This article is sponsored by InCloudCounsel
Which types of legal work do private debt firms typically generate?
BK: I encountered two general types of legal work while working in the private debt space at a large corporate law firm and the leveraged finance group of an investment bank. First, complex and bespoke legal work – for example, the core deal documentation for credit transactions and bond offerings. The drafting and negotiation of such documentation and the structuring of these transactions are best handled by traditional law firms. However, I also dealt with more routine legal work, some of which occurs at a high volume.
Perhaps you could dive a bit deeper into high-volume legal work – what exactly is it?
BK: It’s the type of work that falls into the second category mentioned above – documents such as non-disclosure agreements that facilitate access to confidential information and non-reliance letters that are signed to receive due diligence reports; abstracting and summarising the key terms of precedent commitment letters and definitive documentation. It’s important that this work is completed competently and in a timely manner, which requires a significant amount of time, resources, and expertise. Private debt fund managers historically have not had access to an ideal solution for handling such work. The traditional approaches for negotiating and managing high-volume legal work are lacking.
What are the established approaches for handling high-volume legal work and why do they fall short?
BK: Historically, the most common approaches have been to either outsource the work to a traditional law firm or allocate it to internal resources. Outsourcing to a law firm can be costly and doing so doesn’t guarantee a high-quality output – law firms tend to assign junior associates to cover the work to keep more senior attorneys focused on more complex aspects of transactions. This is counterproductive because the work performed by junior associates needs to be reviewed by those senior attorneys, driving further inefficiencies and client costs.
Furthermore, negotiation and turnaround time is often negatively impacted by a constant flow of competing, higher-priority tasks hitting the junior associates’ desk. Ultimately, law firms exist to help their clients address complex matters that require expert input across multiple disciplines – routine legal work falls outside of their core competencies.
Tapping internal resources – whether those resources are in-house attorneys or employees in business roles – to handle high-volume legal work is inefficient because such resources are being pulled away from higher-value tasks, such as deal origination, underwriting, and higher-value legal work that generates the most value for a firm. Furthermore, employees in business roles lack formal legal education, which can negatively impact negotiation outcomes and increase risk to the firm.
Finally, firms do not have the technology to allow them to efficiently negotiate and organise a high quantity of agreements, track workflow, and tap into key terms and data across large volumes of agreements to make negotiation more efficient and to facilitate compliance. The costs of managing routine legal work internally are less obvious than outsourcing to a law firm, but they’re just as real.
How are legal technology companies helping firms address the many costs of high-volume legal work?
BK: A growing number of legal tech companies are coming to market with solutions designed to address the costs imposed by routine legal work. Most such companies offer solutions that leverage a core technology to alleviate a specific pain point. For example, some solutions are composed of document management software designed to improve workflow efficiency and allow companies to track the status of ongoing negotiations, while others use artificial intelligence to help increase the efficiency of internal resources’ processing of routine agreements.
However, the greatest value stands to be gained from comprehensive solutions leveraging multiple components. At InCloudCounsel, we offer an end-to-end solution – document and workflow management, legal managed services utilising a global network of expert human talent, and AI-enabled contract data extraction and reporting. This allows for the automation of entire processes.
I understand that sometimes law firms themselves are beginning to refer this kind of work from their clients to legal tech companies, so they can, in a way, be seen as partners?
BK: Speaking from direct experience here at InCloudCounsel, we view traditional law firms as partners. Law firms are constantly looking for ways to bring value to their clients. Helping to facilitate the implementation of a legal tech solution that gives their clients a better way of handling routine legal work is a win-win. Law firms also benefit because their attorneys are able to maintain focus on their clients’ more important matters while reducing friction with clients over high fees for routine work. We are also able to mitigate potential conflict of interest issues that can arise for traditional law firms with high-volume legal work, which is difficult for them to manage.