Legal AI Could Force a Rethink of Billing Hours
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Time is not on your side Billing hours. Holding lawyers accountable for every part of their working lives isn’t exactly healthy. But advances in artificial intelligence seem likely to put pressure on the legal industry’s traditional fee structure. The disruption could be painful.
Right now, most lawyers say they are optimistic about the impact on margins and revenue of adopting technology that can summarize, search, draft and review. Many are hopeful increase productivity That will help them do more work — and sell more work — that they can charge for.
But there will be losers too. A third of the UK Company of law surveyed by PwC, said that AI will have a negative impact on profits and margins. AI could erode one of companies’ biggest competitive advantages, namely having a large number of junior staff who can be deployed on large, complex litigation and transactions.
A bigger problem arises from law firms’ traditional reliance on junior staff to generate disproportionate profits. The gap between their salaries and those of partners is larger than the difference in fees. As AI has the potential to reduce the workload of non-partners, it also has the potential to erode profit margins.
In response, companies may change their pricing models. Flat fees will become more common, even if the most complex work is still billed by the hour. Value-based fees may be more rigid than time-based fees. But in reality, customers will expect at least some AI savings to be passed on.
Legal AI tool providers also stand to benefit, especially those that train their models on authoritative legal sources. Companies like Thomson Reuters and Relx have invest heavily in AI-powered legal research. Relx has gained more pricing power after spending more than $1 billion on its tools over the past decade. AI is a key driver of faster underlying growth in the legal division, which analysts expect to rise 1 percentage point to nearly 7 percent this year.
Not everyone is convinced. Researchers at Stanford University found that even custom-designed legal contracts Psychedelic AI Tools “an alarming amount of time.” As well as factual errors and inaccurate sources, the responses tended to agree with users’ incorrect assumptions. The researchers said flattery poses particular risks in legal contexts.
Such concerns may reinforce the instincts of tech-conservative partners. But there are risks in sitting on the sidelines. Few industries are more exposed to AI than legal services, in principle. Companies that make AI work will win business from those that don’t.
