The legal profession, steeped in tradition and precedent, is undergoing a transformation.
Generative AI, particularly large language models (LLMs), have made remarkable strides in understanding and generating human-like text.1 Whether through advanced legal research tools or e-discovery software, it is apparent that AI has a role to play in the legal system.
Billable Hour Dilemma
For decades, law firms have operated on a simple premise: time equals money. Associates and partners typically track their work in six-minute increments, with clients paying premium hourly rates for everything from document review to contract drafting. This model incentivizes thoroughness, not necessarily efficiency.
It is likely that few practicing in at large law firms today have ever known anything else, yet it is hard to find anyone on either the law firm or the client side who seems happy with it.
At present, generative AI tools can complete a variety of traditional associate tasks – such as creating first drafts of contracts, conducting initial legal research, or reviewing documents – in minutes rather than hours.2
We can see this at major firms like Allen & Overy, Latham & Watkins and Baker McKenzie, where AI tools are handling everything from due diligence to contract analysis, with impressive results:3
Document review that once took 20 associate hours can now be completed in 2-3 hours.
Standard contract drafting time has been reduced from three hours to 30 minutes.
Legal research tasks that required five hours now takes 1-2 hours.
According to Clio's Legal Trends Report,4 AI use by legal professionals has skyrocketed from 19% in 2023 to 79% in 2024.5 This surge marks a significant shift in how law firms are integrating AI into their daily operations.
There is a range of generative AI adoption options among law firms.6 Some firms are at the forefront, actively integrating AI-powered tools into daily operations, while others take a more cautious approach, experimenting with select applications. Some traditional firms remain hesitant, wary of regulatory concerns and the potential disruption to their revenue models.
The extent of AI adoption depends on a firm’s size, practice area, and willingness to innovate.
Efficiency Paradox and the Movement Toward Value-based Pricing
If AI enables an attorney to complete a task in minutes instead of hours, should the client still be billed for the traditional time estimate?
Srishti Ponnala, U.W. Law School Class of 2025, is student liaison for the State Bar of Wisconsin Business Section. She plans to concentrate her practice in corporate, business, and intellectual property law
Clients, increasingly aware of AI's capabilities, are beginning to question the necessity of billable hours for tasks AI can complete in a fraction of the time7.
To address this paradox, law firms are exploring alternative billing structures, including flat fees for specific legal services, subscription models for ongoing legal support, success-based pricing tied to case outcomes, and hybrid models that blend AI-driven efficiency with human expertise.
Some firms are developing hybrid approaches that combine traditional hourly billing with AI-enhanced services. They might offer premium rates for complex advisory work while providing AI-assisted document review at lower rates or as part of a package deal.8
Forward-thinking firms are shifting to value-based pricing. As AI reduces the time required for many law office tasks, value-based pricing is taking shape. Law firms can capture the value of their services without the constraints of time-based billing. Associates are being freed from routine tasks to focus on higher-value work such as complex analysis, negotiation, and client relationships.
The increased use of AI in law practice raises a pivotal question: how should law firms balance technological efficiency with traditional legal expertise?
By leveraging AI in legal billing, law firms can streamline their billing processes, reduce administrative overhead, and improve accuracy and compliance, ultimately leading to better financial management and client satisfaction.
Navigating AI’s Ethical and Regulatory Challenges in Law
Lawyers are bound by ethics around competence, due diligence, legal communication, and supervision – and many of these characteristics will inform how they use AI.
As law firms integrate AI into their practice, ethical and regulatory concerns must be addressed. Questions around data security, bias in AI-generated legal work, and maintaining attorney oversight are critical:9
Ensuring AI transparency and accountability: Lawyers must understand how AI reaches its conclusions and remain responsible for final legal decisions.
Maintaining client confidentiality: AI tools rely on vast amounts of data, raising concerns about privacy and data protection.
Navigating regulatory changes: Bar associations and legal regulators are still grappling with how to govern AI’s use in legal practice. Firms must stay ahead of evolving guidelines to ensure compliance.
In many ways, these issues are not vastly different from those that lawyers have faced before regarding emerging technologies. By understanding these risks and taking proactive measures, firms can harness the power of AI to enhance customer and employee experiences while safeguarding their business with the right strategies and frameworks.
Have Questions about Generative AI in Legal Practice?
If you wonder about the use of generative AI in your legal practice, use these links to help answer your questions:
Embracing the Future: A Strategic Approach to AI Integration
The impact of generative AI on law firm economics is not just about doing the same work faster – it's about fundamentally reimagining how legal services are delivered and valued.
While the billable hour will not disappear entirely, the better measure for a lawyer ought to become not how much time was spent doing a task, but rather how much the lawyer’s
efforts contributed to the prosperity of the firm and the benefit of the client.
The firms that navigate this transition successfully will emerge stronger, more profitable, and better positioned to serve their clients in an increasingly technology-driven legal landscape.
This article was originally published on the State Bar of Wisconsin’s
Business Law Blog. Visit the State Bar
sections or the
Business Law Section webpages to learn more about the benefits of section membership.
Endnotes
1 Andrew Perlman,
The Implications of ChatGPT for Legal Services and Society, Center on the Legal Profession Harvard Law, March/April 2023.
2 Kate Rattray,
Will ChatGPT Replace Lawyers?, Clio last updated Dec. 9, 2024.
3 Jon Campisi & Alexander Lugo,
Baker McKenzie Builds on AI Foundation, Crafting Tools to Help Lawyers Work 'Better, Smarter', ALM Law, Dec. 3, 2024.
4
See
Legal Trends Report 2024, Clio.
5 Bob Ambrogi,
AI Adoption By Legal Professionals Jumps from 19% to 79% In One Year, Clio Study Finds, LawSites, Oct. 7, 2024.
6 Steven Lerner,
Where Lawyers Stand on Generative AI Tools, Law360 Pulse, Apr. 23, 2024.
7 Holly Urban,
AI and The Convergence of Interests on Legal Billing, Lexology, Dec. 30, 2024.
8 Justin Bachman,
Why smart firms are rethinking the billable hour using new AI tools, Legal Dive, Nov. 30, 2024.
9 Cat Wade,
Navigating the ethical and legal risks of AI implementation, CIO, June 17, 2024.
