Legal Tech Vendor Due Diligence Checklist 2024

Choosing the right legal tech vendor is crucial. Here's a quick guide to help you make the best decision:

1. Company Background: Check history, finances, leadership
2. Product Features: Ensure core functions meet your needs
3. Security & Compliance: Verify ISO 27001, GDPR compliance
4. AI Features: Understand usage and training methods
5. Help & Training: Evaluate support options and resources
6. Contracts & Pricing: Watch for hidden fees, long commitments
7. Risk Management: Assess third-party risks
8. Performance Tracking: Look for built-in analytics tools
9. Future Plans: Review product roadmap and R&D investment

Key takeaway: Thorough due diligence takes time but prevents costly mistakes.

Aspect	What to Check
Security	Encryption, data storage, access controls
Compliance	ISO 27001, GDPR, CCPA adherence
AI	Training data, decision explanations, error rates
Support	Response times, training materials, user community
Pricing	License types, contract terms, hidden costs
Performance	Time saved, cost reduction, accuracy improvements

Remember: A vendor's future plans and ongoing innovation are just as important as their current offerings.

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Company Background

When choosing a legal tech vendor, you need to know who you're dealing with. It's not just about ticking boxes—it's about finding a partner who can deliver.

Company History

Look at how long they've been around and what they've done. Old doesn't always mean better, and new doesn't always mean risky.

Ask yourself:

• When did they start?
• How has their legal tech focus changed?
• What big moves have they made?

Leadership Team

The people at the top matter. A lot. Check out who's running things and what they bring to the table.

Look for:

• Legal tech or related experience
• Success in previous roles
• Any red flags (legal issues, failed ventures)

Financial Health

You don't want a partner who might disappear next year. Check their finances to make sure they're stable.

Quick checklist:

• [ ] Get recent financial statements
• [ ] Check their credit score
• [ ] Look for lawsuits or financial disputes

"I almost spent £5 million with a vendor whose cash flow looked sketchy. If they failed us, we'd face huge damages from our customer."

This shows why financial checks matter. You don't want to be left hanging if your vendor can't deliver.

Pro tip: Use automated finance checks. They're faster and often more accurate than manual ones.

2. Product Features

When choosing legal tech, you need to know what it can do. Here's the breakdown:

2.1 Main Functions

First, list your must-have features. For example:

• Case management
• Document storage
• Time tracking
• Billing
• Client communication

Then, grill vendors about these features. Don't just nod along - ask for demos or trials.

2.2 Customization Options

Off-the-shelf solutions rarely fit perfectly. You need tech that can grow with you.

Ask vendors:

• "Can we add custom fields?"
• "How easy is it to change workflows?"
• "Can we create our own reports?"

What works now might not work in a year. Pick tech that can adapt.

2.3 Compatibility

Your new tech needs to play nice with what you already have. Otherwise, you're just creating new headaches.

Question	Why It Matters
Integrates with Outlook/Google?	Smooth email and calendar sync
Connects to accounting software?	Simpler billing and financial tracking
API for custom integrations?	Future flexibility

"It must be easy to use and intuitive; it must be compatible with our systems already in place." - General Counsel

This quote nails it. Ease of use and compatibility are key.

Pro tip: Make a checklist of your current tools. Ask vendors how their product works with each one.

The goal? Make your life easier, not harder. If a product looks great but doesn't work with your setup, it might not be worth the hassle.

3. Security and Compliance

Data protection is crucial when choosing legal tech. Here's what you need to know:

3.1 Data Protection

Grill vendors on their data security practices:

• How do they encrypt data?
• Where's the data stored?
• Who can access it?

Take BusyLamp, for example. They use AES256 for stored data and TLS 1.2+ for data in transit. Plus, they keep client data separate to prevent unauthorized access.

"All data should be encrypted with a secure and up-to-date algorithm, such as AES256 for at-rest encryption." - BusyLamp Security Guidelines

3.2 Industry Standards

Look for vendors that follow top security rules:

Standard	Why It Matters
ISO 27001	Shows ongoing security commitment
GDPR	Ensures EU data protection compliance
CCPA	Covers California consumer privacy

BusyLamp's ISO 27001 certification since 2018 shows they're serious about security.

3.3 Privacy Laws

Vendors need to follow privacy laws that apply to you:

• U.S.: PATRIOT Act, CLOUD Act
• EU: GDPR
• California: CCPA, CPRA

BusyLamp, being German, isn't subject to U.S. government claims under these acts. That's a win for data privacy.

Pro tip: Get your IT team involved early. They can check if the vendor meets your company's data protection rules.

Don't forget:

• Ask for regular third-party security tests
• Check how they handle security breaches
• Make sure they have a written information security program (WISP)

4. AI Features

AI is shaking up the legal world. Here's what to look for when choosing AI tools for your firm:

4.1 AI Uses

Check how the AI tackles legal tasks. For instance:

• Kira Systems speeds up contract reviews by 40-90%
• ROSS Intelligence finds relevant case law from plain English questions

Ask vendors to demo their AI on real legal documents.

4.2 AI Training

The AI's brains come from its training data. Quiz vendors on:

• Training data sources
• Update frequency
• Bias prevention methods

Ensure the AI learns from current legal texts and cases to stay up-to-date.

4.3 AI Decisions

Understanding the AI's decision-making is crucial. Ask vendors:

• How does the AI explain its conclusions?
• Does it link to source documents?
• What's their error-checking process?

"The quality of the answers [that the AI delivers] has to be exceptionally high, with no room for errors or hallucinations." - Stefanie Briefs, Senior Legal Counsel and Lead of Legal Tech HR at Bertelsmann

Remember: AI isn't perfect. Always have a lawyer double-check its work.

AI Feature	What to Ask
Uses	Show AI in action on legal docs
Training	Data sources and freshness
Decisions	Explanation methods and source linking

5. Help and Training

Don't skip checking a legal tech vendor's support and training. Here's what matters:

5.1 Customer Support

Good support can make or break your experience. Ask vendors:

• How fast do they respond?
• Can you talk to a real person?
• When is support available?

Tip: Don't just read online reviews. Ask other law firms about their experiences.

5.2 Training Materials

Good training helps you use the tool better. Look for:

• Webinars
• Video tutorials
• User guides
• In-person training

BYU Law's Legal Tech Initiative, for example, trains on common legal software like Microsoft Word and e-discovery tools.

5.3 User Community

A strong user community can be super helpful. Check if the vendor has:

• Online forums
• User groups
• Annual conferences

These can help you solve problems and learn tricks.

Support Feature	What to Look For
Response Time	Under 24 hours for non-urgent issues
Support Hours	At least 9-5 in your time zone
Training Options	Mix of live and self-paced resources
User Community	Active forums or user groups

"Legal Ops is an incredible community where experienced legal ops leaders are happy to give their time to talented people at an early stage in their career." - Alex Kelly, Chief Operating Officer & Co-Founder at Brightflag

Bottom line: Even the best tech is useless if you can't use it. Make sure your vendor gives you the support you need.

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6. Contracts and Pricing

Picking a legal tech vendor? Let's talk money and fine print.

6.1 License Types

Vendors sell their products in different ways:

• Per-user licenses
• Flat-rate subscriptions
• Usage-based pricing

Big firm? Ask about volume discounts.

6.2 Contract Details

Keep an eye on:

• How long the contract lasts
• Renewal terms
• How to end the contract

Watch out for sneaky auto-renewal clauses. They can cost you if you're not careful.

6.3 Extra Costs

Don't let hidden fees surprise you. Look for:

• Implementation fees
• Training costs
• Data migration charges
• Upgrade fees

Cost Type	What to Ask
Base Price	What's in the standard package?
Add-ons	Any extra charges for specific features?
Support	Is customer support included?
Updates	Are software updates free?

Cheapest isn't always best. Think value for money.

"Poor contract management costs businesses 9% of their annual revenue." - World Commerce & Contracting

To avoid this:

1. Read EVERY contract detail
2. Negotiate costs and payment terms
3. Don't rush to sign

Consider the total cost of ownership (TCO). It's more than just the license fee.

Lastly, think ahead. Can you transfer the license if your firm grows? A little planning now can save you trouble later.

7. Risk Management

Legal tech vendors can be risky. Here's how to handle it:

7.1 Third-Party Risks

Many vendors work with other companies. This can affect you.

In 2022, Cadwalader, Wickersham & Taft faced a data breach. Their email archive vendor exposed 93,211 clients' and employees' data.

Ask vendors:

• Who are their partners?
• How do these partners access your data?
• What security measures do they have?

7.2 Vendor's Due Diligence

Good vendors check their partners. Look for:

Ask About	Why It's Important
Audit frequency	Catches issues early
Audit standards	Higher standards = better protection
Recent audit results	Proves they're doing checks

"More than 80% of legal and compliance leaders report that third-party risks were identified after initial onboarding and due diligence." - Gartner

Ongoing checks are crucial.

7.3 Insurance

Insurance is a must-have. Key points:

• Get a Certificate of Insurance (COI)
• Ensure it covers your needs
• Check coverage amounts

Typical requirements:

• General Liability: $1 million per event, $2 million total
• Professional Liability: $1 million minimum
• Cyber Risk: $2 million per claim

Your firm should be an "additional insured" on their policy.

Don't forget: Check if the vendor's insurance covers their partners too.

8. Performance Tracking

Want to know if your legal tech is pulling its weight? Here's how to keep score:

8.1 Performance Measures

Set clear goals. Focus on:

• Time saved
• Cost cuts
• Accuracy boost

Check out this example:

Metric	Before	After	Improvement
Contract review time	4 hours	1 hour	75% reduction
Error rate	5%	1%	80% reduction
Monthly costs	$10,000	$7,500	25% savings

8.2 Report Options

Ask vendors about their reporting. Look for:

• Real-time dashboards
• Custom report builders
• Scheduled email reports

Pro tip: Get a demo of their reporting tools before you buy.

8.3 Industry Comparisons

How does your vendor stack up? Look for:

• Benchmarking data
• Industry-specific metrics
• Peer comparisons

Here's a shocker: Only 27% of legal ops teams formally check vendor performance. Don't be part of that statistic.

To squeeze the most out of your tech:

1. Set a review schedule

Regular check-ins keep everyone on their toes.

2. Use a scorecard

A simple vendor scorecard can guide your talks.

3. Track ROI over time

Follow this timeline:

• Measure before you start
• Check right after launch
• Review at 6 months
• Assess at 1 year

9. Future Plans

When choosing a legal tech vendor, you need to know their direction. Here's how to peek into their future:

9.1 Upcoming Features

Ask about their product roadmap. Look for:

• AI upgrades
• New integrations
• UI improvements

Clio is rolling out an AI legal research assistant in Q2 2024. They claim it'll cut research time by 40%.

9.2 Research Efforts

Find out about their R&D investment. Ask:

• Annual R&D budget?
• Size of product development team?
• Any partnerships with law firms or universities?

LawGeex is reinvesting 30% of revenue into R&D, focusing on contract review AI.

9.3 Staying Current

Check how they keep up with legal tech trends:

• Attendance at major legal tech conferences?
• Involvement in industry working groups?
• Frequency of product updates?

Luminance updates AI models monthly, using feedback from 500+ law firms globally.

Vendor	Upcoming Feature	R&D Investment	Update Frequency
Clio	AI research assistant	Not disclosed	Quarterly
LawGeex	Improved contract AI	30% of revenue	Monthly
Luminance	Enhanced AI models	Not disclosed	Monthly

A vendor's future plans can make or break your long-term success. Choose carefully!

Conclusion

Picking the right legal tech vendor is crucial for your firm's success. Here's a streamlined checklist to guide you:

1. Company Background

Look beyond the sales pitch. Check the vendor's history and finances. For example, Clio's acquisition of Lawyaw in 2021 showed its commitment to growth.

2. Product Features

Focus on core functions that meet your needs and work with your existing tools. Thomson Reuters' HighQ platform, for instance, offers over 100 integrations.

3. Security and Compliance

This is a must. Ensure the vendor meets industry standards like ISO 27001 and GDPR. NetDocuments, for example, uses bank-grade encryption and regular audits.

4. AI Features

If AI is included, understand how it's used and trained. The ROSS Intelligence lawsuit in 2020 highlights why AI due diligence matters.

5. Help and Training

Good support is key. Some vendors, like Clio, offer dedicated account managers for larger clients.

6. Contracts and Pricing

Read the fine print. Watch for hidden fees or long commitments. Practice Panther, for instance, offers month-to-month plans.

7. Risk Management

Know who you're dealing with, including third parties. Many cloud solutions use AWS or Azure for hosting.

8. Performance Tracking

Make sure you can measure success. Look for built-in analytics tools, like those in Relativity for e-discovery projects.

9. Future Plans

A vendor's roadmap speaks volumes. Are they investing in R&D and attending industry events?

Thorough due diligence takes time but it's worth it. An Ernst & Young study found that 56% of mergers and acquisitions fail to meet their goals due to poor due diligence. Don't let your tech investment suffer the same fate.

FAQs

What are the legal due diligence considerations?

Legal due diligence for tech vendors covers:

1. Restrictive Contracts

Check for agreements that might limit the vendor's operations.

2. Contractual Obligations

Look for covenants and indemnification clauses that could affect your relationship.

3. Compliance Program

Ask for a summary of the vendor's compliance measures, including policies and procedures.

"ITEMS IN GENERAL LEGAL DUE DILIGENCE INCLUDE: Contracts that restrict the target's right to conduct its business. Contracts with obligations such as covenants and indemnification. Summary of the target's compliance program and copies of all policies, procedures and other related documentation." - Draftable Team, July 10, 2019

Why is this important? Two examples:

• Morgan Stanley's $60 million settlement in 2016 due to a data breach caused by poor vendor due diligence.
• Target's 2013 security breach, resulting in $220.5 million in costs and settlements.

To manage vendor risks:

• Update due diligence regularly
• Adjust frequency based on vendor importance
• Focus on financial, legal, operational, regulatory, and reputational aspects

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