There is no denying that some law firms view alternative legal services providers such as Factor as competitors, particularly for corporate legal work.
But over the past year, Factor has demonstrated that it can have highly productive partnerships with law firms, as it did in a unique partnership with Allen & Overy to provide LIBOR remediation, and then did again in a partnership with Akin Gump to manage transactions for a renewable energy fund, a partnership that reportedly resulted in cost reductions of 60%.
Now, building on these experiences, Factor is launching a productized, tech-enabled Legal Transaction Optimization service specifically for law firms. The service will provide transaction management, due diligence and documentation support to deal teams.
The value proposition for law firms is that the service enables them to meet clients’ demands for lowering the cost of their services, while also freeing the firm’s legal professionals to focus on higher-value aspects of deals.
“By transferring the transaction management work to a more tech-enabled, cost-competitive platform, law firms win more deals, boost margins and direct their associates to premium work,” says Factor, which spun off in 2019 from alternative legal services provider Axiom.
Specific services Factor will offer firms include:
- Transaction management. Checklist maintenance, signatures, centralized coordination, document routing, and closing set assembly.
- Due diligence. Maintaining the due diligence questionnaire and the review of underlying documents.
- Documentation. Ancillary agreements, templated contracts (e.g. under a fund umbrella developed by the law firm), side documents, consents, assignments, novations, and others.
Ed Sohn, head of solutions at Factor, told me during an interview Friday that in transactional practice, much of the high-volume work is still being done by first- and second-year associates. While the work is important to the deal, it is not strategic advisory work, and clients do not way to pay firms’ hourly rates to get it done.
“We think that we figured something out to relieve some of that pressure, to be a little bit of a relief valve on cost-efficiency. And we also think that we have something in our capabilities that is really custom made for this.”
Sohn believes this new product could become the blueprint for how transactions are done in years ahead. He drew an analogy to the early days of e-discovery, when many firms resisted farming out document review to managed services companies such as Pangea3, where Sohn was formerly an executive. But as firms came to see the value of third-party managed review, they went from being adverse to the concept to embracing it.
“Today, if you had a law firm put 1,000 hours of document review on their bill, I think they’d be in trouble,” Sohn said. “That’s now become the new norm, right. … Our service here is doing something similar in the transactional world.”
Perhaps a foreshadowing of today’s product launch came in March, when Factor announced that Andrew Ballheimer, who recently retired as global managing partner at Allen & Overy, had joined its board of directors. The move was seen by some as symbolizing a bridge between traditional law practice and new forms of legal services delivery.
“Clients will continue to ask outside counsel to deliver better value. It is, therefore, the right strategic move for law firms to find ways to incorporate more cost efficiency, without cutting rates,” Ballheimer said in a statement provided by Factor. “This offering is the missing factor to complete that formula, and I believe it’s an important milestone in the evolution of the legal services market.”
Sohn said he sees this product as appropriate for virtually any types or scale of transactions, except perhaps the most high-end deals.
He envisions the typical model to involve a series of small deals that have downstream impact, such as frequent real estate transactions or project finance transactions, that are individually not gigantic, but that have downstream impact on how they are securitized or where they get turned into a derivative or utility or sale leaseback.
“That’s where we would be able to really help the law firm run very leanly and still have access to all the capability that they need to accomplish those deals.”
“This is really more about law firms,” Sohn said, “and helping them crack the profitability problem that they’re facing, and really bring best-in-breed capabilities to them, and also free up their associates to be doing the high-level work they should be doing.”