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The billable hour may be incompatible with GenAI innovation
In the face of client perceptions about their providers’ use or otherwise of generative AI, we may soon see more movement away from traditional billing models towards value-based pricing, a new report suggests.
Jerome Doraisamy
Thomson Reuters has released its annual Tech, AI and the Law report, which this year, between 1 July and 30 August, surveyed 869 legal professionals (private practice and in-house) about their attitudes and perceptions towards legal technology and innovation.
As reported last week, one in three private practice professionals (32 per cent) believe that their firms should adopt generative AI (GenAI) legal assistants, with those in firms overwhelmingly anticipating increased investments in new and emerging technologies in the coming year.
Such an increase in technological investment by firms could, as previous Thomson Reuters research has found, equate to adding an additional colleague for every 10 team members and the potential for hundreds of thousands of dollars in additional billable hours.
However, Thomson Reuters’ new report reveals some scepticism on the client side about whether traditional billing models are compatible with AI innovation, with more in-house counsel “wary about it” than not.
According to the findings, 52 per cent of in-house professionals surveyed said they believe that billables, as a business model, hamper innovation and/or adoption of AI, with only 13 per cent disagreeing with this proposition. One in three corporate lawyers were undecided on the matter.
“AI may challenge firms to pivot from the way they have traditionally serviced and charged in-house counsel for legal work. Due to fierce market competition, it may be inevitable that law firms will consider leveraging the value and efficiency benefits that AI can bring to their client service delivery model,” Thomson Reuters said.
As a result, GenAI adoption, together with changes to the traditional legal services leverage model, “could see” a continued rise in the provision of value-based pricing models, it deduced.
This supposition was supported by the report’s finding that nearly three in five (58 per cent) of in-house counsel think that AI should be factored into the pricing structures of their external providers, with just 16 per cent disagreeing and 26 per cent undecided.
Further to this, only one in 10 (11 per cent) of those in-house said they do not expect law firm advisers to inform them if AI is being used as part of their provision of advice during engagement.
Forty-six per cent said that firm advisers should make their clients aware of such AI use, and 43 per cent agreed, but only if the contribution from GenAI is “significant”.
This all said, half of in-house lawyers (51 per cent) will still work with external providers that opt against using AI to offer a more innovative or effective service, while only 10 per cent said they would not do so.
“Ultimately, it is the outcome that drives this rationale,” Thomson Reuters said.
“If a law firm can demonstrate consistency in positive outcomes, whether their work is supported by GenAI isn’t a deal breaker. It is more about the quality, consistency, and overall value a law firm can deliver for in-house legal departments.”
Lawyers Weekly has previously reported on the prospect of an “inevitable decline” for the billable hour in the face of platforms like ChatGPT becoming more mainstream.
Speaking to Lawyers Weekly about the findings, Thomson Reuters vice president of proposition Carl Olson (pictured) noted that while AI is not a replacement for human expertise, “it is an accelerant for legal professionals”.
“Today, it can save hours of time spent on basic administrative work and unlock new competitive advantages in efficiency and business innovation. In fact, the Future of Professionals report revealed that the time savings from AI could translate into $100,000 in new, billable time per US lawyer each year,” he said.
This said, Olson went on, “our newest research suggests that the legal sector is warming to the need for pricing structures that better capture the value of efficiency, expertise, and innovation that GenAI enables”.
“Forty per cent of private practice professionals and 52 per cent of in-house counsel believe AI innovation and adoption is hampered by the billable hour business model,” he said.
“As AI adoption continues to transform the way professionals work, we expect to see firms increasingly pivot away from the traditional billing model to value-based billing models.”
Jerome Doraisamy
Jerome Doraisamy is the editor of Lawyers Weekly. A former lawyer, he has worked at Momentum Media as a journalist on Lawyers Weekly since February 2018, and has served as editor since March 2022. He is also the host of all five shows under The Lawyers Weekly Podcast Network, and has overseen the brand's audio medium growth from 4,000 downloads per month to over 60,000 downloads per month, making The Lawyers Weekly Show the most popular industry-specific podcast in Australia. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of Minds Count.
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