Bye-Bye Billable Hour

Cisco General Counsel Mark Chandler doesn't mince his words when it comes to law firms and their addiction to the billable hour:

As Cisco gets bigger, the share of revenue devoted to legal expense needs to gets smaller. Letters from law firms telling me how much billing rates are going up next year are therefore totally irrelevant to me... I don’t care what billing rates are. I care about productivity and outputs.

His speech to the Northwestern School of Law's 34th Annual Securities Regulation Institute conference describes a fundamental misalignment between most law firms (who want to sell billable hours) and most clients (who want to buy information, documents, etc, at low cost), which is leading to unhappy lawyers and unhappy clients.

But Chandler isn't just talking about the problem, he's changing things. He lists at least four areas where Cisco is now buying legal services on a fixed fee basis: patent prosecution; review of license offers; corporate secretarial work; US corporate, securities and M&A work; and US commercial litigation. In some cases, these fixed fees are structured to go down each year, not up. Cisco has also pioneered the use of internal productivity tools, like online contract drafting, so that many contracts can be created by front line staff, without the need for costly legal review.

The other way to respond to cost-cutting pressures is simply to get rid of some lawyers and stop checking low-value deals. But as Coles is discovering, this can lead to claims that you're dropping the ball on compliance.

FSA Goes Soft on Contract Certainty

I always thought "certain" meant 100% certain. How can something be "certain" if it's only 90% certain? It just doesn't sound right. But who cares what I think. In the London insurance market, it's what the FSA thinks that matters. And it turns out that 90% certain is certain enough for them.

The two-year deadline for contract certainty in the London insurance market has now passed, and the FSA has decided that the industry has done enough to dodge the bullet of regulatory intervention.

Never mind that, strictly speaking, the goal of contract certainty has still not been met.

In its self-assessment report, the Contract Certainty Steering Committee explains things like this:

"momentum is more important than perfection..."

and this:

"contract certainty is part of a journey..."

and this:

"contract certainty was never the end game..."

They stopped short of saying "contract certainty is a nice place to visit, but you wouldn't want to live there..."

And so the journey continues.

Are Governance Standards the Solution to IT Contract Blowouts?

An attention-grabbing article in The Australian IT starts with a couple of IT contracting horror stories, but quickly drifts off on a rather dull voyage through the alphabet soup of IT governance standards. Never mind that your contract might be full of holes. What you really need is AS-8000. And AS-8015. And AS-8016. Or AS-8018. Or BS-15000. Or maybe ISO-20000. And ISO-27001, of course.

Whatever the solution, the horror stories are classic tales of deals gone wrong:

In the first case, a sales guy won himself a big fat bonus and a nice tropical holiday by underbidding to land a mission-critical government project. Surprise, surprise, the project failed, the vendor lost $14M, and the government won a $5M damages claim to cover the costs of their manual work-around.

In the second case, a technology deal was done over a few beers in a London pub. It was supposed to cost $2M. It ended up costing over $12M. The manager responsible was fired for secretly milking funds from various accounts to bankroll his project.

Will ISO-20000 save you from these horror stories? Who knows? But a tightly drafted contract with a clear statement of work would be a good start.

Clean Contracting is Scary as Hell

According to the Coalition for Government Procurement (a vendor lobby group in the US), the Clean Contracting Act proposed by Democrat Rep. Henry Waxman is "scary as hell". Sounds pretty bad. So what's in this bill that has the vendor community all in a tizz?



According to a recent article in Washington Technology, the bill seeks to clean up government procurement in several ways:

• by banning monopoly contracts
• by reducing the use of cost-plus contracts
• by prohibiting “layer cake” deals that inflate costs through tiers of subcontractors
• by limiting noncompetitive contracts
• by increasing oversight, and preventing unjustified award fees
• by deterring corruption in contracting, and
  
• by closing a loophole that enables Alaska Native Corporations to receive no-bid work.

Suffice it to say, the Coalition for Government Procurement will be keeping a close eye on the November 7 congressional elections. Hell (a Democrat majority in the House) may be right around the corner.

Everything You Ever Wanted to Know About Precedent Automation

But were too afraid to ask. Precedent automation. Document assembly. Online legal services. Disruptive innovation. Precedent economics. It was all under the microscope in Sydney last week at the Precedent Automation Conference. A rare gathering (physical and virtual) of document automation experts came together to reflect on the past, present and future, and made some interesting predictions about the coming revolution in the way documents (especially legal documents) are produced, delivered and consumed.



So, are we facing a revolution in the delivery of legal documents?

Starting at the consumer end of the market, Richard Granat (dialing in from Florida) argued that web based document assembly services are already eating away at work traditionally done by small law firms, like "digital termites". Not only are some online legal solutions faster, cheaper and "good enough" compared to traditional lawyering, but in some cases they may be available for free, with online advertising funding the service. Freewilldocs.com is already experimenting with an ad-funded business model.

At a more practical level, Seth Rowland (skyped-in by video from New York) said "document assembly is like crack cocaine..." it's addictive. If you pick the right project, in the right niche, and plan and execute properly, you can get great results, and things will spread from there. On the other hand, if you don't get the planning, business model and people issues right, then you will probably be disappointed.

Canadian commentator Darryl Mountain gave a neat summary of his recent paper, Disrupting conventional law firm business models using document assembly, in which he argues that most law firms are "ripe for disruption" of the kind described in The Innovator's Dilemma. They are high performance machines, built for customized work, and, in some cases at least, resistance to document assembly will be their undoing. Darryl reckons that regulatory changes - such as relaxation of rules regarding the unauthorized practise of law and reforms giving law firms greater access to capital - could be what tips things over the edge.

Speaking of tipping, Jamie Wodetzki (that's me), asked the question: is document assembly reaching a tipping point? In other words, is it about to spread like an epidemic, where, all of a sudden, everyone's using it? Tipping Point author Malcolm Gladwell reckons that small changes to three things can cause something to tip: the idea or product itself (it must be "sticky"); the environment (which must be conducive to its rapid spread); and the people (you need mavens, connectors and sales types to get involved). My conclusions are that some sectors are starting to tip (insurance and banking), particularly where the economic and regulatory pressures are right. The rise of web-based document assembly also makes a difference. It's much more likely to spread when anyone can click on a link and it "just works".

Casting an eye to the future, Marc Lauritsen (dialing in from an undisclosed US location) longed for what he calls the "holy grail" of document assembly, where you can reassemble a document (and change answers, etc), even after it has been through a round of negotiations and random edits in Word (the good news for Mark is that this is coming in Exari v5). He also lamented the lack of rich graphical interfaces in the current crop of products, and the fact that "true" artificial intelligence still seems a long way off.

Who and where will the revolution hit first? There seemed to be a consensus that small, generalist law firms have the most to fear in the short term. And, according to Darryl Mountain, Canada is usually the last to innovate.

Contract Certainty by Stealth

With Lloyd's having tried and failed with the big bang approach to taking its insurance market online (Kinnect was shut down earlier this year), things are now happening by stealth. Or STEALTH, as Guy Carpenter calls its new online system... "Sabotage and Terrorism Electronic Application Linked to Hiscox".



The online system allows GCFac brokers in Latin America to place and document political risks quickly and easily, and in a way that meets the FSA's contract certainty requirements, as Erik Lakatos explains:

At its simplest level, if we receive a submission, we can send it directly to a Hiscox underwriter. They can print out the submission, analyse the risk and reply to us in under ten minutes with a quote.

The STEALTH approach - of starting small, delivering something that works, and scaling up - seems to be a good one. And it probably cost a bit less than 70 million quid.

How to Waste $34 Billion on Homeland Security

For some good ideas about what not to do, government procurement officials would do well to read the US House of Representatives Committee on Government Reform report: Waste, Abuse, and Mismanagement in Department of Homeland Security Contracts. With spending rocketing from $3.5b to $10b between 2003 and 2005, and the volume of contracts rising from 14,000 to 63,000 in the same period, the DHS didn't exactly cover itself in glory:

• 32 contracts valued at over $34b involved significant overcharges, wasteful spending or mismanagement;
• a $10b contract with Accenture for the US-VISIT border security system was found to rely on out-of-date and ineffective technologies and, even if it worked, might not prove to be very effective; and
  
• several billion dollars was spent on airport screening and radiation-detection systems that did not work.

How and why did this happen? It depends who you ask, but the explanations/excuses include:

• Too much sole-sourcing. By 2005, more than half (55% or $5.5b) of DHS contracts were awarded without full and open competition. By contrast, back in 2003, more than 4 out of 5 DHS contracts followed an open, competitive procurement process. Put another way, uncompetitive contracts grew by over 700% in 3 years.
• Vague requirements. Too often, the DHS would issue RFPs with vague, fluffy, poorly defined requirements. In one example, bidders were told that "We're asking you to come back and tell us how to do our business..."
• Too little training. The department simply didn't have enough trained procurement staff to keep up with the rapidly growing spend.

Not a pretty picture. The committee chairman called it "acquisition dysfunction". But the last word goes to former DHS Inspector General Clark Kent Ervin:

Einstein said insanity is doing the same thing over and over again and expecting a different result. They never learn anything. It's just crazy... no wonder costs are out of control.