AI’s impact on law firm pricing and client service 

AI-enhanced legal work has put law firm pricing in focus as it continues to create new opportunities and shape work product creation.

A recent survey entitled Tech, AI and the Law 2024 by Thomson Reuters sheds light on perceptions and attitudes towards law firm pricing and legal service evaluation.

Redefining the legal sector’s value proposition in light of AI’s opportunities could trigger a shift from traditional billing to value-based pricing models. In this article, we explore the insights outlined in Tech, AI and the Law 2024 on AI’s disruption of the billable hour.

Does traditional billing hamper AI innovation?

Forty per cent of private practice professionals surveyed for Tech, AI and the Law 2024 believe that the traditional model hampers innovation and adoption. As GenAI supported work redefines the focus of billing structures, the rationale behind “true value” will also change under the new parameters. The value of GenAI support will correspond with where time is reinvested and what resources are allocated to productive, high-value deliverables.

From the client side, the billable hour business model hampers AI innovation and adoption, with over half of in-house legal counsel (52%) surveyed for Tech, AI and the Law 2024 report affirming this view.

“As clients themselves experiment with AI, they are realising how much more time and cost efficient their legal service providers can be when combining specialist legal GenAI solutions, with their existing human and legal tech value proposition,” says Alex Coyne, Director for Strategic Growth, Thomson Reuter, Asia & Emerging Markets.

“Understandably, clients want to benefit from this change. They are expecting legal service delivery models to evolve, which will present opportunities for innovative pricing and packaging models that pass on a fair portion of GenAI efficiency savings.”

As forecast by the 2024 Future of Professionals report, skills like negotiation and strategic thinking are becoming more valued over routine tasks like drafting. The additional value GenAI can deliver goes beyond efficiency, makes room for complex work that requires deeper thinking and innovation.

“Many local Australian firms rely on the traditional billing model which is designed to leverage large teams of lawyers with 2-7 years’ experience, doing drudge work at a quick pace to match growing demand,” explained Alex.

“The advent of GenAI can potentially subvert this longstanding work process to achieve the same result that drives profitability.”

Should AI be factored into law firm pricing?

Yes, according to 58% of in-house legal professionals surveyed. The value and efficiency benefits that AI can bring to client service delivery model looks like it may be inevitable for law firms moving forward, due to fierce market competition. Data from the Tech, AI and the Law 2024 report revealed nearly three in five in-house legal professionals surveyed believe AI should be factored into law firm pricing.

From a private practice perspective, AI is no threat to their profession. Data from Tech, AI and the Law 2024 indicate that almost all private practice respondents (95%) believe “GenAI is no substitute for thorough legal work, but it helps to accelerate it.”

Transparency on use of AI in client matters

Redefining the legal sector’s value proposition doesn’t have to be perceived as a threat to profitability. As discussions of the challenges and drawbacks of the traditional billable hour model continues, GenAI provides an opportunity for bilateral pricing options for legal services.

Close to half of private practice professionals surveyed (46%) revealed their law firm advisers should inform clients they are using GenAI as part of providing advice in their engagement. Corporate legal professionals (43%) agree, but only when the GenAI contribution is significant.

Adapting to an AI-powered future

Both private practice and in-house legal professionals surveyed for the Tech, AI and the Law 2024 expect the fast pace of technological evolution will make GenAI-related legal tech essential.

Specialised, professional grade AI legal solutions like CoCounsel can help lawyers progress through legal tasks faster. As AI transforms legal practice with the promise of a more streamlined way of working, the legal industry will need to adapt.

Shifting away from longstanding processes that have dictated how the legal industry has serviced and charged for legal work will need to consider the value AI and legal technology adds to deliverables. However, it is important to remember that while GenAI and other legal technology solutions are set to make a significant impact on the legal industry moving forward, these tools will only ever play a supporting role designed to enhance how lawyers work now and in future.

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