Don’t Panic! Legal Tech Is Only As Great As A Great Lawyer
By: Neil Peretz, General Counsel of Aliya Financial and Contract Wrangler and Josh Levy, Senior Counsel at JE Dunn Construction
| May 22, 2020 7:30:28 PM
Don’t assume the role of the in-house attorney is shrinking just because legal technology (legal tech) is here. In fact, legal wisdom and expertise is needed more than ever!
Legal tech can help you make key business decisions quicker and be better informed across your company’s entire portfolio of relationships; however only the attorney – not legal tech alone -- can determine what all those reports from your legal tools mean and how clients and colleagues should interpret them.
Too many contracts and too little time
All in-house lawyers struggle with the classic challenge: How do I differentiate myself as a highly skilled professional providing nuanced advice on each particular problem while simultaneously staying above water when there are too many matters to handle at once?
Given budget constraints, the unspoken question among in-house lawyers is often: how can I possibly keep up with the torrid pace and evolution of my business when my budget for additional legal and support hires is restricted? In response to this conundrum, enterprising legal departments and savvy practitioners across the country are looking to leverage technology to be more efficient. But, at the same time, as in-house lawyers consider the legal technology, they need to educate themselves and their colleagues -- that legal tech cannot do it all. Important roles for lawyers and legal operations don’t just exist, they’re crucial to success.
So where does the lawyer fit in? The authors of this article -- both experienced in-house attorneys -- ponder this topic every day.
Neil is General Counsel of Contract Wrangler,1 which applies attorney-trained machine learning and proprietary software to turn existing, signed agreements into business actions that maximize the value extracted from existing relationships.
Josh is co-founder of Document Crunch,2 which was created to expedite attorney review of voluminous construction contracts and other industries’ contracts during negotiations, and provide industry-expert rationale or insights and sample language for key clauses.
Although both authors advocate the benefits of legal tech,3 their experience suggests that such products still require a good lawyer to derive the most benefits for clients.
A popular type of technology used by corporate legal departments is a contract management system, which is sometimes called contract lifecycle management (CLM). This serves as an empty database where information about contracts can be typed and stored. When used in combination with sales or procurement processes, some CLMs may also be able to automatically capture a few discrete data fields about each agreement that were entered into the system when the system’s internal templates were used to create a new sales or procurement contract. For example, when creating a new sales agreement, the salesperson would typically input the party name into template. If the template is created through a CLM, then the CLM would note the party name that was typed.
Does this mean an organization no longer needs an attorney to understand what contract language is contained in its agreements? Far from it.
A contract management system integrated with contract creation templates typically captures just a few variables for each agreement: party names, type of units purchased or sold, effective and expiration dates, and pricing.
As an attorney, you know that a typical agreement contains far more details about the business relationship and these details could prove crucially important. Particularly in the business-to-business setting, many other terms in an agreement are highly negotiated between the parties and these require ongoing attention both before and after signing the agreement.
Regardless of the platform used to house such information, an attorney’s role is invaluable to help the business team administrate the agreement and, as issues arise, quick interpretations are needed.
How do “facts” apply to contract provisions?
The answer often remains: “It depends….”
Although the helpful software tool used in the construction industry, Document Crunch,1 helps lawyers identify relevant provisions in voluminous agreements, it is not designed to determine whether a provision is sufficient for a specific purpose. The attorney still needs to step in to determine how the particular facts apply to the provisions.
A case in point: the construction industry commonly prefers the general contractor to commit to deliver a project for the price stated in the guaranteed maximum price provision or clause. Project owners prefer this commitment, because they gain price certainty and avoid writing a blank check to the contractor to build the project. This guaranteed maximum project clause also requires, as applicable, the contractor to bill the owner every month for incurred costs, but the invoice must remain within the overall limit of the guaranteed maximum price. However, and not surprisingly, as anyone who has waited or paid for completion of a construction project knows, the original estimate of the guaranteed maximum price often does not reflect the highly complex process of constructing a building.
Accordingly, within any guaranteed project rate framework, a critical provision to consider is the contingency clause for potential risk mitigation. The contingency clause represents a discretionary pool of funds within the guaranteed maximum price that the contractor may use for unexpected issues that arise on a project -- such as when certain field measurements prove to be different than what was priced, or when unplanned overtime costs occur for the contractor’s labor pool to keep the project on track, or when a subcontractor fails to properly account for all light fixtures required when pricing the job.
The amount of contingency allowable relative to the overall price is highly variable. It may depend upon the status of the construction drawings when the project was priced or upon an endless list of what the contingency can or cannot be used for. Therefore, this critical risk mitigation provision is usually a heavily negotiated term in a construction contract.
A legal tech tool that locates key clauses could be leveraged to quickly point a lawyer to the contingency provision or reveal that no such provision exists, which is just as important, however it remains the purview of an attorney to decide the best terms to be included in the provision, to assess the client’s risk tolerance, and to determine how that provision relates to what is otherwise defined as reimbursable. The attorney and the legal tech software are complementary. Both are still needed to qualitatively address the quantitative output of the tech tool.
Compensation for delay provisions – attorneys are essential
Another example in the construction space where attorneys remain essential, despite the availability of tech tools, is in the application of compensation for delay provisions. While clause identification tech tools can direct the attorney to this critical provision type, it is up to the attorney to determine whether the provision is sufficiently drafted for its purpose. For example, parties may differ about what constitutes an appropriate event for triggering an excusable delay.
Lawyers are essential for understanding the current context and emerging risks, such as a COVID-19 pandemic, and for ensuring that those are addressed when interpreting excusable delays. A clause identification tech tool can find the provision, but it remains the duty of the lawyer to determine what to do once that provision is found. Lawyers are the ones to make an assessment based on the client’s specific risk profile, preferences, and current events.
No one expects the Spanish Inquisition4 or a host of other societal upheavals
As we are reminded while trying to do business during crises of manmade and natural origin, at the time contracts are written, few can predict domestic and international political events of the future. While we may remember general provisions, such as force majeure clauses, the nuance of how these are written can have a tremendous impact on their efficacy. Additionally, clauses related to payment terms, pricing, delivery dates, and taxes or tariffs may also trigger unexpected political events.
For example, legal counsel at a large multinational manufacturing company was careful to include tariffs as part of the price of components purchased overseas. During a recent trade war, this protected the manufacturer from unexpected price increases that would have harmed its gross margin. The company could not rely solely on simple unit pricing data entered into its procurement system to spot and assess this major supply chain risk. Rather, the lawyers involved needed to have the foresight to spot the risk of tariff increases and highlight this for management. At the prompting of senior counsel, who sought to proactively mitigate risk, the company got ahead of the potential crisis by identifying clauses related to costs, denoting which ones failed to included import duties, and opening negotiations for new terms before the trade war risks increased.
Thanks to experienced legal counsel, the company also determined that another possibility for managing fluctuating tariffs is to explore the definition of taxes. In some contracts, the definition of “taxes” may be construed to include any taxes, fees, tariff duties or any other charges of similar nature (including without limitation, any penalty or interest in connection with failure or delay of payment of such taxes). It required a skilled attorney to advise the client to examine all the tax clauses in its agreements to find a lever to potentially shift the liability for tariff changes.
Context matters – tech tools do not replace attorneys
Despite all the useful tech tools out there, in-house attorneys need to be vigilant and remember that they can tread where machines are still unable to go. Lawyers are counselors and business partners who can deploy these machines, while increasing efficiency, but attorneys are still needed to digest the vast amount of newfound information that can be gleaned from application of the machines. Legal tech, by itself, cannot provide the critical and analytical framework to distill machine output into salient and contextual advice for clients and organization.
Legal tools can enable us to answer certain questions quicker and be better informed across our company’s entire portfolio of relationships; however, again, only lawyers can determine whether the findings of legal tools indicate issues that work well for business. For example, an analysis of our agreements may reveal that 17 of them require carrying higher levels of insurance than other agreements. Is this automatically a cause for alarm? Not necessarily. It’s the attorney’s role to put those agreements into context.
Perhaps the agreements are with a flagship customer, whose reputation lends a halo effect to your product. Or perhaps those agreements requiring a higher level of insurance are in a more conservative industry that was recently plagued with data breaches. Both of these scenarios suggest that, despite the increased cost, it may make sense to give-in to a request for heightened insurance requirements. Legal tech tools can spot clusters and trends where contractual business terms (such as insurance coverage amounts) may be unprecedented; however it takes an attorney’s perspective to determine whether these represent outliers that need to be changed or whether they bear a logical relationship to your business strategy and the circumstances.
Lawyers Provide Connectivity
After an attorney applies context to the data and analytics reported by legal tools, results will need to be disseminated to the right people in the organization and explained using language they can understand. Skilled users of applications like Contract Wrangler,2 for example, can use the system to push key data elements and business terms out to other business systems, such as CRM and customer support systems for their colleagues to use.
In-house attorneys are the key connections between multiple departments and third parties. While tools like workflow and contract templating systems can facilitate this connectivity, it is still the attorney who sets up these systems and tailors them to meet each client’s needs. Attorneys help turn legal documents into operating requirements and ensure that the proper executives and teams are educated and notified.
It’s the job of attorneys to help the customer support team see how warranties and service levels vary across client agreements. Attorneys are the key business partners to the chief financial officer, who wants to study payment terms across vendors to determine whether working capital requirements can be decreased without damaging a contractual relationship. And attorneys are also the key advisors to the sales team, who need an analysis of all customer agreements to determine the true market terms for limitation of liability.
Legal tech can make lawyers bionic
Thankfully, these legal technologies provide enhanced structural support for lawyers to be more efficient with their time. The technology might make the lawyers better, faster, and stronger than they ever were before, it remains the role of the lawyer to facilitate the connectivity of information to actionable advice for their clients. The most successful lawyers will strike the right balance between leveraging such technologies while continuing to provide the pragmatic and communicative approach that distinguishes a great in-house counsel -- every day.
At the end of the day, lawyers need to play to their strengths: connections and context. They now need to be tech savvy and learn which tools provide a broader view or help them to be more responsive. And lawyers need to know when to go to the next level of data granularity that empowers actions by business colleagues.
ABOUT THE AUTHORS
Josh Levy is a Co-Founder and Strategic Advisor to the recently launched AI platform, Document Crunch. He founded this platform to scratch his own itch: to more efficiently review and advise on voluminous contracts. Josh also currently leads the legal department of a regional business unit of one of the largest commercial general contractors in the United States. In this role, Josh has negotiated and reviewed billions of dollars’ worth of construction contracts across numerous industries, including hospitality, healthcare, aviation, higher education, industrial, and multi-family, and manages all other commercial activity. Prior to going in-house, Josh served as a construction practitioner for two large law firms in Florida, representing developers and contractors. Josh graduated with honors from the University of Florida with a Bachelor of Science in Construction Management, and earned his Juris Doctorate from the University of Miami, graduating magna cum laude.
Neil Peretz has served as general counsel of multiple companies, as well as a corporate CEO, CFO, and COO. Outside of the corporate sphere, he co-founded the Office of Enforcement of the Consumer Financial Protection Bureau and practiced law with the US Department of Justice and the Securities and Exchange Commission. Peretz holds a JD from the University of California, Los Angeles (UCLA) School of Law, an LLM (Master of Laws) from Katholieke Universiteit Leuven (where he was a Fulbright Scholar), bachelor’s and master’s degrees from Tufts University, and was ABD at the George Mason University School of Public Policy. Peretz's most recent technology endeavor is serving as general counsel to Contract Wrangler, which applies attorney-trained artificial intelligence to identify the key business terms in a wide variety of contracts.