Let's play a word association game. I will say a word and you tell me the first word that comes to your mind. Ok? Here goes: "HotDocs". You say: "Trusts and Estates." Another word:
"Document Assembly". You say: "Court Forms".
When you ask a lawyer what legal documents are prime candidates for automation, they will invariably say, estate planning
documents or court forms. Apart from the advertising
campaigns of the leading vendors of document assembly software (which stress such documents), there is a simple reason for this.
Such documents are viewed as high volume, low
profit margin documents. In some offices, estate planning documents are even loss-leaders, done as favors for corporate clients to
retain more lucrative commercial business.
And court forms are often viewed as paralegal work, where document assembly functions serve as a form of minimum quality control.
R.O.I. FOR HIGH VOLUME/LOW PROFIT MARGIN DOCUMENTS
With these type of documents, document assembly
captures revenue by making existing employees more
productive and minimizing time spent on marginally
profitable activities. The return on investment
("ROI") in these high volume, low profit margin
documents, will likely cover the costs spent in
purchasing the software and create the template.
Only with high volumes, however, will such
investments be cost-justified.
There are several other practice areas where similar
document can be found that would benefit from
template automation. To select such documents, the
firm should evaluate their document flow and
determine both the number of similar documents
created each month, as well as the average time spent
generating such documents.
In assessing the "generation time", you should
include time spent on negotiation and redrafting, as
well as original mark-up and word-processing.
Examine and assess the full life-cycle of each
document. This is because expert drafting systems
save time both in the creation of the "first draft" as
well as reducing the number of changes between the
"first draft" and the "final draft".
In assessing the "number of similar documents",
similarity should be viewed loosely. Some
documents, such as bankruptcy forms are very
specific and need to be viewed individually. Other
documents, such as court notices, are more generic
and should be aggregated. The power of document
assembly software lies in the ability to merge several
documents into single template which is easier to
maintain and update. I can take 20 forms of debt
instrument and merge them into a single template that
addresses every type of debt instrument imaginable,
including some combinations which are not
imaginable.
ASSESSING PROFIT MARGIN
Finally, you should assess the profit margin on each
category of documents. In a corporation, this is an
easy job. When you are paying employees a salary or
bringing work in-house, the formula is simple:
(hours saved from automation * hourly salary) or
(outside counsel legal fees saved) over a designated
period versus cost of automation. The cost of
automation includes the costs of the software,
employee development time and any outside
consulting fees. As a rule of thumb, you should get a
complete return on your investment within six
months of completion of the automation project.
In a law firm, assessing profit margin is a matter of
intangibles. Look at the transaction fee for legal
work. The Greeks would look at the entrails of a
sacrificial goat for auspices before embarking on any
major expedition. Likewise, before embarking on
any major document automation project, a firm
should look at their billing records. Here are four
signs that document automation is warranted:
- If your average transaction fee for legal work is greater than that of your competing law firms and you are thereby loosing billable work to other firms, document automation can lower your cost-basis for
such work allowing you to retain and even attract new work.
- If you are consistently loosing money on a certain type of work, having to write off billable hours, look at whether those documents can be effectively automated.
Automation will reduce billable hours on such transactions allowing you to recover your costs.
- If you are consistently exceeding budgets set by clients for particular matters, look at whether automation of some of the underlying documents can reduce internal costs to bring them within the budget.
- If you have adopted task-based billing or fixed fees for transactions, look at all documents to see if any of them can be automated. If possible, try to automate the entire transaction. The multiple ROI in such situations can be enormous.
My bias is to move entirely to task-based billing and
fixed transaction fees. By so doing, a law firm can
set its fees at a discount off their average transaction
fee prior to automation. Combined with maximum
document automation, this could make existing staff
far more productive and increase overall quality of
work. At the same time, corporations and individuals
like certain fees and are more likely to steer business
to a firm with such a fee structure, assuming the
quality of the work is sufficient. With document
automation decreasing drafting time often by a factor
of 100X, time can be spent (1) refining the output
documents, (3) caring for the clients and (3) making
the underlying templates more flexible.
R.O.I. FOR LOW VOLUME/HIGH PROFIT MARGIN DOCUMENTS
Often overlooked in the discussion of document
automation are what I call low volume/high profit
margin documents. Many real estate, banking,
merger and acquisition, and corporate documents fall
into such categories. These documents form the
bread and butter of many law firm practices.
Specialists in these departments repeatedly pull up
prior deal documents, carefully mark them up, and
release them to their clients for large sums of money.
These documents are characterized by their length
and complexity. They often run over 100 pages with
multiple exhibits and addenda. They involve families
of inter-related documents and schedules. They may
draw on client specific data to be pulled from a
matter management system or even a deal-specific
database. The documents often contain arcane
language that may be understood only by a specialist.
Moreover, each transaction appears to defy
categorization ... each deal is "unique".
Partners and associates spend hours mulling over
these documents, carefully crafting each paragraph,
checking all the internal cross-references, updating
dates and figures. Hundreds of hours of word-processing
time may be spent on the numerous mark-ups
of the documents, followed by hours of proofing
these changes.
These documents are exceedingly profitable. But
they are also ripe for automation. When automated,
the time for production of quality first drafts .... even
near final drafts, can be reduced by a factor of 100.
Document automation can reduce 100 hours of
attorney/paralegal/word processor time to less than 1
hour of an attorney's time spent gathering and in-putting
deal specific data. Don't even mention all the
typos and errors avoided in the process.
Huhh!! You may ask, "Can you really automate such
complex documents?". The simple answer is: "I
have." When you evaluate transactional documents,
pattern emerge. Certain text turns out to be
boilerplate. Other alternative text is governed by
clear rules. Any rules in the head of the leading
attorney on the transaction can be captured as options
in the text. With sufficient text preparation and time
spent on template design, most of these rules can be
anticipated and incorporated in the templates. I have
done this with municipal bond offering, mortgage-backed
securities, currency swaps, opinion letters,
bank commitment letters, and a range of other
complex transactional documents.
The important question before embarking on
automation of low volume/high profit margin
documents is not "Can I do it?" but rather can I sell it
to my clients in the form of "fixed transaction fees"
for legal work or "minimum transaction fees". Once
your client commits to such an arrangement, any time
spent automating such documents will result in
massive multiples for the return on investment. You
may even be able to bill the client for the cost of the
template creation.
CLOSING THOUGHTS
Let's play the word association game again. I say, "Complex Deals". You say "Transaction-based Billing". I say "Fixed Fees". You say "Document Assembly".
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