View Only

Artisanal Legal Documents Need to Die Now

By John Alber posted 05-18-2020 12:08


First in the Future-Proofing Series

“[I]f your firm is rising to meet the new demands of a post-pandemic legal economy, and, in particular, if you expect to embrace the increased risk-shifting toward law firms that now seems inevitable, you will be best served by investing soon in document automation. Document assembly platforms and expert systems will become the foundation of the fixed price and alternative fee economy. They are essential tools in separating value from hours. And, as such, they are also indispensable for extracting profits from a legal economy with precipitously falling demand.”

Future-Proofing. The future advances on us in fits and starts. Sometimes it hangs back, and we think we will sedately pass away the remainder of our days just as we always have done. Then comes a season like the spring of 2020, and we find ourselves on the plains of the Serengeti being stalked by mortal predators.

The #COVID-19 pandemic now sweeping the world has already re-written the future for all businesses. It has, for example, forced years-worth of advances in remote work and communications technologies and the attendant cultural norms, and done so in just a few weeks’ time. But that will be the least of the pandemic’s effects on law. The legal services market, already in the midst of unprecedented changes, has begun a truly seismic shift as a consequence of the pandemic.

I described many of the developing shifts in the legal marketplace in my new book from Ark — Future-Proofing Midsize Law Firms: A Guide for Strategic and Innovation Leaders. Those shifts may once have seemed distant prognostications, but, just as with remote work and telecommunications technologies, the pandemic has telescoped them into the present. Future-Proofing might better have been named Now-Proofing.

Suddenly, we need strategies for dealing with a resurgence of risk shifting to law firms, for increased use of fixed pricing and other alternative fee arrangements, for renewed demands for budget and schedule certainty, for fierce downward pressure on hourly rates, and for even more emphasis on RFPs and other means of forcing law firms to compete against each other.

How do we cope? Other businesses and business theorists have pointed the way. Disruption isn’t new. From our business forebears, we know that in times of great change like the present — mortal times for businesses — only change leaders can survive. In each article in this Future-Proofing series we will spin out a key change leadership idea from the book — something law firms can begin to work on now in order to prepare themselves not just to survive the chaos of this age, but to thrive in it.

This first article in the series looks at one of our most fundamental work processes and invites us to reengineer it entirely. For decades, we have been amply rewarded for inefficiency in this area. But those days are waning fast. The change leaders in our industry will attack that inefficiency at its root now and transform not just how we create our own work product, but how we price it, and how our clients use it. The rest will accept their fate…whatever it proves to be.

Artisanal Indulgences. The term “artisanal,” now popular in culinary and brewing circles, is perfect for characterizing how most legal documents are produced. In common use, the term refers to goods created using traditional, manual or otherwise non-mechanical methods. And that aptly describes how many legal documents come together as well. The import of the term in non-legal areas is that, somehow, manual processes produce better products. But, in law, the opposite is usually true.

And make no mistake. Our processes are still mostly manual. Yes, word processors and document management platforms may be involved, but the methods used to create work product have hardly changed since the time of Bartleby the Scrivener, or at least since the invention of the typewriter.

Here’s how it usually works: Let’s say the need arises to create documents in support of an asset acquisition. Having consulted directly with a client or, more likely, with a senior partner who has talked to a client, a junior lawyer surveys his or her files for examples, may examine other file sources as well, such as those provided by a senior partner or by the firm, and, if needed, may thereafter cruise hallways or email colleagues searching for useful precedents, forms or templates. Then, drafting is a matter of laboriously cutting, pasting, modifying, and creating the rest of what is needed.

Just finding appropriate form documents or exemplars can consume a significant fraction of the time involved in drafting. During the litigation boom in the wake of the 2009 real estate bust, my own firm set about removing inefficiencies in the drafting of pleadings and legal memoranda in the tens of thousands of foreclosure and counterclaim cases we managed for clients. We found that simply moving form and exemplar documents into common libraries where they could be easily found reduced drafting time by more than 20%.

Cutting and pasting, too, involves rampant inefficiency. The physical processes themselves are a comedy of conflicting formats and word processor quirks; they’re scarcely more efficient than the paper, scissors, and tape processes common early in my legal career. But it’s the selection of what to cut and paste that taxes the clock the most. A good, time-consuming search might turn up a half dozen possible variations for each clause or component needed in a document. Both the searching and the assessment of which to use send hours swirling down the drain. And there’s no guarantee that best practices have been captured in such ad hoc searches. A good search might look outside the firm, and even to sources like EDGAR, for examples of best practices. But, because of time pressures, that rarely happens. What gets used is what’s nearest at hand.

And the next associate to tackle the problem…starts the process all over again. Conventional document drafting is a monument to reinventing the wheel ad infinitum.

Hourly Perfection, with a Hook. This traditional document creation process has many obvious flaws. But is very nearly perfect where fees are calculated by the hour. It’s defensible since law departments likely use the same methods for creating their own documents. And its inherent inefficiency generates significant revenue flow for law firms built on leverage and a cost-plus approach to pricing. In many ways, the less efficient such a process is, the better.

But there’s a hook underneath this billable hour bait, and we’ve been caught by it before.

When we derive revenue from inherently inefficient processes, the market eventually corrects that inefficiency…at the expense of law firms. How do we know that? Because document drafting shares many traits with the document reviews that used to be done by law firms in connection with document discovery or due diligence. It also shares the same vulnerabilities.

The delay, unpredictable expense, and inaccuracy of manual document review engendered great frustration in our clients and caused them to seek out alternative solutions to document review, mainly from outside traditional law firms. That search for alternatives pulled much eDiscovery and due diligence work out of law firms and greatly diminished the economic significance of that which remained. ALSPs, sophisticated search and workflow management platforms, predictive coding, and the like — all took their toll.

Even before the pandemic, we saw evidence of a similar shift occurring in connection with document drafting. At the low end of the market, companies like Legal Zoom and Rocket Lawyer perfected the use of fairly low-tech document assembly platforms. Users, who more and more include small- and medium-sized businesses that used to be our clients, fill out an online form, and a document assembly engine then produces a final document based on the questions answered and the jurisdiction involved. The quality of the documents produced in this way may be … intermediate, but it suits the market and so the model has met with widespread success.

Creating Efficiencies. Even in the case of simple transactions like those served by the likes of Legal Zoom, notice how everything about the document creation process has been touched and reengineered. Interactions with clients have been streamlined and moved online. Exemplars have been coded into dendritic logic engines that operate on an “if this problem, then that clause” basis. Hallway searches have been banished. Many of the risk management measures employed in such documents have been pre-thought-out, and best practices have been identified in advance, all outside the pressures of a client deadline. And, finally, in these low-market deals, lawyer face-to-face time has been stripped from the process. A client of these systems can emerge with a finished document in under 30 minutes. For $29.95.

Across the rest of the market, we see other approaches to tackling the inefficiency and expense of artisanal drafting practices. These solutions are in various states of perfection, but they, together, exhibit much the same type of market pressure that undid document review as a mainstay of law firms. As a consequence, we can expect an ongoing withering of revenues from traditional document drafting.

Document Assembly to the Rescue. The desiccation of traditional document drafting revenue sources does not mean that firms must abandon drafting altogether. We can learn from those that have preceded us. We simply need to seek profit models that are not founded on inefficiency.

The easiest alternative to traditional drafting processes grows out of the abundance of document assembly technology now available. Solutions range from elaborate, programming-intense, but highly capable platforms to AI-enhanced, point-and-click applications for which almost no training is necessary. Among the International Legal Technology Association (ILTA) vendor community, there are more than a dozen document assembly companies. And that number is easily doubled by looking outside the legal sector for more general document assembly and process automation providers.

When coupled with creative pricing and service models, such document automation can drive powerful firm economics. Unfortunately, if the last 30 years is any indication, law firms will be among the last to employ document automation, thus allowing the kind of death by a thousand cuts predation of markets that has occurred in other segments of the legal economy. Companies outside the traditional legal sector have already begun making intrusions, and most law firms will only enter the market after most of their revenue has been cannibalized.

But that doesn’t have to be. Although it’s been around in law for 30 years, document assembly is still young in terms of living up to its potential. Thus, there remain many opportunities to employ it in dealing with the post-pandemic legal economy.

Economics of Document Automation. Document automation can lead to margins greater than those typically associated with hourly work…but only if you embrace new pricing strategies. If you expect your firm to continue to cleave to hours-based and highly leveraged work models, as in years past, you’d best skip the cost and considerable effort needed to automate your key documents. That money is better spent paying partners…while you can.

But, if your firm is rising to meet the new demands of a post-pandemic legal economy, and, in particular, if you expect to embrace the increased risk-shifting toward law firms that now seems inevitable, you will be best served by investing soon in document automation. Document assembly platforms and expert systems will become the foundation of the fixed price and alternative fee economy. They are essential tools in separating value from hours. And, as such, they are also indispensable for extracting profits from a legal economy with precipitously falling demand.

How does that work? A concrete example may help. The fictional case I discuss here is an amalgam, drawn from document automation initiatives across the industry. But, it’s real. I’ve seen something like it operate first-hand, and quite successfully.

Let’s say you have a document-intense practice like construction lending. The usual approach to such practices is as was described above. A client lender gets a new deal in the door, calls a lawyer and describes the deal terms and particulars, and then waits for a draft set of lending documents. Back at the law firm, the partner grabs an associate, plays telephone with the deal terms (i.e., maybe the associate gets them, maybe not) and asks for a draft. The associate hits the hallways or the document management system looking for examples, and, eventually, voilà!, a draft gets produced. Depending on the complexity of the deal, there may then be several back-and-forths, both internally and with the client, over refinements. And, voilà again!, a final document is delivered, along with a $10,000 bill for services.

How might a firm approach that sort of transaction differently? Suppose the firm’s lending team closets itself away from deal pressures and begins to develop a taxonomy of the sorts of transactions it typically encounters. It catalogs the twists, turns and other variations such deals can take, and then researches — both from among its own archives and more broadly — best practices to handle such variations. It then encodes its extracted collective wisdom into a set of document assembly templates. Those are coupled with an online census likely also managed within the document assembly platform. The census is a means of querying clients in detail about the particulars of their deals.

Next, the lending team creates a tiered fixed price structure for the deals it thinks it will encounter: one price for simple transactions (much lower than the $10K typical of an average document set), another price for mid-level deals, and finally a “Cadillac” price for complex deals likely to require a lot of lawyer-client back-and-forth.

What are the advantages of such an approach?

Workflows. From the client’s perspective, the workflows for lending deals just got a lot cleaner. Instead of running down an outside lawyer to start a deal, the client goes online and completes a deal census. For simple deals, that may be all that’s required. The client gets a pretty good draft set of loan papers and a bill. For more complex deals, the client may select a more expensive package that allows for more customization and risk assessment.

From a firm perspective, most of the labor of creating a loan documentation package is front-ended. It occurs during the process of completing templates. And that labor need not be repeated with each deal. It is used over and over. As a consequence, the workflows during a deal are greatly streamlined. The first thing that happens may simply be a notice that a client has caused a draft to be created. The legal team can jump on that and perhaps wrap up a transaction that used to take days or weeks in a matter of hours.

As a result of these streamlined workflows, legal teams can handle a lot more deal throughput than was possible using traditional means. And that can include deals that had previously been too small to consider.

Pricing. And what about the pricing of these transactions? From the client perspective, the client gets both price certainty upfront and the potential for price points that are proportional to deal complexity: less for simpler deals, more for more complex ones. The client can thus afford to route more deals through the law firm.

From the law firm perspective, if the firm prices astutely enough to capture more small deal flow, it can achieve the software industry ideal of “making money while you sleep.” Document automation can allow firms to extract value from their intellectual property without need for significant variable labor (in simple deals, at least, the labor is a fixed up-front cost).

And how should firms arrive at pricing for transactions involving document automation? Coming from a billable hour, cost-plus world, the prospect of setting that first price menu will certainly be daunting. However many SWAGs and extrapolations underlie it, the fact is that risk will be involved in setting those first prices. But business entails, by definition, the embracing of risk, and the scientific effort to manage it over time. Set your starting prices, and then fix them as your data and the market tells you to do. That’s how all business works.

What other factors have to be considered in starting down the document automation path?

Suitability. Not all documents lend themselves equally well to automation. Probably the last province to fall will be documents involving argumentation. That said, however, in the wake of the real estate bust, some firms did automate the production of recurring motions and memoranda in support. The economics of those portfolios of cases were so harsh as to require such action.

In general, and for now, though, litigation matters will produce fewer automation opportunities than transactional work. But even in litigation, certain types of document discovery and interrogatories recur often enough to justify automation.

Document automation is a variety of process automation, and, as is the case in other industries, processes that recur more often are more suitable for automation. The key is to break apart all your work processes and examine them for potential savings. Some will be candidates. Others may not at present.

Technology. Document assembly technology used to be messy, technical, and expensive. Thirty years’ worth of perfecting, as well as competition from today’s “appifyed” and online world, has changed all that. Every firm of any size ought to be able to afford and support a basic document assembly platform. There’s no longer any excuse for not doing it. Indeed, I’ve seen highly entrepreneurial legal teams set up document assembly platforms themselves. It can be that simple.

Resources. Firms and legal teams venturing into document automation do need to understand the resource demands of setting up an automated document practice. The creation of the templates underlying an automation platform entails the extraction of a significant amount of intellectual property from the minds of already busy lawyers. In the best examples of automated document sets, teams have reached very deeply into the recesses of their lawyers’ brains — into every nook and cranny. They have performed a “Vulcan mind-meld” with their document assembly platforms.

There no way for such a mind-meld not to consume a lot of hours. If it’s to be done well, it will take time. A lot of time. You need to be prepared for that.

But the value of that time can be extracted over and over. As a consequence, firms can achieve returns on the investment of time that far exceed returns on regular hourly work. It’s just that the expense of those hours occurs at the very front, and the revenues flow in at the very back. A firm has to be willing to bridge that gap.

Entrepreneurship. If you set out to automate every type of document in your firm — what tech experts call a firmwide initiative — you will fail. Document automation creates profound changes in daily work practices, and you’ll encounter a lot of resistance to such change.

A better approach is to find an island of entrepreneurship inside the firm and start there. Reengineering work processes, pricing mechanisms, client interactions, and the like will take extraordinary amounts of energy — the kinds of energy entrepreneurs bring to the table. Once you’ve established a few islands of success inside the firm, then you will have a far better basis for propagating that approach from island to island across the rest of the archipelago. And you still may have to outlive the royalty on some of the remotest islands in the chain. But, over time, you will have shifted the economics of one of the firm’s most fundamental work processes.

Archipelago hopping takes years. So, you’d best start now.




05-19-2020 15:28

More than a dozen ILTA vendors offer document automation of one kind or another, and if you step outside the legal market, there are many more. And expert systems and AI tools intersect this space too.

I try not to pick favorites because the selection of the right tool may depend on variables in your firm that I have no knowledge of. So my favorite might not work for you.

And there are many other considerations besides the tool itself. Some vendors, for example, have established markets for templates, which may provide shortcuts to the work automation process.

05-19-2020 13:04

are you able to name a few favorites tools for implementing document automation?

i am familiar with hotdocs, theformtool/doxsera, and pathagoras