Open Source Contracts: Part 4

11 min readAug 1, 2017

Imagine if lawyers from different firms collaborated on standard documentation for everyday legal transactions, e.g. loan agreements, wills, conveyancing etc. What if it was all freely available to their clients too?

We call this open-source contracts (“OSC”).

Part 4 explores whether firms should adopt OSC, the pros and cons of doing so, the barriers and early steps in this direction.

Check out the full series: part 1; part 2; part 3; and part 4.

Should law firms adopt OSC?

Taking LMA and ISDA documents as our comparison between OSC and OSS, should lawyers experiment with OSC and could they do so?

1. The upsides of OSC

OSC has the potential to massively streamline the creation, negotiation, and agreement of legal documentation. For the most part, certain types of documents, particularly those used within a certain practice / industry areas tend to merge around:

the prevailing market practice for such documents (e.g. LMA documents regarding syndicated loans and ISDAs regarding OTC contracts); and / or
prescribed legal / regulatory requirements for the same (e.g. employment contracts, leases, wills etc).

Given the natural convergence on standard wording for the most common / boilerplate provisions would it not save everyone time (and money) if law firms collaborated on the creation and maintenance of these documents via OSC?

Saving time doesn’t necessarily mean less fees: in fact, it could enable:

increased competition for legal services and enablement of new entrants (e.g. an alternative business structure) specialising in melding technology and standard documentation to create efficient OSC drafting, negotiation, execution and management platforms;
law firms to do more with less and handle higher volumes of transactions;
pour liquidity into the legal market by making a greater number and wider variety of transactions commercially viable due to increased execution speed coupled with a decreased cost;
might even improve access to legal services by lowering the cost and increasing the availability of certain legal services; and
allow lawyers to become expert in more areas more easily if the barriers to entry are lowered by standardisation of documentation and process.

None of the above means law firms would lose their greatest selling point, nor its benefit: their know-who, i.e. the experts who administer and understand the documentation.

Much like non-developers require developers to build and maintain OSS technology systems, non-lawyers will still need lawyers to administer the documentation and associated process. Likewise, much like OSS the OSS is only as good as the experts that wield it and can adapt it to their specific needs; so too with OSC.

2. The downsides of OSC

The downsides to OSC are at least the following:

the ability for clients to leverage law firm work product and dispense with lawyers entirely, for instance if they are a particularly sophisticated user of domain-specific documentation (e.g. a senior banker familiar with LMA documentation may often be as adept as a lawyer in amending certain parts of these documents), or in part where they are able to understand the basic constructs and principles behind the OSC (e.g. an individual drafting their own will and testament before having it reviewed by lawyer);
increased competition for legal services, particularly where the OSC / domain is rather “cookie cutter” and easily understood (for lawyers and laypeople alike), potentially pricing out the larger firms and driving down prices for the middle and lower tier firms;
if everyone shares their views on the operation of contracts there is less a lawyer can bring to the table if the tramlines for negotiations are well-defined, broadly understood / accepted and publicly available;
risk-averse lawyers are unlikely to trust OSC documentation unless administered by a central community-led organisation (hence the LMA and ISDA) for fear that the quality and updating of the documents are suboptimal at best or legally incorrect at worst (similar concerns used to be levelled at PLC before it gained credibility via content contributions from top law firms and the realisation its content was generally great); and
less control over the OSC — in the LMA and ISDA space certain firms drive the key practises and “what’s market” — opening up the debate to a wider audience lessens the immediate influence of those stakeholders.

But all said, OSC wouldn’t be as detrimental as the above suggests:

Clients don’t want to be lawyers: even the most legally savvy client would not take a complex loan agreement from the LMA website and try to negotiate and agree it with a syndicate of investment banks absent of lawyers. For instance, many senior investment bankers are as knowledgeable regarding the main LMA loan documentation as most senior associates and junior partners — despite that they don’t try to run the transactions themselves; quite simply they don’t want to be doing the “boring” legal work!
Breadth of knowledge: even an experienced investment banking MD familiar with LMA loan documentation probably handles a smaller variety of documents versus a banking partner at a large law firm, especially a partner with a blend of borrower and lender side work spanning different industries, banks, and PE funds. The ability to tap into that broad and deep expertise enhances the value of the OSC LMA documents beyond that the MD might extract from their own efforts alone.
Risk of Getting it Wrong: related to the above, not only do clients not want to be lawyers, the risk of getting it wrong outweighs the risk of “having a go” to save a bit of money. For the same reason, just because you can download some OSS to solve a particular problem doesn’t mean you want to struggle with installing, scaling and maintaining it unless it’s super simple. Instead, you’d rather hire someone who knows what they’re doing.
Going sans lawyer = bad idea: flowing from the above, going sans lawyer almost always means getting it wrong. For instance, one horror story from our network involves a junior banker copying and pasting a Magic Circle firm’s banking documentation from a deal bible, updating it for a refinancing of the same (i.e. new numbers and dates) and then asking their in-house legal team to sign off on that firm’s legal opinion. That in-house lawyer quickly discovered that the Magic Circle firm had no hand in producing the documentation, nor the opinion, nor any awareness of either. As a result, the in-house lawyer had to be the bad guy: the banker’s deal wasn’t closing that Friday. Instead, that banker had to go and explain to their superiors why they hadn’t engaged the Magic Circle firm weeks ago… the result was a significantly delayed deal and substantial reputation damage for the junior banker, not the in-house lawyer.
Lawyers are clients’ scapegoats: it’s useful to clients to blame lawyers for slowing down their deal when oftentimes the inability of clients to articulate what they want, sign-off on changes to documents or the politics between the commercial parties are the real delaying factors. It’s much easier to blame the lawyers than your business partner(s) whichever side of the table they sit. Most lawyers and legal users accept this is an unwritten part of legal services, and part of the value lawyers can provide.
Lawyers are clients’ insurance policies: finally, and perhaps most importantly, if you hire lawyers you have an insurance policy. To be precise, you have your lawyer’s professional indemnity insurance policy. This is a big reason in-house teams rarely rely upon internal legal resources alone. Quality external advice is their defence to management, regulators and auditors should they do X on the advice of law firm A and X turn out to be the wrong advice. In that scenario, they have recourse to sue law firm A. Without that setup, short of sacking the in-house lawyers (which is the outcome absent of external advice) there’s little else you can do.

Opportunities and Challenges to OSC

1. The drivers for OSC

Client Sharing

Until we began writing this article we never considered the ability of a law firm to restrict a client from sharing the legal work product delivered to that client.

For instance, if you pay an elite firm £100,000s (or £ millions) for a suite of deal documentation, what’s to stop you sharing it (after redacting or stripping the sensitive bits) in an OSC manner? Putting aside any legal ways to restrict or prevent such sharing, the trickier question is whether and to what extent a law firm would risk jeopardising that relationship by trying to clamp down on such sharing!

With that in mind, suppose an industry group of law firm clients decides it’s in their mutual interests to begin OSC sharing of their documents (after redacting or stripping the juicy bits) via a cloud platform that becomes the de facto first point of call for such clients to begin designing and negotiating their contracts.

Wouldn’t that save everyone in that group money by cutting out, or at least limiting, the involvement of external law firms on all sides? This would be particularly possible where the documentation is “cookie cutter”, i.e. largely the same from deal to deal in terms of structure and content.

Technology enabled division of labour:

The copying and pasting of these documents to new versions and updating only very basic details (often factual details such as names, dates, amounts, and descriptions of events occurred or to occur) do not require legal skill.

Why should a client pay a lawyer, even a paralegal to complete these tasks? The legal skill involved is zero or virtually zero. When scaled across a huge transaction with high volumes of such documents to be processed these costs snowball.

In these scenarios, it’s better to have an OSC model, with low-cost workers using technology to stitch the documents together for a “once over” review by a lawyer. This approach could be book-ended in design, i.e. a lawyer designs the process, approach and initial documentation upfront and a low-cost resources do the grunt work of duplicating this effort across the transaction documentation using technology. The best firms have been experimenting with these low-cost centres, technologies and process / project management but could undoubtedly do more.

OSC is already here (sort of)

Legal products can be developed via OSC and are to some extent already created via OSC processes, whether that’s intra-firm or inter-firm (see Part 3 to this article series for more detail).

Client awareness of something better

Clients aren’t dumb to all of this: they know when a law firm has taken a document from the last deal and simply updated the party names and dates, especially when the last deal was with the same client. Combine that knowledge with an awareness of emergent technologies such as A.I. and machine learning assisted tools for document review / assembly and the value of CSC starts to appear very old-fashioned versus an OSC model.

2. The barriers to OSC

Risk

Law firms are very risk-averse, or at least risk aware. Their whole purpose is to identify, advise, mitigate, manage and insure against risk for clients (via doing a good job + their professional indemnity insurance). Sharing a firm’s legal knowledge would be a huge risk — it potentially reveals the firm’s expertise, best negotiating positions, and strategy.

Fees

Although OSS isn’t always free, it often is and sometimes coupled with a freemium type model. Law firms will struggle to monetise any OSC effort in light of the traditional bill by the hour model. If a client can download a contract and do most of the work themselves, the law firm loses out if they are only drafted in to add the finishing touches or give it the once over. An attendant and commensurately radical shift in how firms price legal services would be needed to shift to OSC.

Sensitivity

Law firms must protect their clients. Questions undoubtedly arise about whether and to what extent some or all of contracts drafted for specific clients can be sanitised of the sensitive provisions and shared without violating client confidentiality and fiduciary duties. Beyond things that are very obviously confidential (e.g. price sensitive information, trade secrets, pricing and parties involved etc) it may be difficult to dissect what is confidential and proprietary to a client and that which is not.

Could law firms adopt OSC?

Undoubtedly yes.

Intra-firm OSC is already here

Firms already dabble in intra-firm OSC — it’s called knowledge management, whether that’s internal sources or externally curated sources like PLC! Please see Part 3 to this article series for more detail.

Inter-firm OSC is already here

Firms already practice OSC indirectly via industry platforms designed to standardise legal documentation (e.g. the LMA and ISDA). Likewise, the very fact the major law firms work on the same transactions on opposite sides of the tables means, in reality, they each see, have and edit each other’s documents to some degree. Again, please see Part 3 to this article series for more detail.

OSC tools already exist

Traditional law firm tools such as DMS inherently include the same types of tooling used in OSS development, such as version control and collaboration. Increasingly DMS are becoming cloud-based (at least optionally), often with the types of sharing functionality consumers experience with products like Dropbox and Google Drive. Theoretically, this can improve the collaboration and sharing of documentation outside of a firm’s domain (if the will to do so is present).

Conclusion

Apart from the LMA, in recent years tech savvy firms with tech / start-up practices have unsurprisingly begun promoting OSC as part of their offering:

Law firms: Taylor Wessing and Orrick respectively offer a suite of seed investment documents and start-up tool kit on an open-source basis. Taking it one step closer to OSS, Fenwick & West LLP has in the past posted seed funding documents on an OSC basis via Github: check it out here!
Non-law firms: Perhaps the OSC revolution will be led by these firms… but perhaps it will be driven by clients using tools such as docracy.com, an online repository for creating, modifying, and collaborating on legal documents. After all, most clients will receive the Word and signed PDF versions of their final contracts from their lawyers — what’s to stop them from sharing it online when they’ve paid for it?
Dedicated legaltech entrants: emerging platforms for creation, negotiation, and collaboration regarding OSC are gaining interest from in-house legal teams at large corporations and financial institutions. For instance, Avvoka is one such contacting automation and negotiation tool set up by ex-Magic Circle lawyers and computer scientists looking to disrupt this space!
Consortiums: industry-led consortiums are emerging, such as the Accord Project, to agree on common standards for the creation and maintenance of contracts as structured data objects interpretable and interoperable with software via APIs. In turn, it is hoped such efforts enhance the frictionless application of search, analytics, machine learning and DLT technologies to contracts. In some cases, this effort is an extension of prior projects to standardise the wording and attendant processes for certain document types, for instance, ISDA’s project to create a common domain model for derivatives transactions and their documentation.

So in conclusion, we hope you’ve enjoyed this “what if” series of articles examining the distinctions between OSS and CSS, the applicability of that distinction to contract drafting and the extent to which this is already happening intra and inter-firm and the pros and cons of adopting an OSC model for future legal services with regard to contracts.

We’d love to hear your thoughts or anything we’ve missed or failed to consider. Don’t be shy: get in touch, tweet and share these articles!