LawtechUK, the Government-backed innovation group, has set out a road map for a new Alternative Dispute Resolution (ADR) system aimed at solving the multi-billion pound problem of late payments for SMEs.
Interestingly, technology is not really the answer here, but rather good old-fashioned human behaviour change. There will of course be some kind of tech platform needed so parties can go on-line and start the process, but the solution will come from what you might call ‘behavioural design’, or at least that’s how Artificial Lawyer would see it.
LawtechUK estimates the platform could empower UK businesses to resolve +200,000 disputes over a five-year period, accounting for £3.4bn ($4.7bn) in debt value, and enabling SMEs to resolve disputes within six to eight weeks.
Basically it would work like this:
- There is an ‘information layer’ which is free.
- Then you continue to the settlement process, this is estimated to cost about £50 ($70) and if there is no deal from the ADR process then you get your money back.
- This can then move to proper mediation, using professional mediators (who in the UK don’t have to be regulated lawyers – this is because mediation is not a reserved activity under English rules), who might take between 1% and 5% of the claim for solving the dispute. This is compared to something like 10%-plus of the claim if the SME went through the standard English court process.
- (P.S. mediators will be working on claims that are relatively small, i.e. in the few thousands of pounds, but the idea is that they are resolved rapidly and such work would fit into the gaps left between larger mediation projects. So, this would in effect be extra income for the mediators without needing a lot of their time.)
- And finally, if even that can’t do it, the matter ends up in court and you’re back where you started – but you now have a big incentive not to let things get that far.
Does this all matter? The short answer is: yes. SMEs make up the vast majority of companies in the UK – and in most other countries – and yet they experience significant barriers to using legal services and are often treated unfairly by larger businesses that refuse to pay their bills. Late payments are a real bugbear and can lead to small businesses collapsing, or just creating such a headache they cannot grow.
This site has experienced two particularly bad examples of very large organisations not paying bills. One was a global media company that took six months to pay for a joint project – and probably would never have paid if allowed to get away with it; the other was a massive legal tech company. Both acted as if paying the several thousand pounds owed was irrelevant and it felt like this was a deliberate policy, i.e. to ignore invoices from small businesses on the basis that a proportion of them would eventually give up and so save the company some money. The fact that it happened in the legal sector, albeit indirectly, is also quite shocking.
From Artificial Lawyer’s experience, the largest companies tend to be the worst offenders, which is doubly ironic as they both have the resources to pay and also have the legal teams and other processes in place to make sure that contracts are fulfilled and paid properly. One positive here is that large law firms, in contrast, are very diligent and prompt about such things. Perhaps this is because they understand the challenges of clients not paying bills?
In both cases where large corporates dragged their feet on paying invoices this site had to threaten legal action and/or news stories shaming the companies for what appeared to be a deliberate strategy of non-payment of invoices to SMEs. Interestingly, as soon as they got that message the bills were paid very quickly after months of seemingly doing nothing about them. But, not every SME has a media platform of its own that it can put into the battle. So, in short, there is a real need for an ADR system that is effective and affordable.
So, what’s next? The idea is that LawtechUK will encourage private businesses to take up the challenge and then seek a mix of public and private funding to make this happen. If this type of system was put in place at scale it could both produce a sustainable profit for a commercial enterprise, while doing a lot of good for access to justice.
Artificial Lawyer also spoke with Jenifer Swallow, Director of LawtechUK, about the project.
- How does this relate to the small claims court, which also handles late payment disputes?
The small claims court is still a court, with backlogs and analogue processes and has a maximum per claim amount. The opportunity here is for a platform that sits outside court process as an elective by the parties, which is bespoke to this problem and enables disputes to be resolved within weeks not months, it doesn’t need a lawyer and harnesses tech to make it super easy to use.
- Is this more about conciliation than technology?
The focus is on a conciliatory approach without fist waving – maintaining business relationships is critical for small businesses and is a reason they don’t want to push the button on the court process.
For example, the platform could be integrated into invoicing tech presenting it as an extension of existing process around chasing bills. The design involves mediators/adjudicators at the facilitated settlement stage and would not otherwise require lawyers or need to be run by them.
- Back in June 2020 there was a LawtechUK tender for ideas on how to solve this problem. There was at least one blockchain solution suggested. Will this be part of the solution?
Jur explored blockchain elements and there are options around that, but they were not considered necessary for the POC design.
- What happens next?
On next steps, we put this out for the market to evaluate and take forward and look forward to feedback and ideas. We also continue to discuss the importance, opportunity and practicalities with Government.
Also, it may be that there is a tech pioneer out there who would want to bring their ambition to the Lawtech Sandbox for support – applications open soon.
Thank you and let’s hope someone decides to try and build this – and can integrate the right kind of psychological ‘nudges’ to change dispute behaviour.