Generative AI for Law Firms: Is It Creating a Pricing Conundrum for Lawyers?

As more lawyers begin to lean on generative AI-driven tools, there is a rising question about how this might impact law firm pricing models. Also, Chief Legal Officers are thinking about how generative AI can be integrated into their firms to enhance efficiency and reduce costs.  

Legal workflows and deliverables that previously took multiple days to complete — such as due diligence reviews that involve reading heaps of contracts and flagging any potential issues — can now be crossed off in a matter of hours thanks to technologies like next-gen search, knowledge graphs or generative AI. Do these new technology-enabled time savings present a conundrum for lawyers, who have primarily built their practices around the billable hour?

If so, how can we expect pricing models to shift — or not shift — over the next decade?    

The Billable Hour Is Built to Last in the Legal Profession, But There’s Room for Other Pricing Models

Although technological change is afoot, it’s unlikely that the billable hour will disappear from legal work anytime soon for several reasons.

First, change takes time. More importantly, there needs to be an incentive to change, and clients’ pressure to adopt new ways of working is not consistent.

This is largely a reflection of how reactive much legal work is; when the client has a problem, they call their lawyer because they need a solution yesterday. These clients are less concerned with what kind of fee arrangement is in place than with finding a speedy solution to their problem.

The upshot is that the billable hour will hang around for quite some time, alongside other law firm pricing models.  The use of new fee arrangements will come into play — including fixed-fee arrangements and other types of value-based pricing — for certain types of work, especially for tasks and workflows that leverage legal AI.

Generative AI Tools for Repetitive Tasks, Lawyers for the High-Value Work

AI works best when leveraged for repetitive, high-volume pieces of work. Our earlier example of a due diligence review is a prime case in point: AI can scour hundreds upon hundreds of contracts without ever getting bored, and it can deliver results with the same level of accuracy as a legal professional in a fraction of the time.  

A fixed-fee or flat-fee pricing makes sense for this type of work. Leveraging AI for these sorts of tasks also frees up the lawyers to focus on higher-value activities: analyzing the data and what it means, and then providing counsel and advising the client on the best way forward.    

Law firms should bill this type of strategic high-end work by the hour or through some other arrangement that is fundamentally based on time. This pricing model accounts for any uncertainty around how much time the task at hand will require while also accounting for the fact that it is the type of high-value work that AI can’t yet perform.  

A brief analogy is useful here. Picture a sausage factory that has purchased machinery that will enable it to start mass-producing sausages rather than producing them by hand.  

This new whizbang technology should, in theory, make the sausages less expensive for customers because of the efficiencies it enables for the company. It would be odd for the company to use the cost of the machinery as a justification for raising the price of the sausage.  

Likewise, legal clients are probably not keen to see a line item for “AI usage” that allows lawyers to charge more for their services — unless, of course, that investment enables them to innovate, evolve their offerings, tackle certain legal workflows much more quickly and cost-effectively, and improve what business-as-usual looks like.   

Law Firms Use a Blend of Pricing Models

Ultimately, lawyers will determine which areas of work they want to use AI for, and these areas may be well suited for fixed-fee pricing. However, plenty of more “strategic” work still needs to be tackled, which will likely benefit from utilizing more traditional pricing models like the billable hour.

An evolutionary path forward with a blend of pricing models is the best bet for lawyers, embracing AI in the areas where it makes the most sense while still providing the high-end, highly strategic counsel that is their calling card in various legal practices. This way, new technologies like generative AI don’t present a pricing conundrum so much as a path forward for how lawyers can get work done and deliver the best outcomes.

Additional Tips on Generative AI for Law Firms

Generative AI in Law

Generative AI is a game changer for the legal profession. This type of AI can create new content, text, images, even legal documents from existing data. In the legal profession generative AI is being used to automate tasks, increase efficiency and deliver legal services better. But as with any powerful tool the use of generative AI brings important ethical considerations to consider. Lawyers must think about these carefully and use the technology responsibly.

What is Generative AI and how is it used in Law

Generative AI is a type of artificial intelligence that uses machine learning algorithms to create new content based on patterns and structures found in existing data. In the legal profession it can be used to:

• Drafting Legal Documents: Generative AI can draft contracts, briefs and other legal documents fast and accurately.
• Analyzing Legal Data: It can go through vast amounts of legal data to find patterns and trends that human eyes might miss.
• Predicting Results: By looking at historical data generative AI can predict legal outcomes so lawyers can create better legal strategies.
• Research: Generative AI can speed up research by finding case law, statutes and legal precedents.

Generative AI in Law Firms

Generative AI is taking off in law firms as the legal industry as a whole becomes more tech savvy. 15% of firms have already got generative AI and 30% will within the next 12 months. The main drivers are to be more efficient, reduce costs and improve the service to clients. As firms use AI tools more they will see big changes in their workflows and service delivery.

Ethical Considerations for Lawyers Using Generative AI

While generative AI is great and all that, using it in the legal profession presents some ethical issues to consider. Here are the big ones:

• Bias in AI-Generated Content: AI can perpetuate the biases in the data it’s trained on, so biased outcomes.
• Lack of Transparency: AI decision making is opaque, so how do we know how we got to a certain conclusion?
• Inadequate Training and Supervision: Without proper training and oversight AI can produce rubbish or inaccurate results.
• Inadequate Disclosure to Clients: Clients may not know AI is being used in their matter, which could erode trust and the value of the service.

Industry Guidance and Best Practice

To address these ethical issues the legal industry is developing comprehensive guidance and best practice for generative AI. Here are the key recommendations:

• Accuracy and Reliability: Lawyers must ensure AI generated content is accurate.
• Transparency: There must be transparency in AI decision making to build trust and accountability.
• Qualified Supervision: AI should be trained and supervised by qualified lawyers to make sure the output is valid and useful.
• Client Disclosure and Consent: AI should be disclosed to clients and consent obtained.
• Clear Policies and Procedures: Clear policies and procedures for AI in legal practice is key to maintaining ethical standards.

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