So, You're At LegalTech®: Now What?

28
Jan
2013

Scott McFetter

How to Procure Technology for Your Firm in a Financially Strategic Manner

The LegalTech Conference held in New York is billed as one of the largest and most important legal technology events of the year, and as a conference go-er for over 20 years, I agree for two reasons.  First, there is the opportunity we all look forward to:  the opportunity to recharge long term relationships and create new ones, and LegalTech provides a rich environment for this.  

It's a great place to network and catch up with all the vendors, not to mention to see which people have changed jobs, where people have landed, and what prospects and clients are planning for the upcoming year.  In this way, LegalTech is about people and conversations.

Of course, LegalTech is also about the technology; the products and services all those 300+ vendors are exhibiting, demonstrating, updating, re-newing and launching for the first time for the 13,000+ attendees.  It's a veritable smorgasbord of productivity, efficiency, collaboration and compliance tools found in the cloud, on your desktop, hard drive, your intranet or extranet.  

But here's where it gets tough for law firm technology procurement folks:  The 2013 IT Budget Benchmark Report conducted by Corporate Executive Board (CEB) Global reveals CIOs across the globe expect a modest growth in total IT expenditure while capital expenditure growth will stay flat. This trend is amplified in the 2012 ILTA/InsideLegal Technology Purchasing Survey where overall law firm technology spend-as a percentage of total revenue and per attorney-is still down from the pre-2009 economic downturn and firms across the board were spending less on technology as allocated per attorney.

However, according to the Gartner report on the top 10 critical tech trends in 2013 for CIOs, there is significant growth in IT complexity.  Faster change cycles are being predicted with shorter development timelines and end-users increasing demands on IT.   

With these increases in complexity and demands in the technology realm, law firms will need to find ways to stay on the cutting edge of technology. With the possibility of limited capital expenditures, financing technological advances will certainly be a way to stay within budget constraints and allow firms to continue investing in the latest and greatest technological trends. Leasing is one financing option that a firm can use to cut the out of pocket costs for technology upgrades and still be able to implement new projects by providing a monthly expense versus a total cost purchase. 

If leasing technology is a good fit for your firm, here are some best practices to implement and pitfalls to avoid to help ensure the project is a success.

How to Get There:  Key Points for IT Staff/Executive Team/Attorney Communication

Typically, the leading stakeholders in a leasing situation are the law firm CIO, Director of Technology, CFO, Executive Director, Managing Partner, COO, Controller, Director of Administration, and/or the Management Committee as well as at least one of the firm's attorneys who negotiate lease documents.   The IT staff and their team decide what equipment they need and one or more members of the executive team  decides to pay cash, bank finance or lease.  Like anything else, the decision could be made on current cash flow, an ongoing lease refresh program, or a firm wide belief that having no debt and paying cash is the only way to go.   If leasing is the preferred option for the firm, then the lease documents provided are usually sent to an attorney to review.  In a lot of cases, the attorney is focused on the legalese in the lease documents and the overall exposure.   Finance runs the numbers to see what makes sense but the numbers may not reflect the hidden costs in the master lease, schedule, loss table, riders or other documents.   The executive team may rely on the attorney to find this type of language.  

• Attorney Issues - Some of the financial terms and language embedded in the lease may not stand out as an issue to the attorney or, occasionally, all the documents were not provided for the attorney's review.  It's not uncommon to see where leasing companies send over copies of the Master Lease with blank lease schedules and riders, in which case, the attorney is obviously not going to be able to evaluate the language. 
• IT Staff Issues - The IT staff may not have been involved during the decision and negotiation process; in these instances, IT will have to deal with the terms and conditions negotiated by the executive team and attorney.   In so doing, the IT staff will want to make sure that they have the flexibilities they need, especially as the leases terminate in order to allow for certain details such as:   specific configurations for the return of computers, specified terms of advance notice, wiping of data before return of equipment, determination of where the equipment needs to be shipped to and whether there are multiple return locations for different offices, just to name a few.  Most importantly, IT will want to be fully apprised of the end-of-term options and whether the firm can return the leased equipment without any further obligation.  
• Executive Team Issues - The executive team needs to be in communication with the IT staff to protect the firm from the financial consequences of the above outlined issues.   For example, finance and accounting will want to make sure IT is tracking the equipment by the location to make sure taxes are being applied properly, monitoring that the correct lease rates are being used, and that gathering the equipment for an on time return isn't a colossal task. 

Never Too Late to Negotiate:  Communication is Key

The lessor invested in long term relationships with their clients wants to take a proactive role in bringing clear communication to the table with the law firm's leading stakeholders in a leasing situation.  On the other hand, if your firm has a technology lease in place, is it too late to get organized? No, it's never too late to organize the firm's leases. In either case, your firm wants to be on the lookout for items such as: 

• Fair Market Value on Software
• Fair Market Value language that is determined solely by Lessor
• Quarterly Interim Rent/ Quarterly Commencements
• 7 day window to return equipment or the lease extends for 12 months
• No right to use of the Software at the end of the lease
• Pro-Rata 1/30th Language
• Long term auto extensions if your notice of intent is missed
• Notice windows that only allow you to give notice of intent between 90 and 120 days, or some variation thereof, before the end of the lease
• Requirement to return original boxing material and manuals

If you find yourself seeing onerous terms in your master lease and supporting documents, start asking questions of your lessor now and ask for the terms to be removed.  There's no doubt that budget constraints and the increasing pace of technology needs are creating pressure on both ends of the equation, but with the right communication tools, technology leasing can provide the nimbleness and agility law firms need in the increasingly complex IT landscape.  LegalTech is the convergence of people, relationships and leveraging technology for law firms.  Start now and investigate strategic methods your peers are implementing to finance their firm's technology needs in order to stay competitive in the new environment.