necessarily be the case as a tendency toward quantity vs. quality of input arises. Granted quality can be maintained but at the cost of navigating burdensome quantities of back and forth negotiation.

Tomorrow’s technology should aim squarely at improving today’s stack and the processes underlying them. Blindly throwing more tech at these problems won’t solve them, but a thoughtful application of newer disruptive products against existing (or potentially re-engineered) process might do so!

In subsequent articles, we will cover the new players in this space attempting to tackle these needs and how the contract lifecycle process might be re-engineered.

Originally published at lawtomated.