Factor Targets Base of Law Firm Pyramid

Factor, the ALSP with a focus on contracting work, is formally launching a new strategy to target the base of the law firm pyramid – i.e. work conducted at present by junior lawyers. In particular they will focus on transactional work, such as due diligence projects.

The company noted that eDiscovery underwent the same changes in the US, with specialist groups forming to handle this process work, which often just didn’t make sense to do inside a law firm with traditional associate leverage structures.

Factor looks after many of the day-to-day contracting needs of corporates, such as contract drafting and negotiation. They see this as specialised work that doesn’t necessarily have to be done by lawyers at the start of their careers. Instead they can utilise their own dedicated teams that work just on contract needs – and they can do it often with very experienced people.

Now the plan is to target the work done at the base of the pyramid within law firms – but crucially not in a competitive way, but rather offering their services to firms that need to use them to meet client needs.

Ed Sohn, Head of Solutions at Factor, told Artificial Lawyer: ‘Factor does contracts – it’s what we do. We do not work as practising lawyers, but we have these skills. We know how to draft, negotiate, project manage, and conduct due diligence.’

‘We can close a transaction for a client and bring it all to signature,’ he added.

On a recent project Factor was about 50% less expensive than law firm associates on an hourly basis, he noted.

Factor’s ‘Legal Transaction Optimisation’ service, as it’s called, will offer:   

  • Transaction management – checklist maintenance, signatures, centralised coordination, document routing, and closing set assembly.
  • Due diligence – maintaining the due diligence questionnaire and the review of underlying documents.
  • Documentation – ancillary agreements, templated contracts (e.g. under a fund umbrella developed by the law firm), side documents, consents, assignments, novations, and others.

But….why would any law firm want to do this…? One reason is scale. For example, Allen & Overy used Factor for a major IBOR repapering exercise that saw the partners provide the complex legal input and Factor do the review and repapering work. It would have been hard to assign a very large number of junior associates to the task – at least not without generating huge costs for the client.

But still, generating fees is what law firms want….naturally…so, again: why would any law firm want to do this?

Sohn said: ‘If we can take 300 hours out of a 1,500 hour deal it would actually expand what the law firm can do for the client.’

‘The challenge for law firms is that the matter budget [changes] how much value they can give. If we work with a law firm then it would free them up to provide more value to the client,’ he added.

I.e. a matter will cost $X. But a chunk of that is soaked up with lower value process work that cannot these days be billed out at a high level. Factor takes that work on, but they are not as expensive as the firm, thereby leaving spare capacity in the overall budget to do more for the client – i.e. allow the law firm to give more higher value input.

And finally Sohn also pointed out that many law firms employed associates who really didn’t want to do this kind of work day-in and day-out, hence the surge in bonuses and high salaries to retain staff.

Instead of grinding down their junior lawyers, law firms could work with Factor, which has over 550 staff, many of whom are experienced lawyers focused on contract work, and the ALSP would take on the burden. Junior lawyers could then focus on moving up the value scale for the client.

We will soon see if the idea works. It certainly worked for eDiscovery. The issue, as always, is whether this is seen as a challenge to the law firm leverage pyramid, or, as Factor sees things a way of making law firms more profitable and better able to retain their lawyers and clients.

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