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www.rcaonline.org
Contract Compliance Trends:
Optimizing Technology and
Outsourcing
Senior Fellow from Practice:
Christopher S. Harrison, CEO of Sterlington Legal Solutions
Guest Speakers:
Richard Canedo, Partner & Director of A.I. at Sterlington Legal SolutionsJamie Sklar, General Counsel at Fiduciary Network, LLC
2© RCA. 2000-2019. All rights reserved.
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Overview of Session Content
PART I: Why Contract Compliance Matters
PART II: Contrasting Traditional vs. Innovative Solutions to Contract Compliance
PART III: Perspectives from a General Counsel
CONCLUDING REMARKS
14© RCA. 2000-2019. All rights reserved.
PART 1: Why Contract Compliance Matters, But Too Often Neglected
Why Matters
• Compare contract compliance risks to regulatory compliance in terms of
• Impact for failure to comply • Costs to maintain compliance
• Contract compliance risks • Breach • Losing Commercial Rights
Why Neglected• Contract compliance often
overlooked, however, compared to regulatory compliance
• Increasing complexity and quantity of contracts make contract management burdensome for in-house counsel and too costly to outsource
15© RCA. 2000-2019. All rights reserved.
Traditional Compliance
• Billable hour incentivizes inefficiency• Disincentive to explore time-saving
technology• Low-level work delegated to junior
associates sometimes at client expense
Traditional Law Firm Model
• Best suited to certain kinds of problems/tasks, such as complex deal work
• Post-deal contract management not part of traditional law firm business model; ignores needs of in-house
Traditional Solution
• Stuck in contracts with vendors • Difficulty in training/adapting to new
technology • Lack of will/interest in disrupting
profitable model
Legacy Systems
16© RCA. 2000-2019. All rights reserved.
Traditional Compliance Model – Assessment
The Main 'Cons’
• Costly, esp if you ask for more detail on a diligence task
• Law firms do not consider long-term post-deal contract compliance as part of their job
Cons
The Main 'Pros’ of this traditional method
• Gets the job done, in the short term.
• Expertise and specialized advice on deals
Pros
17© RCA. 2000-2019. All rights reserved.
Traditional Compliance – In HousePost-deal, In-house Counsel Left Holding The Bag On:
• What contractual provisions to prioritize • Where/how to track key obligations
Maintaining Compliance • Gets in the way of day-to-day work• Often gets left to the side
Pros (cost) • Short-term• Costs less
Cons • Speed• Quality
Long-term Con • Cost savings of not investing time/energy on prudent contract compliance can
catch up with one big breach • Loss of a commercial right • Costly in terms of money, personnel and firm reputation
18© RCA. 2000-2019. All rights reserved.
There Must Be a Better Way
Law firm aversion to innovation and technology suggests change will be slow --"Chief Legal Officers have rated law firms a median score of 3 out of 10 every year from 2009 to 2016 in the question of "law firms' seriousness about changing their
legal service delivery model"Source: [1] 2016 Altman Weil Chief Legal Officer Survey
19
PART 2 – Innovative Approach to Contract Compliance
Tech Savvy and Data Driven Law
Process Optimizing,Alt Fee Arrangement,
Innovative
vs.
Apprentice model, Billable Hour,
Legacy Systems
Holistic Thinkingvs.
Transactional
20© RCA. 2000-2019. All rights reserved.
Innovative Approach – Sample Problem
Scenario: Portfolio Manager bids on an auction for a large portfolio of life settlements in the tertiary market.
PM needs legal diligence for (1) valuation of legal risk and (2) for maintaining/servicing the policies (if acquired).
Ideal solution for PM’s legal needs:– Fast– Complete – Analyzable– Transparent pricing
Traditional legal method would be too slow, incomplete, not detailed enough and cost too much.
21© RCA. 2000-2019. All rights reserved.
Four Key Steps To Innovative Approach
Legal Analysis as Data Analysis
Data Extraction
Turn legal textinto analyzable‘data’ using LegalAI.
Data Analysis
Analyzing theresults of dataextraction
Database Management
Maintaining keydata points andresults of analysis
Automating Processes and Integrating Systems
Automatingeverything thatcan be automatedfrom the databaseandintegrating withother systems, i.e, financial, auditing, reports.
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Data Extraction with Legal AI
• Converting unstructured legal text into structured, digitized form• Advantage of having entire set of docs in OCR
AI legal tech (NLP+ML)
• Legal AI is fast and easy for standard contract terms • Automatically find easy data points; reviewer often only confirms AI's result
Speed
• Great for teaching the AI to find specialized provisions, esp in large doc sets• Simultaneously train junior associate and AI with systematic approach.
‘Training’ the AI (machine learning)
• Project management tools allow many attorneys to review documents at once• Certain provision types can be flagged for specialists (Tax, Finance, ERISA)• Workflows streamline senior associate review of junior work
Legal AI project management tools
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Sample Solution for Innovative Approach
Fast, complete, analyzable, fixed price (per policy).
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Sample Life Insurance Policy ‘Data Page’
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Automating Legal Analysis of a Document Type
Problem – Thousands of HIPAA forms in data set. Does
each insured have a compliant, transferable HIPAA form (so that the new owner
may obtain the Insured’s medical records)?
HIIPAA forms must have a number of provisions to be valid; older forms often are
missing a necessary provision.
With Legal AI, an attorney can program the AI to identify whether each necessary provision is present. • The ‘output’ is a “1” or “0” (‘yes’ or ‘no’) for each provision. • After extracting all answers for each provision type, a simple formula in
Excel can be run to analyze whether all two thousand HIPAAs are valid or not.
• A task that would normally take several hours of opening/closing files by junior associates writing down unanalyzable notes, can be automated and analyzed in a fraction of the time and cost of the traditional method.
26
Integrate Database to System for Automating Tasks: Managing Database, Automating Tasks
Reminders of important
trigger dates
Generate certain form documents
Flag items for generating checklists
Email reminders internally
27© RCA. 2000-2019. All rights reserved.
Traditional Approach
Innovative Method
Speed? slow fast
Complete? not enough time yes
Analyzable data? no yes
Pricing? billable hour fixed (per policy)
Assessing the Innovative Method
By leveraging Legal AI, contract unstructured ‘text’ becomes ‘data’, for easier analysis, database management and compliance.
28© RCA. 2000-2019. All rights reserved.
• Big law
• In-house resources
• Boutique or innovative solutions
Deciding when/how to use Prioritizing key problems/pain-points
1 2 3
Identifying low-hanging fruits for ‘innovative’ method
• Identify key documents/deals
• Prioritize risks based on urgency and magnitude
• Large volumes of similar contracts?
• How complex and specialized is the legal analysis?
PART 3 Perspectives from General Counsel
29
Best Practices from GC Perspective on Contract Compliance
30
CONCLUDING REMARKS
• Why contract compliance matters
• How to address problem of mitigating risk
• Traditional vs. Innovative method/ pros/cons summary
• Take-home message: • think big-picture and long-term;
build automated, integrated systems.
31
SPEAKER BIOGRAPHIES
32
Christopher S. Harrison is the founder of Sterlington Legal Solutions. He is focused on innovation in law through the use ofprocess management, data analytics, and technology-enabled services. He is the author of Make the Deal: Negotiating Mergers & Acquisitions, which was published by Bloomberg. He teaches M&A at the NYU School of Law.
Richard (“Rick”) Canedo is a Partner & Director of A.I. at Sterlington Legal Solutions, where he applies artificial intelligence applications to legal services, such as life settlement diligence, M&A and NDAs. Rick’s also has experience in structured finance and securitizations.
Jamie Sklar is the General Counsel of Fiduciary Network, LLC. He is a corporate attorney with over 18 years of experience in managing mergers and acquisitions, private equity, fund formation and other complex transactions.
33© RCA. 2000-2019. All rights reserved.