Big law firms’ adoption of generative artificial intelligence is well under way across the globe, but their corporate clients say they are yet to see cost savings. In fact, the price for outside legal services continues to rise.
In the US, for instance, a recent report from legal operations specialist Brightflag found that outside counsel rates for the top 100 US law firms rose 10 per cent year on year in 2024.
“There has not been a fundamental change in how law firms are delivering the work,” says Alex Kelly, co-founder of Brightflag, which uses AI to help in-house teams manage external legal services. This is despite more firms using generative AI for review, research and other areas, from private equity deals to patent data.
Yet over the next year or so, he predicts, more clients will seek agreements with law firms to mandate use of the technology in various billing areas, in the expectation that costs would be curtailed as a result.
Telecoms group BT has been asking law firms it is considering for legal work to show where they use generative AI and how the use of that tech could benefit the company, says Jeff Langlands, general counsel of BT’s corporate, digital and networks divisions.
However, they are not yet willing or able to demonstrate this, he says. He had hoped that law firms would by now be able to show the cost savings on specific tasks, such as due diligence.
“We’ve not seen that ‘compare and contrast’, and that’s, for me, really quite an important next step,” Langlands says. “For a team like BT legal, we need to demonstrate to our [chief financial officer] and to our board that we are capitalising on the benefits of tech.” The legal industry “is ripe for technology”, he says. “So, let’s see the savings.”
Corporate clients can play an important role in pushing for cost savings and advancing AI and legal tech, says Andrew Perlman, dean of Suffolk University Law School in Boston: “Client pressure matters a lot.”
One impediment, however, is that clients are divided on law firms’ use of generative AI, he says. For instance, one company could be fully in agreement with firms harnessing AI in as many applications as possible, while another might prohibit it, leaving legal advisers in a tricky position as they are forced to balance these concerns.
Still, generative AI has the potential to bring about the largest material change to the billable hours model — much criticised, but apparently indestructible — than any other technology so far, Perlman says.
“One of the reasons that the billable hour has been so enduring is that not as many clients as you would expect are demanding anything to the contrary,” he says. One factor is that in-house teams fear the quality of legal services might drop if they push to move away from the billable hour.
The increased adoption of generative AI, however, means that “clients will be in a good position to help drive the way in which their law firms adopt these technologies and how they bill for their work”, Perlman predicts.
One example of this could be greater use of alternative fee arrangements, as law firms start to build customised generative AI models trained on their proprietary data, he says. Another move would be for law firms to lease out their proprietary AI models to corporate clients, he adds. More tools and services being offered on a subscription model by law firms could lead to a shift away from billable hours, in at least some areas of work.
Veta Richardson, president and chief executive of the Association of Corporate Counsel, the US members’ body, says cost savings from AI will occur only if law firms and in-house departments exchange information.
Law firms should inform clients about AI use in their work by articulating the specific benefits regarding efficiency, accuracy and added value, she says. That includes outlining the impact on billing, especially in cutting costs, but also addressing data privacy, security and ethical considerations such as biases and hallucinations, or the impact of generative AI’s hunger for electricity and water.
For their part, in-house teams should explain to outside counsel the areas in which they desire to see efficiency gains from the technology, Richardson adds.
‘If you’re using technology, what does that mean for fees?’
For law firms, the path to creating cost savings is not clear cut, argues Kerry Westland, London-based head of Addleshaw Goddard’s innovation group.
To achieve access to the technology, law firms must invest in generative AI services and other legal tech. This has led some firms to discuss ways to incorporate the costs in billing clients, she explains, and cost savings from efficiencies could be offset by tech fees.
Breaking down the cost savings achieved by using generative AI has proved challenging, Westland says.
So far, the tech has been applied to parts of a project, not the entirety, which obscures where the savings are. In addition, tech such as generative AI “has enabled us to do pieces of work we’ve never done before, so you would never know what it would have taken to do before”.
At the same time, clients who observe that new legal tech is being used inevitably ask about costs, and after 10 years of pioneering legal tech Westland is familiar with these conversations. “This has always been a question,” she says. “If you’re using technology, what does that mean for fees?”
