What does AI mean for billable hours?
The Big Bang in the 1980s rendered London financial services unrecognisable. Now, there’s a new force set to make a similarly seismic impact on the legal profession: the arrival and adoption of AI technologies.
Intelligent large language models are disrupting the market, moving the traditional billable hours model from one-to-one to many-to-many. Outside of a small pool of the very best, boutique and specialist firms, this transition will soon become a volume game, with the winners being the firms that are able to share their expertise or IP with as many people as possible.
The shift away from billable hours towards fixed fees has been prevalent in consumer law for some time now, and it is starting to encroach into corporate law as clients seek more predictability and cost control on their legal spending. This trend will likely continue to grow as more clients and firms adopt advanced technologies and tools.
Clients are clued up on how much AI can streamline a task, so they will only seek personal advice when it’s a complex subject they know these technologies can’t grasp. For many general counsel requests, a client’s needs can be serviced with the help of AI tools, democratising people’s access to expensive knowledge. We know that in one-to-many or many-to-many models, people prefer fixed-fee or even zero-fee models.
There’s a perception that flat-fee structures can offer better value for clients, and it’s certainly much better for budgeting and forecasting. Clients know the exact cost of the legal work or matter up front before agreeing, mitigating unknown costs which can quickly creep up when using billable hour models.
Those who succeed in this shifting landscape will quickly accept this change in structure. Firms should display their eagerness to serve as many people as possible with AI tools that can leverage their internal IP, learn from each request to build a vast information bank, and communicate efficiently with clients via new digital tools.
While smaller players tend to be more agile in adopting innovative models and leveraging technology, the bigger players have more resources to invest. In the long run, we may see something similar to what we’ve seen in the rise of global investment banks over these past few decades, with a decreasing number of firms becoming global giants that dominate the industry.
Firms that want to maintain high billable rates and continue using the traditional billable hour model will need to evolve to become more like boutique firms, rather than mass-market providers. Like the case of M&A boutiques versus global investment banks, there will be a rise in firms that focus on niche, complex areas of law where automated and digitised legal services just don’t make sense. These firms and lawyers will be able to justify their high billable rates, helping them earn a higher profit per partner while being a smaller firm overall.
The change to the financial world from technology was real. It will be real for the legal world. However firms approach this industry shift, agility and the right technological tools will be critical.
