An e-change for law firms

Forward thinkers reckon plain-vanilla legal advice will not be the source of future profitability for financial lawyers. It will come from providing expertise that adds value to transactions, not least by saving time in striking deals. With the rapid development of online services, the way is open for firms to embrace this approach, assuming they are willing to invest in electronic information provision.

Linklaters hit the headlines a couple of years ago with its Blue Flag service, making updated financial regulatory information available online, at a cost. And Blue Flag has justified Linklaters' initial investment - maturing into a profitable and well-regarded service line. Now comes Allen & Overy's electronic foray - newchange - a brand covering new internet and technology-driven services. This is being launched with an online transaction management and documentation system with two main elements. The first - newchange documents - is a new form of finance documentation that can be produced and amended much faster than previously possible. The second - newchange dealroom - is an online dealroom allowing documents to be posted and accessed in a secure website dedicated to the deal and accessible on a password-only basis.

Where bankers are concerned, the newchange documents service has several advantages over the usual lawyer/client relationship. A big plus is the ability it gives lawyers to produce and amend key documents much faster than before. As David Morley, Allen & Overy's banking managing partner, explains: "In banking, at the top level where the biggest deals are done, the market is very competitive. Banks such as Chase, Barclays, Goldman Sachs, Deutsche and others all compete aggressively for new loan business. Speed of decision-making and execution is a key competitive advantage at this level, so lead times for producing, negotiating and turning round documents have been getting shorter and shorter." And, he continues: "Whereas five years ago a week may have been the norm to produce a complex loan document, now 24 hours is not unusual. The same is true in big-ticket M&A transactions, capital markets and other major commercial deals."

To cope with the financial community's need for near-instant turnround, Allen & Overy focused on adopting a modular approach to document drafting. Each clause has been designed to be both independent of and integrated with all the other clauses in a particular document and all related documents. This enables the documents to be broken down into key components so they can be reassembled rapidly, using software that can produce many different permutations.

There have already been several attempts to standardize loan documentation, as well as to computerize drafting. None of these, though, has made much impression on the market. Last year, the Loan Market Association (LMA) produced standard forms that have begun to set a benchmark, and it was Allen & Overy's work with the LMA that caused it to re-examine its own documentation so as to reflect the importance of flexibility in the syndicated loan market.

Allen & Overy has over 400 standard basic credit agreements, and estimates that even 4,000 would be inadequate. Moreover, all past attempts to computerize drafting to cope with the myriad variations have been unsuccessful, most probably because lawyers have attempted to impress new technology onto old documents. The new service - newchange documents - is like a set of boxes, each of which contains a clause. When the user needs to draft a document, it's a simple matter of selecting clauses electronically from the right boxes to match the specification. Much effort has gone into ensuring that every clause can be lifted in or out of the document with minimal knock-on effects. As things stand in the market, most legal documents are intricately engineered structures, where the concepts, ideas and mechanical aspects are closely interwoven. When one part is changed, the process of fine-tuning the new version is extremely laborious, and, for the client, expensive. The clauses incorporated into newchange documents circumvent this through clever drafting and the virtual elimination of cross-references.

As Allen & Overy's Morley sees it, the software developed by the firm is a bonus - the real intellectual property lies in the drafting: "If poor documents are assembled by computer, they will still be poor. There are huge benefits to clients in top-quality documents, in terms of saving their time, avoiding unnecessary arguments with their customers and counterparties over unclear provisions and reducing risk."

The firm has developed newchange in close consultation with banking-sector clients and the feedback has been extremely positive. Morley concedes that newchange may not necessarily be cheaper but says it will enable his banking team to focus on the value-added aspects of transactions. "In the markets in which they operate," he says, "there is a premium on fast delivery and turnaround of high-class documents and quality of service. We hope to free up our lawyers' time from drafting drudgery to concentrate more effectively on the most crucial aspects of the deal from the clients' perspective." The logic is sound enough - competitive pressures among leading international law firms mean market differentiation comes through transactional innovation and commercial nous. By launching newchange internationally, Allen & Overy hopes to have freed up its lawyers to provide just that.

The other product, newchange dealroom, is a web-based virtual dealroom, spearheading a strategy whereby every transaction managed by the firm will have its own dedicated website. Authorised users (such as clients, syndicate members, lawyers and accountants) will have varying levels of access, controlled by Allen & Overy. Once documents have been posted to the site, users are automatically notified by e-mail. The intention is to shift a high proportion of transaction management online, in a way that offers clients greater security, speed and convenience. The big advantage over e-mail distribution of documents is security, as well as accelerated user access to substantial documentation sent as attachments.

Because newchange dealroom has a dedicated server, many security concerns are removed. Besides speed and security, other benefits are that an infinite number of users can access the dealroom at once.

Allen & Overy's service will be free to clients instructing the firm. It estimates client cost savings on individual deals of £2,000 to £3,000. It is investigating the marketing value in running the transaction dealroom - sites can be customized for individual clients and individual transactions. Online debt issues, for example, could be handled through what would be client-specific extranets managed by the law firm.