Corporate clients are increasingly demanding that law firms demonstrate how the use of generative AI can lead to cost savings, as legal bills continue to climb. For example, outside counsel rates for the top 100 U.S. law firms increased by 10% year-on-year in 2024, according to a Brightflag report. Despite widespread adoption of generative AI for tasks like review and research, clients are yet to see a fundamental change in how work is delivered or a reduction in costs. Jeff Langlands, General Counsel at BT, stated that his company asks law firms to show how AI use could benefit them but has not yet seen firms willing or able to demonstrate specific cost savings, particularly for tasks like due diligence.
Clients, such as BT, are looking for a "compare and contrast" of costs with and without AI, highlighting the need to justify technology investments to their chief financial officers and boards. Andrew Perlman, Dean of Suffolk University Law School, believes client pressure is crucial for driving AI adoption and cost savings, and predicts that clients will increasingly influence how law firms use and bill for these technologies. Generative AI is seen as having the potential to significantly impact the billable hours model, which has historically been resistant to change.
However, implementing AI for cost savings is not straightforward for law firms. Kerry Westland, head of Addleshaw Goddard’s innovation group, notes that law firms must invest in AI, and these technology costs could offset savings from efficiencies. Breaking down specific cost savings from AI is challenging because the technology is often applied to parts of projects rather than the entirety, obscuring where savings occur. Furthermore, AI can enable new types of work, making it difficult to compare with previous methods. There is a concern that law firms may try to incorporate technology costs into client billing, raising questions from clients about the impact on fees, a consistent concern over the past decade of legal tech development.
Looking ahead, there is an expectation that clients will seek agreements mandating AI use in billing areas to curtail costs. This could lead to a shift towards alternative fee arrangements and subscription models for legal services, especially as firms develop customized AI models. Veta Richardson of the Association of Corporate Counsel emphasizes that cost savings will only materialize if law firms and in-house departments openly share information, including AI’s benefits in efficiency and accuracy, its impact on billing, and considerations regarding data privacy, security, ethics, and energy consumption. Some European law firms are already transforming services into fixed-price products, moving away from hourly rates, with generative AI acting as a catalyst for this trend. However, concerns remain regarding the reliability of AI outputs, with only 22% of lawyers trusting them highly, despite 83% having access to the technology.
