As flexibility becomes ever more critical to success, Brian Welsh from Insight Legal looks at how relationships are evolving between law firms and suppliers, especially for legal software contracts
The legal landscape – in fact, the landscape in general – is a very different place now to what it was six months ago. Change is a fact of life, and often can bring about great improvement. In the last few months, however, we have experienced enforced change, and it is undeniable that some law firms, businesses and individuals have managed better than others.
This article explores relationships and agreements between law firms and their suppliers. Specifically, I suggest that, if there are lessons to be learnt from our present experiences, restrictive long-term contracts and tie-ins to fixed cost services must become a thing of the past.
Let’s take legal software as an example.
Finding the right software
Legal software has played a major role in enabling practices to flex to new ways of working. Firms will be used to hearing claims from cloud software providers of “any time, any place, any device”, but who truly believed that we would be so dependent on such systems as a mechanism of averting disaster?
Look for supplier arrangements that offer flexibility and pragmatism, and which suit your practice
Firms that have the right software in place for staff to work and collaborate remotely – and ensure that supervision can still take place – will no doubt be grateful for their past decisions. The most successful firms have also been able to review their systems and processes quickly, then refine and adapt. While news headlines have revealed some casualties, there are also positive stories about all manner of innovations – online meetings and consultations, virtual events and remote working among them.
Many have not found this possible, however. Some firms perhaps did not understand what they could or should be doing to weather the storm; others knew what was needed, yet found that their systems, processes or capabilities were preventive. Firms without the right software in place may fear that now is not the right time to change, or worry that the cost will be prohibitive.
This is where it is essential for law firms to do their research and look at all the available options, not just with regard to functionality and deployment, but also to contract terms.
Drawbacks of a long-term contract
In the past, firms deciding which suppliers to work with and which systems to implement would most likely have considered a long-term agreement to be reassuring. Long-term contracts are appealing on the basis that they are:
- deemed lower risk for the buyer
- a means of managing outbound spends.
However, on the reverse side, long-term and fixed-price arrangements are rigid and binding. This can cause serious problems if market conditions dictate the need to flex, or if the dynamic of your client-supplier partnership deteriorates.
When you consider how the last few weeks alone have seemed like a lifetime, imagine what a three-year contract would feel like (for example). To withstand these tough times, even the most financially stable law firms are being forced to furlough staff and implement other cost-cutting methods, including redundancies as a last resort.
In the majority of cases, if a long-term contract is in place, software licences for absent and departed employees will still have to be paid for up to three years (depending upon the renewal or implementation date in question).
The alternative is a short-term contract which deals in months, not years.
Short-term contracts – what to consider
Below, I list five elements to consider when changing supplier.
1. Reflecting staff changes
The major advantage of short-term contracts – as evidenced during the coronavirus situation and the UK’s response to it – is having scope to make essential adjustments to contract terms in order to accommodate staffing changes. Such tweaks can be done quickly and smoothly upon renewal. Whether your workforce contracts or expands, a flexible agreement does the same, so that fees accurately reflect your employment figures. By avoiding unnecessary expenditure, your organisation is better placed for survival, even when the going gets really tough.
2. Limiting cost increases
The concern with short-term contracts is that whilst you have flexibility, so does your supplier. Of course, this can lead to uncertainty with regard to price increases. Agreeing a cost-increase clause, which places restrictions on your supplier’s ability to escalate fees, is essential.
3. Ending the contract
There are many reasons why you may wish to change supplier, and you must ensure that you are not prevented from doing so by a restrictive contract or finance agreement.
4. Taking your data with you when you leave
When entering a contract for a new software or service, it is to be expected that your focus is on the start of the project (the current experience and what successful implementation looks like), but what about when you want to leave? Will that flexible cloud system which stores your data become the obstacle that prevents you from moving on, because your data is not in your hands and the supplier won’t provide it without cost?
5. Suiting your firm’s needs
An unexpected advantage of short-term contracts is that they drive up service levels. If firms are not tied to a particular supplier, then suppliers must earn loyalty by delivering a consistently excellent service.
Look for supplier arrangements that offer flexibility and pragmatism, and which suit your practice. The question is, do your suppliers meet that challenge?
Brian Welsh is the Chairman of Insight Legal Software. Insight Legal enables law firms to work smarter, with their award-winning legal accounts, case management and practice management software.
Insight Legal is a strategic partner of the Law Society. For more information, visit our Membership offers page.