Alternatives to traditional legal and contract services are not new, but why can’t we do better?

The term “services” is a bit wide, isn’t it? Fixing a dishwasher, grabbing a taxi so you don’t miss the last train out of Waterloo or preparing the tax filings for a global entity in 80 jurisdictions are all “services.” And depending upon how early you have to get up the next day, one of these services certainly takes priority over the others. My point here is that the term “services” is overly broad and requires context or even an adjective to make it useful. But do we think that putting “legal” or “contract” in front of the word “services” is enough to really specify what we are referring to? Defending a celebrity in a defamation case, reviewing an NDA or ensuring that metadata is uniform in a contract lifecycle management tool have been labelled as legal and/or contract services. Again, these terms are useful to the extent that they exclude dishwasher repair but are not really creating clarity as to which type of service provider does what, as most law firms have a view as to what they consider legal/contract services and so would any alternative legal service provider (“ALSP”.) Not surprisingly, there would be significant overlap and grey areas between the two groups of service providers in terms of what they would offer. 

The general, historic delineation had been that law firms offer regulated legal advice and the ALSPs offer all the other stuff that doesn’t require an admitted lawyer to offer advice. But is that even applicable anymore, given that many ALSPs and law firms offer secondments of licensed lawyers and the act of reviewing a contract is not a legal act in and of itself? If you disagree with that last point, I ask you to please turn in your procurement, sales, or other non-legal departments for practicing law without a license. Or yourself for that matter – unless of course you are super-strict and bring your lawyer with you every time you review and sign a contract to rent a car or buy that warranty on the dishwasher. Another way that people look at this is to say that law firms offer bespoke, specialist services and ALSPs offer “managed” services. I can live with that; however, I am not sure the industry as a whole has a good grip on the idea of what managed services really means. To explain, let’s look at gardening and landscaping. 

In scenario 1, imagine that I have purchased a flat of begonias, some hearty mums, a clematis, and a brand-new trellis for the back wall. I ask you to help me as an extra set of hands to put my vision for the garden together and make the work faster. In scenario 2, imagine that I come to you directly to build my garden for me. We agree on a price, timing for the output and some parameters on the types of colours or plants I do/do not like. I also ask that you maintain this new garden for me to a set standard and also mow my lawn on a weekly basis. Scenario 1 is staff augmentation, as you are operating under my direction to do a set task. Scenario 2, in an overly simplified way, is a managed service, as we have agreed on desired outcome, but you are responsible to the tools, means and staffing of the tasks that are in scope. Both scenarios have their advantages, but for me – for whom gardening is not a core activity – scenario 2 is much better, as it frees my time to focus on my core skills (e.g., help nice people do your contracting and contract management better). I would argue, with some exceptions, that traditionally buyers think (or are being sold) a scenario 2 when it comes to certain legal/contract services but end up in scenario 1 or 1.5 at best. Is that a bad thing? Not per se – unless you want an automobile and not just a faster horse.

Before I get hate mail, let me make a few things clear: (1) staff augmentation is a fine service, useful in certain circumstances and there are a number of providers who do a good job with this; and (2) often times the reason that a buyer who thinks they are getting a managed services in legal/contracts ends up in a staff augmentation or some hybrid is because the buyer them-self is not ready to let go of the old ways of buying or governing these services. 

Back to my main point here. Many companies “try” to outsource part of their legal or contract function and get the benefits of a managed service that is built on predictable outcomes, clear SLAs, consistent reporting and using the right resource (or tech) for the job. However, due to some hesitation (or in some cases, how the vendor is built) these companies end up in more of a staff augmentation world with named resources and a structure in the vendor that looks a lot like the buyer’s legal department or contracting function but in a less expensive location. This leads to some benefits, but not the full benefits that could be achieved if you let the service provider do what they are good at and provide service. Whether it’s BPO, ITO or any other permutation therein, the Darwinian pressures of competitive markets push the best providers to deliver quality services with consistency by managing their staffing pyramids, being hyper-efficient, providing transparent governance and using technology in the best and most sensible way. If they don’t, they lose market share and go out of business. Providers know how to operate a finance, procurement, or IT function because that is all they do. They don’t also make cars, research new pharmaceuticals, issue loans or trade energy futures. Their core activities are the enabling functions.

What would an “operate” play look like in the legal and contracts space? Here is an example to consider: reviewing or creating contracts or “contracting” for short and contract & commercial management of those contracts after they have been signed (“CCM”).

A recent World Commerce & Contracting study showed that on average 26% of the personnel in an organisation touch contract management in some manner and in some industries, this is as high as 65%. And yet, outside of some CLM technologies, I have yet to really see anyone call themselves a “contracts company.” Contracts are touched by everyone and owned by no one in an organisation, so it makes sense to: (1) consolidate and organise these activities; and (2) most likely hire a service provider to do this in a different (and dare I say better) way than your organisation is currently doing it. A company’s legal team should be working on advising and solving for the complicated supply chain, as well as sanctioning related or new ESG issues that are just part of the world now.  And they should not be focusing their energy on indirect procurement, standardised sales/partner agreements or any of the myriad of low to medium risk business-as-usual (“BAU”) contracts that flow through any large company daily. The outcomes that most companies want in this area of contracting are: (1) consistency of final position; (2) speed to enable the core business functioning; (3) transparency on the risks (and mitigations) around any of these BAU contracts; and (4) all of the above at the most efficient total cost of ownership for the function. Why do you think so many companies write about automating contracts? Automation, theoretically, would deliver the four goals listed above. Regretfully, the tech and adoption are not there in a holistic, wide scale yet. But those goals could be achieved through an operate play. 

An operate play in this area would and should (after a proper transformation of course), be an output driven engine of contract review, closing and then archiving and managing in a CLM tool. Legal front doors and intake forms are gaining acceptance daily, and the activities I just listed are widely known, but often scattered across vendors. An operate play, like in BPO or ITO, would be to combine all of these activities under one roof: a team of contract reviewers, data administrators, technologists and commercial experts who can take the contract from full cradle to grave service. Companies lose value in contracting and CCM because the processes, talents and people are scattered across the organisation and all of these handoffs within an organisation create waste and value leakage.  But what if there was just one handoff from the requestor of the contract to an external organisation whose sole job is to run the contracting and CCM? And that external organisation is not affected by the challenges of being considered non-core in a large organisation, but rather is impacted by those Darwinian influences I mentioned which effect any service provider. In this scenario, the buying organisation gets to put its people to their optimal and best use to tackle those global issues I mentioned above, while at the same time receiving a more consistent output relating to what makes up the bulk of their BAU contracts.  

The industry has been toying with what I just described for some time now and the pieces are all there, e.g., automatic NDAs, quasi-outsourcing/staff augmentation, better and more useable CLM tools, and standardisation of contracts. But no one yet has brought all of this together under one roof. To do this properly you would need a global organisation with the right mix of skills for transforming how contracting and CCM are handled, the technology expertise in what is still a niche area, and enterprise credibility. Throw in the ability to do the bespoke legal work in many geographies and that really is a different type of service.