Valuing complexity

Thanks to Prism Legal for pointing to an analysis that gives the lie to the assertion that complex legal documents cannot be “packaged” (if not “commoditised”).

KIIAC are specialists who “create standard templates with clause alternatives for high quality, rapid document drafting”:

As part of our work to create document templates automatically, quantify differences among like documents, and develop very accurate searches for transactional documents, our research has discovered an interesting correlation: the more complex the transaction, the more likely the document consists of standard terms and conditions.

The table below shows a range of agreements and their consistency, measured by document structure commonality and clause language consistency. We base our analysis on 250-500 publicly available samples of each document type. We need to increase the sample set but the early trends of consistency from the document collection are emerging from our research:

Document Type Consistency
Interest Rate Swap Agreement 97%
Merger Agreement 90%
Finance Agreement: (e.g. Term Loans, Credit Agreements etc.) 85%
Corporate Formation: (e.g. Articles of Incorporation, Bylaws) 85%
Employment, Consulting Agreements 65%
Purchase or Lease of Real Property 60%
Supply Agreements 55%

… We’ve performed the statistics. We are eager to hear from readers, especially practicing deal lawyers, why more sophisticated transactions tend to be more standard.

And the next question would be why then the most highly standardised transactions command the biggest fees.

The answer to the latter given by BigLaw would I think be that it’s not the complexity of the concluding document that commands the fee but the complexity of the negotiations and advice that precede it … and of course the size of the deal.

But back to the question whether complex documents can be packaged. Of course they can … to a large degree. A project I undertook more than 15 years ago was to automate a suite of will precedents: not just your bog standard wills that you can buy from any legal stationer or off the many will-drafting websites, but wills that accommodated all possible types of specific and residuary bequests and trusts, taking account of the latest IHT tax wheezes and other legislation. It was not rocket science. Being familiar with the legal jargon (over more years than I care to say) and having acquainted myself with the specific “rules” for the domain, as helpfully set out in the publication in which the bare precedents were published, with a then state-of-the-art package called WorkForm I constructed the questions that would enable the necessary clauses and variations of wording to be computed – all in one jumbo automated will template. This was not a package for the man on the Clapham omnibus, it was a package for lawyers, so answering the questions did require a requisite degree of legal domain knowledge. But even that limitation could have been addressed to a large degree with more explicit questions and more computational rules.

The point I’m working towards is that as technologies improve and as more and more encapsulated knowledge enters the legal domain, so more and more complex documents and processes can be more readily automated at acceptable cost. The standard conveyance and the standard will that 20 years ago commanded a time-based fee are now offered at £99 or even £50 thanks to the commoditisation of the process. An interest rate swap agreement will never be offered at that price, but fees charged will not depend on the complexity of the document but on the value of the (bespoke) advice and service attached to it.

One thought on “Valuing complexity”

  1. I recently picked up an old sales book setting out a sales technique called SPIN. It sets out a structure for a conversation between vendor (lawyer) and buyer (our client)
    S stands for situation. What is the buyers current situation and how does that present him or her with a predicament? What are the (I for. . ) implications and bearing in mind all of that information that the client is now explicitly aware of, just how much does he or she Need our services. In other words, what is the value to the client of what we are selling? There kids your price point.
    This raises a couple of points.
    1. We need to have fuller and more frank discussions about how we charge and listen to the client’s perception.
    2. Other professions have long established models for pricing and selling commodities and widgets that we can look to, if we ever accept that legal services have a discernable value.

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