Procurement for In-House Counsel
Now that lawyers are looking to add AI tools, how should they do procurement?
What does it take to do legal work? Until recently, it was just a few people and an office. Maybe a copy of Microsoft Word and Lexis or Westlaw. The process of buying things is therefore alien to many legal teams. Their main engagement with the procurement process is as legal review—procurement lawyer is even its own job.
With AI, this is changing rapidly. The law is one of the hottest areas for AI startups and there is more value than ever before for lawyers to avail themselves of to improve their practices. The problem is that lawyers have not had to buy much software in the past. And so they are facing a problem: an avalanche of potential tools with little experience conducting procurement processes themselves.
This week on Nonobvious, we’re covering procurement: how it works and how to do it well. This week we are covering it with a focus on what makes the process unique for in-house counsel at enterprises. We will also cover software buying for outside counsel in an upcoming issue.
This is part of a series about how to procure software as a lawyer. We also have put together a guide aimed at outside counsel.
To see Part 1, which cover the reasons to procure and what a good procurement process looks like, look here.
To see Part 2, which covers tips to optimize the procurement process at a law firm, look here.
A Detailed Overview and Some Tips
Before going into some tips, it is important to know this: you want to be a good buyer.
Good buyers make decisions as quickly as they can, have fair and objective processes.
A good procurement process often looks like this:
Determine a need, and importantly, what success looks like
Look for vendors and research the pros and cons
Set up calls with potential vendors
Do a “bake-off” comparing a solution, often with paid pilots
If needed, have a finalist round
Enter legal and IT reviews
Sign and use the services
There are a few subtleties, of course. You might find a vendor who is so convincing you decide to short-circuit the process to avoid waste. You also may have an opportunity that finds you; that is perfectly fine.
Enterprises often make the mistake of engaging in top-down purchase decisions where feature checklists rule the process. This is a mistake; it is better to determine which features are important and which are nice to have. When you take the time to decide what you truly need, often you may find that there are several functions that need to be solved to achieve a certain objective. There are two main approaches here:
Best of breed: Here, you buy a different product for each core function that is the best at what it does and stitch everything together. The positive of this approach is that you get the best solution for everything and have more leverage over a vendor because you are less dependent on them. The downside is that the integrations may not exist or require a lot of work.
Full-service: Here, you search for a vendor who can do it all. The benefit of this approach is that there are often benefits to integrated tools and the procurement process is often simpler because you are only dealing with 1-2 entities. The downside is that the vendor becomes more essential to your business and that full-service solutions often do not integrate well with other solutions, so if they don’t have everything you need you could be stuck.
One subtlety of the best of breed approach is that it is more amenable to startups. This is a huge positive. Startups are often more innovative and attentive to the needs of their customers. While it is easy to be risk-averse and look for a well-known name, I cannot encourage you enough to take startups seriously as vendors. Especially in AI, where almost everyone on the cutting edge is a startup, this will help you access great technology faster. With startups, they won’t do everything all at once, but they can be great partners whose product can be shaped by you and keep you on the cutting edge.
Particularly for tools that support individual contributor work—for example, an AI drafting tool—you might want to adopt a “prosumer” model. Here, individual lawyers get their own budgets to spend on tools that support their work. There is no obligation to ensure the tools are the same or even do the same work; they just need to meet certain minimum requirements. This allows individual team members to solve their own needs. It is also a decentralized way to figure out the best tool. If one tool grows rapidly in your organization, you can then reach out for an enterprise license and then go top-down. This approach has become very popular in Silicon Valley and has been good both for buyers both by making teams more nimble and by helping support a more vibrant vendor ecosystem. This approach doesn’t work for everything (like systems of record), but it can be more flexible than you might think. For example, when choosing between Teams and Slack, you might think this has to be a top-down decision, but you could instead push it down to the team level instead of forcing one solution on the whole organization.
Here are some tips for improving your procurement posture on an organizational level:
Own your budget. Many in-house lawyers do not own their own budget. The legal team’s budget, for example, may actually be owned by IT. It may be also be owned by finance or operations. Although it is common to have to get final approval from someone, you should fight for the GC or CLO office to have the same level of autonomy as, say, operations so that the final authority on a need from the legal department is the legal department itself. Importantly, make sure you get a pilot budget that you control. Many software companies will not do a trial without a paid pilot to show the seriousness of the buyer. You do not want to be dependent on IT or Innovation for your trial budget. The amount will depend on the scope and scale of the pilot, but it could be anywhere from $10,000 for 4 weeks to $100,000+ for several months per paid pilot.
Practice ROI calculations. An important part of this is getting used to ROI calculations (often measured in time or staff saved, or outside counsel budget saved). ROI calculations are often required for purchase decisions. Get used to it now, before you need to do so. Ideally, you should get to the point where you have a set of standard spreadsheets that you can use to justify nearly any purchase.
Get to know IT. In a typical procurement process, there are two well-known roadblocks to deals. The first is legal. And as the legal team, well, you can get through that barrier quicker. But the other is IT. First, maintain strong relationships so they will prioritize your needs. But more importantly, know the core requirements and have a strong grip on the process. Are there core requirements, like SSO or security certifications like SOC2 or ISO 27001? What is the normal timeline?
Own legal compliance as much as you can. It is quite common for corporations to rely on outside consultants in generating compliance requirements for a purchasing organization. I have heard from a world expert in privacy law who was told by his compliance team (who was outside legal) that he couldn’t do something because it created a privacy issue. (You can imagine how well that went over with him.) The best way to avoid this issue is to engage in the setting of these policies before you need to buy something and having a dedicated person in your org who is represented continually in these decisions.
Always have a legal stakeholder. Big decisions on things like budget, priorities, and more are often set by high-up decision makers in an organization on an annual and quarterly basis. You’ve almost certainly been subject to this process and found it difficult. Try to establish the GC or CLO as a principal at the highest levels of the organization to make sure that legal’s priorities are firmly established at the level of company priorities. Importantly, this will also help build relationships that can help break logjams if the need ever arises.
Procurement processes are a somewhat general process, but sometimes there can be elements that are unique to a particular industry. For example, the pharmaceutical industry will often provide blind tests to vendors to see if their product really works on questions that they do not know the answer to because of the complexity of the field. In the case of law, I do not believe that there is anything as unique as the pharmaceutical industry, but I do believe that there is a need to focus on two common aspects more than other fields do.
The first is accuracy. While many areas of the law require creativity, lawyers have a duty of competence and can face consequences for mistakes—though most of the fears surround sanctions, a much more common problem is the fact that many legal actions are immutable. This can be handled by testing or asking for references. That said, with AI tools, they don’t need to be perfect—just good enough that you aren’t wasting more time fixing it than you are saving.
The second is confidentiality. Lawyers have the benefit of privilege and a duty of confidentiality. While this does not mean that lawyers have a duty to use super-measures, to me it does mean that lawyers have an obligation to review the confidentiality of every vendor they use. This can be handled by reviewing policies and asking for common cybersecurity certifications.
On one final note, you may consider design partnerships. This is where a buyer partners with a vendor to provide them higher levels of support and feedback, and sometimes data, to help the development of a product. This will sometimes accompany an investment in the vendor. In exchange, the buyer will often get access to the product early, have their needs prioritized on the product roadmap, and get preferred pricing.
Addenda
There will be no Prior Art or Weekly Novelties this week. This week the author was at AIPLA and INTA back-to-back.
Missed Evan? He’ll be at other conferences this year; stay tuned!