At Legaltech, I had the opportunity to interview David Perla who is Co-Founder and Managing Director of of The 1991 Group and a member of the Board of Directors of Integreon. David Perla has worked in a law firm, and as President of Bloomberg BNA Legal Division/Bloomberg Law, and he was co-founder and co-CEO of Pangea3, a provider of outsourced legal services. He is better placed than most to talk about the present state of the legal market.

There was a time when clients gave instructions to law firms, and law firms did the work and sent in a bill. Those times are long gone. We sit now, David Perla says, at an intersection between law firms, end-user clients and a range of companies in the surrounding ecosystem.

Clients are taking close control not just of matters as they proceed but of the whole process of acquiring legal input; they are much more sophisticated now in their approach to price among other things, and better informed about the choices they make.

Meanwhile, the rate of growth of law firms has plateaued over the last 10 years or so. The only way for law firms to improve their profitability was to cut whatever costs they could, but they have reached the limits of what they can do in this connection.

The wider market is expanding in that clients have more legal needs, but lawyers no longer have a monopoly over the management of legal problems – the practice of law remains theirs, but there are increasing numbers of companies offering services once thought of as the province of lawyers.

We are heading towards what David Perla calls “provider ambiguity”. Boundaries are breaking down between the various players and many functions can be performed by in-house departments, by law firms, or by alternative providers of services. It is necessary to decide what each of those should be doing and how to bundle together their respective services for the benefit of the client.

In parallel with this, technology is assuming many of the functions which used to support the headcount in law firms. Although data volumes are increasing enormously, the amount of data which is actually reviewed has not increased substantially because technology has done a good job of minimising the reviewable data. This is a good opportunity for companies who are accustomed to using software, whether they are law firms or providers of alternative services. It is not good if you are in the people business.

There is another aspect to this: companies which do a great deal of the same kind of work are better able to predict price and to take the risk that any one job will not be profitable. Law firms find this difficult, partly because of the headcount required and partly because (in the US at least) they cannot access external capital as third party providers do.

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