The test, called the Legal Tech Audit, is meant to be used by corporate legal departments to quiz their outside law firms on how quickly and accurately they can perform common functions in those programs, such as editing a contract using the “search and replace” function instead of manually changing the same phrase dozens of times. The test can be installed on any computer via a Microsoft Word plugin. The target time to finish is one hour but the work can be done in 25 minutes, and caps out at 10 hours.
The test rewards efficiency, which goes against a metric that lawyers have historically used to value their work — time. And it is gaining traction at a critical time for the legal industry. The economic recession forced many Fortune 500 companies, often a large law firms most important client, to cut their outside legal spending, which put pressure on law firms to differentiate themselves in order to hang onto their business. One of those differentiators is cost.
Much of the time lawyers spend is not just in the courtroom or negotiating deals — a lot of their work involves drafting and editing contracts, preparing e-filings and other mundane duties that can be time-consuming if lawyers are not familiar with technology that can reduce the amount of time it takes to complete such tasks. Tech skills are especially important now that many law firms are slimming down their support staff.
Legal Tech Audit launched this month and is already drawing interest from dozens of Fortune 500 companies and large law firms. More than 300 people took the beta version that came out in September, and several hundred more are lined up to take the final official version. Flaherty said he is in “serious talks” with in-house lawyers at more than 30 major companies, many of which are considering including the test in future request-for-proposals for law firms.
Flaherty has formed a company, Cost Control LLC, to administer the test. The company employs three other people, including an in-house developer. Flaherty worked with Andy Perlman, a professor at Suffolk University Law School, to develop the content. Suffolk gets a share of Cost Control’s revenue, and in exchange is developing a version of the test that can be distributed to law schools, with the intent to train law students.
The company charges between $100 and $250 per test taker. Flaherty also negotiates licensing agreements that would allow a law firm to pay a flat rate and use the test for a year for an unlimited number of their attorneys. Flaherty provides law firm training managers with guides so that they can train lawyers for what they’ll be tested on.
Although it’s now in its early stages, the system could have the potential to grow into a cottage industry the way that Kaplan and Princeton Review grew out of people willing to pay for SAT prep.
NetApp, the Sunnyvale, Calif.-based data storage company, may start asking its outside law firms to take the audit as early as this year, said Connie Brenton, the company’s senior director of legal operations. NetApp, which works with more than 80 outside law firms, will likely start with the 10 or 20 firms it uses the most.
“In-house counsel are getting pressure to run our departments like a business, which means metrics are critical,” Brenton said. “We’re generally paying by the hour. Each moment [outside counsel] is inefficient with their use of basic technology, it costs us money.”
Brenton said that if a law firm were to score poorly on the audit and didn’t improve or implement training to try to improve, the company would expect a discount in legal fees.
“If you’re 5 percent less efficient than a baseline, we’ll ask for the 5 percent [discount],” she said.
Flaherty first came up with the idea for the audit while he was an associate at Holland & Knight in Los Angeles.
“I couldn’t believe the amount of time I spent doing things that didn’t justify my billable rate, especially in the very beginning when nothing could’ve justified my billable rate because I didn’t know anything,” he said. “It grew from that.”
Flaherty left the firm after five years, in 2011, to become an in-house lawyer at Kia. There, it was his job to manage legal spending, and he began auditing the company’s nine outside law firms — the vast majority of which were among the nation’s 200 largest law firms — with an early version of what later became the Legal Tech Audit.
“The results were all bad but they were different degrees of bad,” he said.
Flaherty used the results in different ways. For law firms that Kia had longstanding relationships with, it started a dialogue on how to improve lawyers’ efficiency through training. For firms that were new to Kia, poor results gave Flaherty leverage to negotiate discounted rates that would be restored if the firm scored better on a subsequent audit.