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The Future of ALSPs and Contract Automation Technology

How Early Adopting ALSPs are Redefining the Legal Industry

Contract Automation Technology

Although the legal industry is investing more heavily than ever before in contract automation technology and artificial intelligence (AI), it has still been comparatively slow to adopt this in contrast with other industries.

This comes as a surprise given the unavoidably large volumes of highly repetitive tasks that legal teams and alternative legal service providers (ALSPs) are required to perform – typically a perfect use case for automation. So why is this?

Is the legal industry technophobic?

Perhaps, but a more complete answer is rooted in two key factors:

1) Automation is becoming a core differentiator for ALSPs

Whereas ALSPs used to focus largely on providing lawyers on demand (staff augmentation), their adoption of technology to automate legal service delivery has been steadily increasing to answer the call from legal departments to deliver greater efficiency and predictable costs.

This shows just how essential contract automation technology has become as when used efficiently, it is highly profitable and a key source of competitive advantage. As such ALSPs have become a driving force behind “legal tech” – their bottom line has become more dependent than ever on efficient, streamlined and automated workflows made possible by software.

2) Contract automation software simply hasn’t been good enough

Up until now, contract automation software has lacked the sophistication to automate every step in the draft to signature process. While ALSPs traditionally developed proprietary solutions in-house out of necessity, augmenting gaps in scope using staff and manual processes, standalone technology providers have begun to outpace home-grown solutions and ALSPs are increasingly turning to technology providers for best-of-breed automation.

This shift is driving constant improvements in the technology and with it the level of complexity it can deal with. As a case in point, advances made in AI, specifically machine learning and natural language processing (NLP), is driving increased adoption of post-signature, document review & analysis software, where clients can now automate the analysis of  high volumes of contracts in minutes or hours, rather than days or weeks.

ALSPs and contract automation technology are redefining the industry

The recent UnitedLex deals with GE and DXC have caused a stir in the legal community. Deals of this magnitude represent the coming of age of ALSPs. UnitedLex claims they will reduce GE’s spending by 30% across legal services including document review. This speaks both to the competitiveness of ALSPs and the inefficiency inherent in traditional legal services delivery.

These large-scale deals spotlight the gains that are possible with automation technology. New professions have begun to emerge including “Legal Operations”, driven by organisations like CLOC, and are hungry to find efficiencies in legal services delivery. Trends like this are creating compelling, data-driven business cases for automation. Yet while contract automation vendors are responding with more advanced offerings, certain steps in the contract workflow like negotiation are still manual, not easily measurable and unable to be truly automated up until very recently.

There also exists a growing complacency amongst traditional law firms regarding the need to automate various aspects of legal services delivery. Hugh A. Simons, writing for Corporate Counsel recently described exactly these developments as a “tripartite perfect storm” for creating next generation legal departments running on the latest technology.

So, is the legal industry is about to overcome its phobia?

The meteoric rise of “new law” and ALSPs

In a relatively short time frame, ALSPs have been widely adopted in the legal industry: According to a study by Thomson Reuters, 51% of law firms and 60% of corporate departments are using ALSPs for at least one service. While the ALSP or “new law” market is growing, the market for traditional law practice “old law” is shrinking. A recent publication suggests that, by 2025, “old law” is expected to shrink by 11% from $300bn to $265bn while “new law” is expected to grow by 650% from $8.4bn to $55bn.

alternative legal service providers

Interestingly, to reach $55bn by 2025 the ALSP market would need to see an average annual growth rate of 38%. This may seem high, however, this year the ALSP market is already valued at around $8.4bn, meaning the ALSP market witnessed an average annual growth rate of 61% over the last three years – far exceeding estimates. If the market develops as estimated, ALSPs would increase their market share from under 1% in 2015 to more than 20% by 2025.

Axiom is a prime example of the meteoric rise of ALSPs. The numbers speak for themselves: Founded in just 2000, as of 2017 has witnessed a staggering 45% compound annual growth rate since launch. Its annual revenue is now north of $300M and employs 1,200 lawyers and 2,000 staff. Axiom serves around half of the Fortune 100 companies.

Reshaping the industry: the next generation legal department

So what has been the key to Axiom’s rapid success? Well, actually it seems to be rooted in the stagnant nature of traditional law practices.

In a recent interview, Axiom co-founder and executive chairman Mark Harris believes that

One of the main problems and efficiency killers is what he calls their “artinal approach” to problem-solving:

“…the legal industry that is still following an artisanal approach to work (that is, one in which each problem is solved anew, devoid of process, tools, technology, and data)”

By solving each problem each time, processes cannot be streamlined and automated.

So what can legal departments do to bridge the gap?

Hugh A. Simons highlights three key factors for legal departments to get ahead of the curve and create additional efficiencies for the business:

1. Outsource high-volume, recurring activities to ALSPs including:

  • Contract management
  • Litigation support
  • Intellectual property management
  • Regulatory compliance

2. In-source higher value activities from complacent law firms where the business demands greater efficiency and expertise exist in-house

3. Use proven technology to streamline workflows and work together with ALSPs to validate, implement and measure additional areas where automation can drive competitive advantage

By offloading work to ALSPs, legal departments can reduce the time spent on recurring work and reallocate resources to carry out higher value, more complex activities. Looking at the technology ALSPs are implementing as early adopters will set up legal departments to mirror these processes and deliver the same efficiencies in-house.

A fully automated contract workflow: from draft to signature

So what does a fully automated contract workflow actually look like? Let’s take a look:

  1. Assembly – A contract draft is generated from a standardised template based on predefined clauses and client-specific information
  2. Review – The contract draft is approved by internal stakeholders and, if required, approved) and released to the client
  3. Negotiation – Should a client have questions or disagree with a part of the contract, the terms are negotiated and additional stakeholders may be involved (dependent on the nature of a proposed change)
  4. Signature – Both parties sign the contract and the agreement takes effect
  5. Management – The contract is stored in a central repository with deadlines and obligations tracked throughout the contract’s lifecycle.

The biggest inhibitor to automation: exceptions

There are many benefits to automating your contract workflow. In fact, Mick Sheehy, General Counsel for Australia’s largest telco, Telstra, recently managed to save 6500 hours a year across his legal department by automating NDAs and, in the process, garnered significant internal support to extend his automated workflow even further. However, he also identified a critical sticking point that prevented him from applying automation to additional contracts: exceptions created through negotiation.

For generic NDAs that carry minimal risk, Mick’s team structured terms that were fair and “market standard” to reduce the need for clients to negotiate these low-value agreements. However, for contracts that are more complex, higher risk or not readily accepted at first glance (i.e. almost every contract type except for NDAs) there was a consistent, recurring need to clarify and negotiate on contract terms.

When automation is used to generate a first (and desired “final”) contract draft and sent for signature electronically (using a service such as  DocuSign), there is no ability to handle exceptions from a client; for example when they request to clarify or negotiate on contract terms. Negotiation breaks standard workflows and forces exceptions to be handled manually offline – an activity that ALSPs can easily resource with specialised lawyers to resolve.

So while current automation technology drives efficiencies for highly standardised contracts, it hasn’t allowed clients to scale those benefits to more complex contracts and fully automate the legal workflow from draft to signature. If the true potential of automation lies in its broader adoption, is it possible to automate the exceptions and unlock more complex use cases?

Well, the answer is “Yes”.

synergist solves this very problem and you can read about a recent use case for GDPR remediation here.

The number of ALSP & technology partnerships will increase

The gap between major ALSPs and standalone technology providers is closing. As technological advancement continues, software solutions are outpacing proprietary technology developed in-house by ALSPs.

When asked whether he sees legal tech solutions as competition or partners Axiom co-founder and executive chairman Mark Harris responded:

I’d say much more likely to be partners.  In fact, we’re today relying on partners to round out our product suite in our tech-enabled contracts offerings.  Axiom is a tech-enabled services firm, not a software company. We do have the proprietary technology but it’s unlikely we’d ever see a pure-tech solution as a direct competitor.“

Technology solutions are not only necessary for ALSPs to meet their efficiency targets, partnerships with technological solutions will shape ALSPs future ability to provide efficient automated services.

Final thoughts: contract automation offers a glimpse of the future

An interesting prediction is that 50 percent of the top 100 US law firms’ work will go in-house within the next 20 years. While we can argue the percentage, the underlying trend – driven by an increasing pressure on legal departments to be more efficient – is undeniable. This means that whether completely in-house or in cooperation with an ALSP, contract workflows and their exceptions need to be optimized from draft through to signature if the real value of automation is be unlocked and the true efficiencies realised by clients. This is only possible with a software solution.

The gap between legal departments and ALSPs is quickly closing as the advantages of automation technology become ever more apparent, enabling ALSPs to retain competitive advantage. As this gap closes, the lines separating the domains of in-house legal departments and ALSPs may be redrawn as automation software like synergist make it possible for in-house departments to replicate the magic of ALSP efficiency and turn negotiation data into actionable insights for their company. Automation software will be a key driver of efficiency gains and has the potential to not only redefine business objectives but also to allow any legal team to create their own economies of scale.