Corporate clients are increasingly demanding that law firms demonstrate how their adoption of generative AI translates into cost savings, a trend observed even as legal fees continue to climb. For example, a report by Brightflag indicated that outside counsel rates for the top 100 U.S. law firms increased by 10% year-on-year in 2024. Despite widespread AI integration by law firms for tasks like review and research, clients have yet to see a reduction in their legal bills, leading to calls for transparency on AI's financial impact.
Key figures like Alex Kelly, co-founder of Brightflag, predict that more clients will soon seek agreements mandating AI use in billing to curb costs. Jeff Langlands, General Counsel at BT, stated his company is already asking prospective law firms to detail their generative AI usage and its potential benefits, expressing a desire for concrete "compare and contrast" examples of cost savings on tasks like due diligence. Andrew Perlman, Dean of Suffolk University Law School, notes that client pressure is crucial for advancing AI and legal tech, suggesting that clients will be instrumental in shaping how firms adopt these technologies and structure their billing.
However, implementing AI for cost savings presents challenges for law firms. Kerry Westland, head of Addleshaw Goddard's innovation group, points out that firms must invest in AI, and these tech costs could offset efficiency gains. She also highlights the difficulty in quantifying savings when AI is applied to only parts of a project or enables entirely new types of work. Moreover, client opinions on AI use vary, with some embracing extensive AI integration and others imposing restrictions, complicating firms' positions. Despite these hurdles, generative AI is seen as having the potential to significantly alter the billable hours model, with possibilities for alternative fee arrangements and subscription-based legal services as firms develop proprietary AI models.
