More and more companies are looking for a full-service concept for their corporate housekeeping and contract management. Such activities are generally outsourced in the form of ‘managed services’, the aim being to boost quality and efficiency and improve cost control.
These days, cloud solutions are so widely accepted that even the technical barrier to providing managed services for corporate legal departments is no longer an issue, says Frederike Sips-Brons (Legadex). “It's now becoming easier, for instance, to keep critical operations such as corporate legal housekeeping and contract management permanently up to date.” Just as Software As A Service (SAAS) is becoming more important in the software industry, Legal As A Service, based on SAAS solutions, is also gaining ground in the legal services market. Legadex therefore recently introduced the Legadex Online concept.
Legal faux pas
It's a mistake that commonly occurs: company X sells a share of its business to company Y, and both parties assume this includes all the contracts it has concluded with suppliers and customers. Shortly after the handover, however, it turns out that some of these contracts have a ‘change of control’ clause and therefore can't legally be transferred to the new owner. The result is that customers wriggle out of their existing contracts and start renegotiating terms, and the buyer sues the seller for damages. Here's another example: a company extends its lease on a business premise for ten years just before being sold. When the sale is concluded, the extended lease contract is overlooked and not disclosed to the buyer, who didn't want it. Result: another claim for compensation worth millions.
If companies don't keep their legal housekeeping consistently and transparently up to date, there is a considerable risk of multiple faux pas occurring
The '403 declaration', in which a parent company assumes joint and several liability for any debts arising from legal acts of its subsidiaries, is another prime example of the need for good information- and legal entity management. These declarations are sometimes not cancelled when subsidiaries are sold, leaving the original parent company liable. All these may seem minor issues, but if companies don't keep their legal housekeeping consistently and transparently up to date, there is a considerable risk of these faux pas occurring.
However, in recent years a far simpler and more cost-effective solution has become available: the Managed Services concept, which allows companies to more easily outsource their to a team of legal specialists. “I see it as a kind of Legal As A Service,” says Sips. “The basic legal administration that has to be kept up to date and in good order, such as the drafting and management of corporate documents, contract management, deposits in public registers, and so on, can now all be outsourced to external service providers. This has already been happening to some extent, usually by bringing in temporary or flexible staff to work at the client's office. Legadex already does a lot of this type of work for its clients. Once everything has been updated, the company itself often takes over again. Sometimes, however, this proves difficult, with new omissions and backlogs arising. We can then help to turn things around.”
“The request usually comes from Legadex' clients themselves: ‘You have all the know-how, work processes and ICT systems, and you’ve already regularly helped us out. Why don't you take it all over so that we don't have to worry about it anymore?’” According to Sips, demand for this kind of full service concept is growing fast. “Many companies have difficulty finding the right people internally to monitor and update their affairs. Staff changes, manpower shortages and lack of the right skills set make it difficult to ensure a satisfactory level of service. So we're asked to get things on an even keel again. Of course we're delighted to help, but we'd far rather prevent a legal housekeeping backlog from arising in the first place.”
Since companies are increasingly outsourcing activities that aren't part of their core business, this is also dissolving the barriers to outsourcing their legal administration. Changes in the corporate ICT landscape and closer cooperation between companies and external service providers through the use of collaboration tools are fuelling this trend. “There's now much more confidence in cloud solutions,” Sips adds. “In fact, it's less and less important where the work is done, provided it's done well. Legal As A Service was already available ten years ago when Legadex was established, but the market wasn't ready for it then. Systems are now much more advanced, the risks surrounding data security have been addressed, and companies are now flocking to it.”
Large and small
Legadex already provides an arm's length service to multinationals, stock funds and private equity investors. For corporates, it's often a way of ensuring continuity of service provision. For smaller companies, this kind of legal work often falls between two stools, and a low-threshold legal service is a way for them to satisfy fundamental requirements governing information supply and legal compliance. The main aim is to obtain a 'worry-free', all-inclusive service, but cost is obviously also a factor.
To begin with, it saves time, since for many companies, this type of work involves constant repetition and duplication. What's more, it's often done by people who lack the requisite knowledge or interest, which means it takes far longer than it should. It also wastes the time of other stakeholders within the company, since the information they need isn't fully accessible (online), up-to-date or accurate. This takes up a lot of internal company time which isn't always obvious to people. And that includes the hidden costs of administrative backlogs. It's also crucial in the interests of risk management for legal information to be fully up to date. Think of corporate acquisitions, mergers, refinancing or the supply of information to the regulatory authorities.
The new EU privacy law, the General Data Protection Regulation (GDPR), is another compelling reason for companies to have their legal information in order, since everyone will soon be required to have their information flows up to date. Failure to do so could lead to huge fines. Sips: “Clients often also ask us to rationalise and update the rest of their administration and to check what's stored where using data analytics and artificial intelligence. Rolling this out effectively calls for a robust shared technical infrastructure in which we can work and to which the client has access. For legal entity management and contract management, we use Effacts (Wolters Kluwer, ed.), which we can offer as part of our service to the client. So clients no longer need to purchase, maintain or pay for licenses to systems if they don't want to. We can supply the entire package.”
Companies are now really starting to discover the concept of managed services, and its benefits are legion
The costs are also highly predictable, since Legadex offers a customised fee structure, with a choice of an hourly rate, fixed monthly fee, fee per company or per contract. Sips: “Managed Services currently employs a dedicated team of ten lawyers, but I wouldn't be surprised if we doubled that within a year. Companies are now really starting to discover the concept of managed services, and its benefits are legion. Legal As A Service is about buying quality and convenience and avoiding a lot of anxiety and aggravation.”