Artificial intelligence is catalyzing significant changes in the legal sector, prompting a shift away from traditional hourly billing and towards fixed-price services. This transformation is driven by client demands for cost savings and efficiency, with major law firms like McDermott Will & Emery considering converting to a Management Services Organisation (MSO) structure to raise capital for technology investments. The MSO model allows law firms to bring in external investment, including private equity, by separating legal casework from back-office functions and intellectual property, enabling them to invest heavily in AI without violating professional ethics rules.
AI is not only driving structural changes but also influencing how legal services are priced and delivered. Many European law firms are already "productizing" their services, offering them at fixed prices or via subscriptions, particularly for low-margin, repeatable tasks. Examples include A&O Shearman partnering with legal AI company Harvey to develop agentic AI products for tasks like antitrust filings, sharing revenues from these innovations. This move reflects a broader trend of law firms demonstrating value differently than just advisory hours, as emphasized by DLA Piper partner Mark O’Conor.
Despite the increasing adoption of generative AI, corporate clients have yet to see significant cost savings. A recent report indicated that outside counsel rates for the top 100 US law firms rose 10% year-on-year in 2024. However, clients like BT are actively demanding transparency on how law firms utilize AI and how it will translate into cost benefits. Experts predict that clients will increasingly mandate AI use in billing agreements, leveraging the technology to drive a shift towards alternative fee arrangements and potentially even leasing proprietary AI models from law firms.
New legal tech companies like Harvey and Legora are emerging as dominant players, valued at $11 billion and $5.6 billion respectively. While 83% of lawyers have access to AI, only 22% report high trust in its outputs, indicating a need for greater reliability and integration. This evolving landscape is leading to an intensifying battle between traditional Big Law firms and "AI-native" firms that integrate lawyers with technology, all while clients signal an urgent desire for increased competition and value.
Law firms are also being pushed to articulate the specific benefits of AI to clients, including efficiency, accuracy, and added value, along with outlining its impact on billing and addressing critical concerns like data privacy, security, ethical considerations, and the environmental footprint of AI. This comprehensive approach is becoming essential in competitive pitches, as demonstrated by Ashurst successfully winning business by showcasing how they augmented technology with human expertise.
