A couple of months ago, I wrote a post about how "hagglers" hired by banks to help negotiate major technology service agreements might be useful, as long as the banks who used them didn't forget to include other experts in the mix, including legal counsel. Apparently, my readership is extremely small.
I received a telephone call from a community bank CFO not long ago in which he asked me to review a "signature-ready" core servicing agreement with one of the nation's largest technology service providers. I asked him to explain to me what he meant by "signature-ready." He stated that the contract had been negotiated with the assistance of a well-known technology service consulting firm over an extended period of time, that all outstanding issues had been resolved, and that the agreement was ready for signature.
"The why are you calling me?" I inquired.
"Our consultants tell us that regulatory guidelines 'require' that we have the contract reviewed by an attorney, so that's what we need you to do."
"In other words," I replied, "you need a lawyer to 'bless' the agreement but not raise any issues that might delay execution of the agreement."
My interlocutor sounded offended, but not for the reason you might suspect. "There won't be any issues that your review would uncover because, after all, we hired [Insert Name of Consulting Firm Here]. They wouldn't have missed anything."
"Then, hiring me is a useless gesture made solely to check a box on a form and to snooker the regulators into thinking that legal counsel actually had input into the analysis and negotiation of the agreement," I observed, reasonably. "By the way, is [Insert Name of Consulting Firm Here] authorized to practice law in your state? If not, then they couldn't possibly have given you legal advice concerning such matters as the legal enforceability of crucial contract provisions, the legal implications of risk allocation provisions such as warranties, indemnifications, dispute reolution, default triggers and remedies, disclaimers, damages and liability limitations, and the like. Or did they?"
I cut through the ensuing sounds of crickets chirping by telling him that he should have hired us when the first draft hit his inbox. It was too late in the game to give his financial institution much meaningful input, other than point out whatever the consultants might have missed. I told him that the next time he needed someone to sprinkle holy water on a contract, he should call his local parish priest.
If his call was an isolated incident, it would be worthy of a head shake and then consignment to the one-off file. Unfortunately, it's not the first phone call with that scenario that I've received.Those of us who advise financial institutions on technology service agreements have little of value to add when were called in at the eleventh hour and fifty-ninth minute. From sad experience, we can anticipate the hostility of the reaction that will ensue if we point out any inconvenient truths at that late an hour. Usually, they will be rationalized away by business people who are too far in love with the deal to jeopardize its consummation.
There are lawyers out there who will wave a magic wand over your contract and state with conviction "It looks industry standard to me!" For example, the vice-chairman's brother-in-law who does the occasional sublease review and residential loan foreclosure, the guy with the office over the Rexall Drugstore down at the corner of State and Main. You might as well give him a tumble at that point, for all the real benefit you'll derive.
OCC Bulletin 2001-47 states that "at the outset," banks should conduct a risk assessment of third party relationships that "should include the identification of performance criteria, internal controls, reporting needs, and contractual requirements. Internal auditors, compliance officers, and legal counsel could help to analyze the risks associated with the third-party relationship and to establish the necessary control and reporting structures." The Bulletin also lists a number of contractual issues that should be analyzed and addressed, many of which necessarily involve legal expertise.
Calling in legal counsel when your pen is poised above the signature is way too late do provide any actual value.