Business people shaking hands on New York city background. Concept of partnership. Double exposure.

In a post COVID-19 economy, corporations and their in-house legal department aren't any more eager than they were before the pandemic to waste time and money on a vendor relationship or service that quickly fizzles out. But the pandemic could offer additional reasons for corporate legal departments to investigate the long-term health of outside providers before signing on the dotted line.

While speaking during a recent webinar series hosted last month by Corporate Counsel, John Albright, chief legal and compliance officer at Hub International Ltd., indicated that the stakes around in-house's due diligence with vendors may have risen.

"As we're looking at these platforms and evaluating them, it puts added pressure on you to make sure that you're selecting a vendor that's going to be there for the long haul," he said.

But while COVID-19 may add more urgency to the situation, it is certainly not the underlying cause. Instead, the issue ultimately stems from one of the legal industry's Catch 22′s: For legal tech or service providers, the most lucrative kind of business model to lock into is one that makes it difficult for clients to leave without enduring some inconvenience or business disruption.

On the other hand, one-off services like buying a piece of software or a new computer, significantly lower the risk for a corporate legal department or law firm were that same provider to suddenly go out of business. Kimball Parker, president of Wilson Sonsini Goodrich & Rosati's tech subsidiary SixFifty, used legal research as an example of a service that doesn't require a great deal of time or resource investment from clients. Privacy compliance is a different story.

"Your whole audit history is tied into a platform, right? So if you get audited and a company who you've used is out of business, that's an issue. And so there you probably want to be more careful," Parker said.

However, in-house legal departments, law firms and other clients may not view legacy companies with the same scrutiny as they reserve for startups. According to Parker, SixFifty has has not received any inquiries about its financial health during or prior to the pandemic, something he attributes to the longevity of its parent law firm and the impression of stability it may give to potential clients. Parker believes that the same is generally true for legacy or larger legal tech companies like Thomson Reuters.

"It's really hard to yank a Thomson Reuters [research] customer away, because those law firms have put so much time and so much time and so much training to be able to research on it so to be able to switch them is difficult," Parker said.

But startups typically haven't accrued that same level of stickiness with clients yet. Dorna Moini, CEO and founder of the document automation platform Documate, said that prospective customers have been asking questions about the company's financial health and longevity since  its doors opened 3-years ago. The level of investment that the document automation process in particular requires may play just as big of a role as the company's youth.

"When you onboard onto a document automation system like ours, you are taking time to set up your templates and customize everything to your exact needs. And so given that that takes time, a lot of users don't ever want to have to redo that process," Moini said.

To help clients feel more comfortable, Documate is willing to share its financial status if asked. The company can also set clients up to be hosted on their own server, so that the use of Documate software wouldn't be interrupted even if the platform itself were to go out of business.

Per Moini, Documate has never lost a potential customer over concerns about is financial situation, but she does think those are questions that in-house counsel or other clients should continue to ask of their service providers, COVID-19 or not.

"I think those risks exist whether you are onboarding with a company that is a startup or whether you are onboarding with a company that is 40 years old," Moini said.