Category Archives: Legal

AI Can Certainly Identify Relevant Case Law, But Can It Predict Judge’s Decisions?

We are all familiar with the use of AI in contract (lifecycle) management to scan contracts, decompose them into clauses, identify the type of clause, index the contract against the clause types, and identify entity and attribute types in those clauses. This is common practice for best-of-breed CLM providers like Icertis and Exari and standalone best-of-breed contract analytic providers like Counselytics and Seal Software.

But not all of these are designed to evaluate a contract, and more precisely, a contract dispute against existing law and case law to determine the likelihood of a ruling in a party’s favour. But that is apparently what the new AI entrants are shooting for.

As per this article in The Globe and Mail, a new AI entrant is offering simulation software that predicts how a court might rule in a given case involving tax law. The software, which takes client details, arguments, previous case law, and current law into account, crunches this, and other inputs, and delivers a simulated judgement claimed to be 90% accurate.

And now the company in question is turning its attention to labour law and hoping to offer a product soon that will offer the same type of predictive accuracy in this legal area. This will obviously be more difficult than tax as there are more grey areas as to what is a violation, but it may be achievable.

But is 90% accuracy enough? That’s 1 in 10 wrong predictions. But maybe it’s enough. If the software predicts that the plaintiff will lose, with 90% or more reliability, a case that could easily cost hundreds of thousands of dollars, and the damages for pleading guilty are less than a million, the right legal strategy would obviously be to seek out a good deal and not risk losing it all in court.

Plus, if both sides of a pending legal battle had access to simulation software that always showed one side losing with significant confidence, then at least one side will always be up for negotiation, and that’s almost always cheaper than a costly court case. Plus, it gets a resolution quicker, and sometimes the biggest cost of a dispute is the lost time.

So while it will never be truly accurate, as you can’t truly predict how a judge will rule in any given situation (as a human interpretation of a grey area can always be different than what might be the typical interpretation), this might just be the software that lawyers, tax accountants, and, soon, HR professionals need to come to their senses and resolve the dispute before wasting time in court.

And if it works in these areas, maybe soon it can ingest global law and treaties and be applied to Procurement disputes …

Organizational Sustentation 56: Legal

While Legal is often out of sight, out of mind, Legal can be quite the thorn in Procurement’s side, especially when Procurement wants to do something that Legal doesn’t think is a good idea. Chances are Procurement has done its research, and due to extenuating circumstances (a supply line went down, an operational centre was damaged by a natural disaster, etc.) knows that the organization might not have a choice, but that doesn’t mean that Legal is going to agree, or sign off.

But that is only one example of how Legal can be an Organizational Procurement Damnation. As per our original damnation post, Legal is run by the Chief Consul who reports to the CEO, a Chief Counsel who will order his organization to do what he believes the CEO wants done, even if that’s not what anyone else wants. If the CEO says to get standard contracts in place, the Chief Consul is going to order standard contract templates for all direct materials and services. If the CEO is worried about child or slave labour in the supply chain, Legal is going to order each and every supplier vetted, immediately.

And while this insistence on onerous clauses or tunnel vision can be bad, the minute you want to obtain a “Contract” Lifecycle Management solution, a whole new level of damnation emerges. Legal is going to immediately insist that “contracts” are their domain and they need to be the owners of the contract solution. And this is very bad from a Procurement perspective because all Legal typically cares about is contract creation (drafting, authoring, and signing), contract archival, and contract retrieval and their definition of a Contract Management solution is one with strong drafting and authoring capabilities, version control, audit trails, clause repositories, Microsoft Word integration, etc. This is only a very small part of the 3-phase CLM process that starts with a need identification and ends with a proper post-mortem, and a process that depends heavily on a successful sourcing exercise (to identify the right buy) and a successful supplier management process (to insure the right products and services are obtained at the right price at the right time at the right location in sufficient quantity and of sufficient quality). While a good contract is critical, as it must accurately capture everything leading up to the creation and spell out what will happen after signing, it is a very small part of the process and the best contract in the world is useless if you can’t execute. Plus, Legal can continue to use whatever they use now to create contracts, so it’s not like lack of a strong contract authoring solution is holding them back.

So what can you do to prevent Legal from being a thorn in your side?

1. Consult them early in a strategic project or one with urgent timelines.

Let them know what is being sourced, why, what the critical requirements are, and when the contract will be needed by. Ask them for their major concerns, standard organizational requirements, and any issues they will be looking out for. Some of the requirements Legal says it will insist on might be ridiculous and might require some internal negotiation, but the last thing you want to be is blindsided during what you believe will be a cursory review and signature from Legal. Get ahead of any issues and everything will go smoother.

2. Meet with them on at least an annual, if not quarterly, basis to identify operational or emerging concerns that they would like Procurement to be on top of, and get on top of them.

If they are worried about child and slave labour, potential payments to terrorist organizations, poor environmental reputation in the supply base, Procurement can present a solution (such as a CSR monitoring platform) and get them to help Procurement get the funding it needs to monitor such issues (and reduce operational risk). Which recommendation is going to carry more weight with the C-Suite when money is involved — the CPO’s, or the Chief Counsul’s?

3. Regardless of what the vendor calls it, you want a “Sourcing Execution Lifecycle Management with Strong Contract Support” solution.

Legal will still stick their nose in, especially since they will have to use the contract module, and try to sway you towards a solution of their choice, but a properly framed request will increase Procurement’s chance of obtaining the right solution. Make it clear that Procurement needs a solution to manage the Source to Pay lifecycle effectively, to ensure that it not only negotiates good deals but realizes them, and that Procurement would like that solution to revolve around the contract. Indicate that you have identified a few vendors with the key capabilities required for Procurement to identify, negotiate, and capture great deals, each of which appears to have a strong contract module, and ask Legal what they are looking for, indicating that their requirements will be included in the evaluation of the contract module and will influence the overall weighting, designed to bring the best value to the organizational overall. Also, if each affected organization is allowed to have one stakeholder representative review the components that affect them, and those reviews are averaged with Procurements, Procurement will have an easier time getting buy-in, as it will be able to say “if all things are equal, we will get the system with the contracts module better suited to Legal”. When the need, rationale for, and expected benefits of a solution are clearly communicated, it will be easier for all parties to work together, Procurement and Legal included.

Organizational Damnation 56: Legal

While not quite as many organizational damnations in our list as there are technological (which are enough to drown us on their own), there are still quite a few and Logistics, covered back in our post on organizational damnation 48, was just the beginning. Legal can be just as big of a thorn in our side as Logistics, if not bigger.

Everyone hates lawyers, unless, of course, we’re talking about their lawyers working for them doing exactly what they want and succeeding. In your organization, the lawyers work for the Chief Consul who works for the CEO and orders his organization to do what he feels the CEO wants him to do, even if it is not what anyone else in the entire organization wants him to do. So if the CEO has mandated the Chief Consul to get a standard legal template in place for all direct materials contracts, that’s what the legal team is going to try and do (even if half of the clauses are irrelevant to half of the categories or are so onerous that no supplier worth it’s weight in salt would ever, ever sign). If the CEO orders the Chief Consul to make sure the organization doesn’t get mud in its eye due to child labour in the supply chain like the competition did, you can bet the Chief Consul is going to order an operational review of each and every supplier you do business with and their suppliers and so on. And while neither of these are bad things, the Chief Consul and the legal team could get dangerous tunnel vision and make Procurement’s life very, very miserable in the process.

But it’s not just tunnel vision and insistence on onerous clauses or unnecessary deep supply chain reviews (on suppliers you already vetted over the last two years, a vetting process which included surprise audits) that’s the problem, it’s their definition of what a good contract management system is. If you’re a leading Procurement organization, chances are you’ve noticed the similarity between a good Category Management Process and Contract Lifecyle Management (CLM) and are looking to obtain a good CLM or Strategic Sourcing (SS) / Supply to Contract (S2C), or Supplier Relationship Management (SRM) solution with strong contract management capabilities. However, the minute you mention you want a solution which either has “contract” in the title or “contract X” as a significant module, Legal is going to insist that “Contracts” are their domain and they need to be the solution owner of the “contract” solution.

Why is this bad? Because, at the end of the day, all that Legal cares about is contract creation (drafting, authoring, and signing), contract archival, and contract retrieval and their definition of a Contract Management solution is one with strong drafting and authoring capabilities, version control, audit trails, clause repositories, Microsoft Word integration, etc. In a 3-phase, 22-step contract lifecycle management process that starts at the need identification and the production of a business case and ends with a proper post mortem, contract creation is one step — but they will ignore everything else, including all important workflow management, change management, performance management, relationship management, and risk management — among other significant features from a Procurement / Supply Management point of view. The best solutions will be immediately eliminated from consideration if they are missing one unnecessary bell or whistle that Legal wants in the drafting phase and the Procurement organization will end up with the best contract authoring tool on the planet — that does absolutely, positively nothing else.

But this doesn’t come close to the hell you’ll get the first time you try to help them with cost control. The minute you bring spend up they’ll get all defensive that the organization needs the best outside consul it can get, that talent doesn’t come cheap, but the extra cost is well worth the reduced risk that comes from having a high-risk contract drafted by a true expert or the best litigator defending your organization in what could be a very costly court case if the organization loses. They’ll do this even though you agree with them 100%, have no intention of reducing legal spend just to increase legal liability, and only care about getting spend under control for everyday cookie-cutter services and legal firm expenses.

For example, many real-estate transactions, franchise transactions, insurance transactions, etc. are templated, sold by nimble, specialist firms at fixed rates, and do not differ in quality or risk whether you pay $1,000, $5,000, or $10,000. However, many large organizations with a lot of local offices or branches will often pay significantly different amounts for the exact same service that should be a fixed price across the state, or even the country. the doctor knows a number of spend experts who have analyzed legal spend for large organizations and the differentials on some of these cookie cutter category are often a factor of 3 to 5! There’s a huge savings here, which can be used to insure that the organization always has enough in the legal reserve to hire the best talent for the strategic transactions and legal challenges when talent truly matters. Plus, allowing every law firm to choose their own e-Discovery firm and technology, their own business centre / copy house, and even their own messenger service / delivery carrier can lead to significant variations in expenses as well. If the organization takes control of the expenses and insists that it’s lawyers and outside law firms use it’s contracts, non-talent expenses can often be halved as well. Like the Marketing Sacred Cow, the Legal Sacred Cow represents a huge savings opportunity which, when approached correctly, does not increase the organization’s risk one bit. In fact, the increased control, standardization, and visibility reduces risk while increasing the funds in reserve for Legal in case of a law-suit or similar emergency. But Legal never sees it that way at first, and sometimes doesn’t come around.

Legal will drive you nuts. It really is the case that you can’t live with them, can’t kill them. Because, at the end of the day, no matter how miserable they make your existence, there will always be that big contract where you need them to make sure your behind is covered. And, just like the lawyer, you will have to take two sides.

Hidden Risks are Everywhere!

In yesterday’s post, we noted that one of the workshops being offered in the 2nd NLPA Conference is on the Hidden Risks of Terms & Conditions. We noted that this is an important topic because terms and conditions are the concealed weapons of the legal world and a big hidden risk in your supply chain that you are likely not aware of.

There are more risks in an average set of terms and conditions then just the one-two knock-out punch of just Force Majeure and sole-source. Other risks that can be hiding in your contracts include:

  • buyer beware
    if you do not take the time to properly specify acceptance (testing) procedures, the goods will be yours the minute they are unloaded into your warehouse and/or a warehouse worker issues a goods receipt
  • non-compliance
    if you do not insure that there are no appropriate no-subcontracting clauses, your supplier could be sub-contracting services that are only to be supplied by certified companies or individuals (which is critical in health care, etc.), critical services could be subcontracted out, leaving you liable
  • weak confidentiality clauses
    if the clause doesn’t specifically indicate that confidential information may only be revealed to non-identified parties in the case of an official legal request, and that any request must be reported to you before such information is revealed, who’s to say that the information won’t be released without your knowledge upon an informal inquiry by someone asking for related information
  • increased liability
    if the contract does not specify a minimum insurance requirement for your supplier, who is performing sub-contracted services on your behalf, and does not mandate that they provide proof of such insurance on a regular basis, then a mistake on their part could result in increased liability on your part, beyond any limits specified in the contract
  • no termination clause
    just because you think you can end the contract for non-compliance doesn’t necessarily mean that you can, if it is sole-source for a guaranteed time, the supplier can argue Force Majeure, lack of quality requirement, etc. to negate any non-compliance claim you may bring forth

And this is just the tip of the iceberg. That’s why poorly negotiated contracts are note just the concealed weapons of the legal world, they are minefields!

Some Legal Considerations When Outsourcing to India

A recent article over on Outsource Magazine had a good article on legal considerations when outsourcing to India that addressed core legal issues that should form the basis of your Master Services Agreement when outsourcing to India. The four issues addressed could be very problematic if not covered by your agreement.

Lex Contractus
This refers to the governing law, or proper law, of the contract. While the parties of a contract can choose the governing law, as the author notes, due to the fact that a major proportion of the services are to be rendered in India, consideration for services will be received in India and the Indian party may sign the contract in India, the applicability of Indian laws cannot be excluded by contract. So, even if the Indian party agrees to the governing law being a foreign law, it is possible that in case of any dispute, the Indian party could approach a court in India to seek appropriate relief and the court could also entertain the dispute on the basis of factors set out above. Keep this in mind when considering outsourcing to India. In addition, should you choose arbitration, Indian law mandates that for a foreign arbitral award to be directly enforceable in India, the award must meet the following conditions: the award must have attained finality in the country it has been passed; it must conform to and must not conflict with Indian law or public policy; both the parties and the arbitration venue should belong to a New York or Geneva Convention signatory country.

Data Protection and Privacy Laws
While India has been slow on the uptake with respect to data protection and privacy laws, compared to the US which has a number of industry specific federal laws and state laws (that also restrict cross-border transfer of personal and sensitive information) and the EU which has the European Data Protection Directive, it has moved quickly to catch up in an effort to insure it keeps the outsourced work that it has acquired. Since the Information Technology Act of 2000 didn’t have enough enforcement teeth in the eyes of the US or EU, the biggest outsourcers to India, it quickly passed the Information Technology Rules in 2011 that defined what would constitute “Sensitive Personal Data or Information”, laid down obligations for the data collector and data processor, and defined reasonable security practice and procedures. This may not be strong enough for extremely sensitive data, but is a great start. Just make sure you also insist on adherence to the IS/ISOIEC2700 as well.

Employment Issues
It’s important to explicitly state that the service provider complies with all the necessary laws and that the overseas outsourcing company may not be threatened by any kind of claim by employees of the Indian company.

Licensing, Copyright in Database and Infringement Issues
Remembering that the outsourcing company is creating, developing, and processing data for you, the client, it is essential that you state that all data, product, programme, software, designs, and compilations constitute IP and that all IP rights are protected and assigned back to you, the client. Note that, in Indian law, the supplier will hold the copyright interest in the software developed by it but Indian law also provides for the assignment of the copyright interest by the service provider in favour of the client, by entering into an separate assignment agreement.

If not properly handled in the agreement, each of these could come back to bite your organization in its organizational behind if something goes wrong. Think it through, and get some expert legal help.