Artificial intelligence (AI) is still in its infancy, and yet the potential benefit to businesses stands to be great. For the legal industry, there are certainly widespread plans to use AI to drive greater operational benefits. Firms recognize the potential AI has to uproot the traditional way legal suppliers manage their corporate in-house work. Although email, CRM, meeting software, and other transactional technology have helped shape the way business is being conducted every day today, AI has more disruptive potential and could become a distinctive differentiator for law firms. And what for procurement teams? Procurement will need to understand all the ways that AI could transform how attorneys manage their work and what challenges AI could create for legal suppliers that need to be considered.
The “New Frontier” was a slogan used by President John F. Kennedy when setting out his vision of America’s future in the early 1960s. Today, technology is reshaping the operations of business and the legal industry is no exception. Heads of law firms are setting aside a large portion of their budget to expand their use of technology and explore the potential business impact of AI. In fact, it’s predicted that legal technology budgets will increase threefold by 2025. [1]
What is driving legal to consider the integration of AI technology into their business? Firms today are facing profit pressure. Increased costs and client workloads are stretching legal resources, causing challenges in productivity and performance. As a result, technologies such as AI, Document Management, Case Management, Workflow Management, and CLM are being adopted by firms in varying degrees. Technology, especially AI, is set to create opportunities for potential large productivity gains and cost savings. Shifting routines and transactional work away from internal staff and using technology to decrease costs, increase profit, speed up data research, and shorten decision-making time to allow legal staff to delegate time to higher-priority client work.
Generative AI (AI services that produce content) has the potential to transform Legal operations by enabling faster analytics and data management. For example:
- Contract management and e-discovery. AI allows for more efficient contract management and e-discovery through natural language scanning of lengthy, tedious documents and multiple data sources. Generative AI-powered contract analysis tools could rapidly process large numbers of contracts, review natural language-generated requests to find potentially risky clauses, highlight missing terms, or spot other legal issues.
- Early Case Assessment (ECA). For e-discovery legal could use AI during ECA by applying data mining techniques to vast bodies of data and recommend documents for deeper review.
- Reducing risk. AI could assist in lowering instances of contract risk through the drafting and review of contracts against large legal databases during negotiations.
- Invoicing and payments. Automated payables and billings could speed up to ensure a more efficient workflow, uncover data insights, and enhance fraud checking.
- Drafting. AI use in internal workflows could lessen the time crafting legal documents by a big margin.
- ESG compliance. AI could identify the areas of ESG compliance, privacy, IP and regulation and apply data warehouse techniques to oversee compliance areas while mitigating compliance/regulation violation risks. This helps ensure that all contracts meet applicable laws and regulations.
So, in the medium to longer term, from a supplier cost management perspective, procurement needs to be aware of how these changes will impact the amount of time and materials legal suppliers charge for their work. Firms will be able to accomplish more legal matters with less time and resource allocation. As a result, it will decrease operating costs, reduce billable hours to clients, and in some cases, reduce a percentage of full-time legal staff. Procurement, when developing a cost analysis of a supplier firm, will need to consider alternative fee arrangements such as flat fees or activity value-based costing models. Essentially, a legal firm would be paid for the value they provide not the amount of time it would take humans to deliver the legal services.
But in the near term, procurement needs to be aware of some challenges AI technology could impose on legal supplier firms. These challenges can lead to significant compliance, governance, and liability costs.
- Inaccurate reporting outputs. Generative AI systems may produce incorrect or inconsistent content and outputs. Procurement will need to ensure suppliers are reviewing (and even warranting) outputs for accuracy, content relevancy, and meaningfulness of the information before providing it to clients or the external environment.
- AI tender management. The use of AI can limit the time required to analyze responses from supplier tenders, it can also be used by recipients to form their responses. This could potentially cause challenges during evaluation, as every response could produce a model answer according to the criteria set. As a result, tender analysis and scoring might need to evolve to focus more on some of the intangibles that evaluations have often tried to deprioritize, like references, culture, and relationships. Procurement teams will want to understand the suppliers’ use of AI in services delivered as well as in tender responses.
- Data meets requirements. A process will need to be in place by legal suppliers to ensure no biased legal data outputs are produced to meet company policies and industry-related standards.
- Intellectual property (IP) and copyright. Currently, there are no legal statutes that protect companies from using generative AI and issues arising over copyright infringement, AI-generated IP, and non-licensed risks remain high. Procurement should assume most supplier’s data could become public information and should put in place controls to avoid risks to attorney-client privilege or exposing of a client’s IP.
- Cybersecurity and fraud. Legal suppliers are open to malware attacks, voice and image manipulation, and stealing sensitive proprietary data. Procurement needs to make sure suppliers are putting in controls and policies around cyber firewall systems, email filtering, and malicious activity response systems to protect against potential AI system breaches.
- Sustainability goals. Generative AI can drive significant data center energy costs. Procurement should audit suppliers to identify how they manage energy consumption and help meet supply chain sustainability goals.
President Kennedy noted …” the problems are not all solved, and the battles are not all won, and we stand today on the edge of a New Frontier—the frontier of the 1960s, a frontier of unknown opportunities and paths.” AI is a new frontier, with potential for huge gains and challenges across both legal and procurement. It’s impossible to predict with certainty how or when AI will be embraced in the legal field, but it’s up to procurement to understand the potential impact on a legal firm’s operations down the road and identify risks in the shorter term to avoid high costs impacting their suppliers’ bottom-line. To learn more about how Proxima can help you plan and prepare, contact us today.
[1] https://www.gartner.com/en/newsroom/press-releases/2020-02-10-gartner-predicts-legal-technology-budgets-will-increase-threefold-by-2025
