It is easy to find examples of innovation and transformation around the delivery of legal services in the digital sector, for example within SAAS businesses, fintechs and insuretechs. Less obvious perhaps is the arguably ‘quieter’ but equally impressive transformation happening in companies in the engineering, construction and advanced equipment manufacturing sectors.
Companies in such ‘traditional’ sectors have to apply innovation and transformation to long established business models (and sometimes resistance to change). Unlike many digital companies, they don’t have a clean slate from which to start.
At Lexical Labs, we engage with many companies in these sectors, particularly those reviewing third party contracts.
This white paper showcases some of the impressive transformation that is happening to contracting and legal professionals in these sectors. We see 7 key trends which are shaping the future of contracting and the lives of legal professionals in these sectors:
Lawyers working in these sectors deal with complex cutting edge challenges. Their projects solve some of the planet’s critical challenges such as the transition to clean energy, access to water, affordable housing and the modern workplace. Yet, the sectors face a paradox. The same design expertise, process optimisation, problem solving, innovation that is the hallmark of many companies have not traditionally been applied to contracting.
The complexity of contracting should be respected. The contracts are often high value beasts that require careful allocation of responsibility and risk. When things go wrong, it should be clear who is responsible. This takes time and patience.
Furthermore, most companies in the sector have a mix of ‘own terms’ and ‘third party paper’ contracts. This makes consistency and efficiency more difficult.
That said, contracts in these sectors have often been quite messy. Difficult to understand contracts, painful to negotiate and often just as painful to manage. Often filed away and ignored until there is a problem. Frequent amendments documented in a way that is difficult to keep track of the thread.
A common complaint is that contracts have traditionally served the lawyers rather than the businessess. Construction managers are expected to manage projects in line with the contracts but struggle to make sense of them.
A final challenge, often overlooked, is that the legal teams are often small and overloaded.
Lexical Labs works with a number of companies in the engineering, construction and advanced manufacturing sectors and we see companies meeting these challenges head on in the following ways.
On the face of it, this trend does not sound revolutionary, but it provides a platform for the other trends discussed below.
Increasing digitisation and automation is the above challenges in a number of ways:
These platforms provide a basic highway on which projects or contracts can be run. They provide for a ‘single source of truth’ be it either the contract, the work plan or the tender and the tools to communicate and collaborate between all involved.
They therefore are the spine which supports the other trends below.
Contract intake triage is the process of prioritising contracts as they come in and then allocating the right resource to finalise it. It is a crucial part of the contracting process that has efficiency and risk management benefits. Triage is often performed as part of the ‘Legal Front Door’ which is a technology assisted way in which business teams seek legal assistance.
Triage needs to account for both the value and risk of the business opportunity (often obtained by a business manager answering a questionnaire in a platform or data sheet) and an initial quick review of the contract to uncover risky clauses.
Contracts are sent down the right ‘train tracks’ to different personnel and at different speeds. For example, the highly valuable and urgent contracts are assigned to senior lawyers or contract specialists. Others are assigned to more junior colleagues. Some to procurement or sales teams specialists and finally some to business colleagues.
Some companies now use software to review the contract at the triage stage. The benefits are:
The triage stage can therefore effectively become the first review of the contract and accelerate the contract finalisation process. Basic contract data can be extracted automatically from the contract and placed on a dashboard as below.
Warren Buffett famously once said that ‘risk comes from not knowing what you are doing’.
A big problem in the past was that risks were buried in a multitude of dense contracts, often only accessible by contract specialists. Those contract specialists often spent valuable time manually creating contract summaries and risk databases so that their business colleagues could manage responsibilities and risks. Often the sheer time pressure meant that this was poorly performed or overlooked altogether.
By digitising the contract process on cloud based platforms, innovators are now able to extract valuable data insights to users on dashboards and visualisation charts.
One AI based automated contract review tool providing these insights is Tiro, from Lexical Labs. Tiro reviews contracts - using both deep learning and logic based algorithms - not just extracting clauses but analysing them.
Tiro is designed to review inbound contracts known as ‘third party paper’ without having seen the underlying contract template. Third party paper is common in the sector and traditionally a headache to manage as reviewing and managing unfamiliar contracts in a static document is time consuming and challenging.
Tiro has a unique contract risk scoring, automated reporting and data visualisation features. Tiro can automatically score each contract across more than 20 issues, assign an overall risk rating (see screenshot below), and creates a risk report.
Each contract is linked to a more detailed risk report as follows:
Risk management in the E&C sector has been a key priority but has arguably lacked both flexibility, dynamism and data analysis.
This is changing rapidly.
We often hear our customers describe their approach to risk management as ‘informed and business lead’. What does this mean in practice?
Legal design is the application of design thinking principles to the delivery of legal services. The purpose is to make legal services and processes more human-centred, usable and enjoyable (just as the driver and passenger experience is put at the heart of car design). Whilst empathy is at the heart of legal design, there are compelling business reasons for adopting it, such as cost reduction, business acceleration and brand enhancement.
Common tools are graphic representation, visualisation, plain English summaries of legalese and user friendly technology.
An early pioneer of legal design was Shawn Burton at GE who led a radical simplification of GE’s customer contracts around 2015 - see ‘Shawn Burton - Honey I shrunk the contract’ https://www.ge.com/news/reports/keep-simple-plain-english-helping-ge-keep-business-humming
Shawn’s work led to faster contracts and sales and arguably improved GE’s risk position by making responsibilities clearer in the contracts. He challenged the widely held view that that complicated contract language assisted risk management.
Lexical Labs has been involved in various projects involving legal design in the E&C sector. Here are a couple of examples.
One engineering and equipment manufacturer wished to transform the process of finalising NDAs and tracking them after signature. Previously, the company had a complicated NDA template and any deviations from the template needed approval by the legal team. Because most NDAs handled by the company were on third party paper, the legal team was often bogged down by NDA review. NDAs were taking weeks to review and finalise which was delaying sales and business opportunities.
Working with Lexical Labs and a legal designer, the company designed a process that streamlined NDAs as follows:
The benefits were faster conclusion of the NDAs and therefore accelerating business, more consistency and a better human experience. Business managers felt empowered and counterparties could see the professionalism and efficiency of the process, thereby enhancing brand reputation.
A contract playbook is an essential tool for any contracts team looking to scale and ensure its contracts are negotiated consistently. By establishing standard and fall back positions, playbooks provide negotiators with clear guardrails within which to operate.
Playbooks save time because they contain everything that a contract negotiator needs to review a contract, including clause wording, explanations to business teams and the other party to the contract and when things need to be elevated and approved. Better risk outcomes are promoted.
Our customer used legal design techniques to incorporate their playbook into Lexical Labs’ automated contract tool. The software automatically scores the contract against the playbook and links explanations and suggested clause wording to the relevant clause of the contract under review. Users can also automatically create reports against the playbook.
The outcome is both time saved and a smoother process. For example, business teams could ‘self serve’ on contract review using the software, either to handle low value and risk contracts entirely or by conducting initial business critical reviews of more complicated contracts before the legal or contracts team.
Traditionally, insurance has been used to manage risks associated with contracts. For example, business interruption insurance.
Given the inherent link between contract risks and insurance, insurers are increasingly focused on assessing how successfully enterprises are negotiating their contracts and managing risks that arise from them.
Innovating enterprises are responding to this and using it to their advantage. By actively demonstrating their technology assisted and informed approach to risk management, companies are able to bring down the cost of their insurance and target it more effectively.
Finally, arguably the most exciting trend is around the people themselves. Pioneer legal professionals (meaning lawyers, legal operations professionals, legal engineers, data scientists and others) are becoming designers and creators in their own right. Of course, this chimes with their business customers who are themselves creators.
In the old world, an individual lawyer or contract specialist might review and help negotiate 100 contracts per year (maybe more or less depending on their complexity). In the new world, that lawyer uses their experience to create a contract playbook (either a written guide or in software) that allows the same lawyer to support their business colleagues in negotiating 500 contracts. They scale their legal function and free-up time for personal involvement in more strategic and complex legal issues.
Likewise, legal professionals are able to create apps which are capturing their knowledge and expertise and making it more widely available. For example, a simple portal to a set of frequently asked questions or utilising their company’s own ‘chat bot’ to answer questions of business colleagues.
Similarly, the legal professionals who have set-up the means to capture and analyse data are influencing key decisions in the company. For example, legal professionals who have data on actual risk outcomes based on ‘risk loops’ mentioned above become true risk advisors. Or a legal professional might ask questions of their contracts which inform business planning. For example, does a particular structural approach to business (such as owning or leasing assets) produce a more profitable outcome. Or which customers who have signed a contract with one division might be cross-sold to another?
We can see an exciting opportunity for the legal professionals to shape ethical, environment and social responsibilities within the company using similar approaches.