Is AI Killing the Billable Hour?
Most law firms are built on a few unchanging foundational stones, with the billable hour being key among them, underpinning the entire architecture.
But is this going to change with generative AI?
The short answer is no—or at least, not anytime soon. But change is on the horizon, and the way legal work is delivered and paid for will inevitably evolve.
So, why do we keep discussing the death of the billable hour?
With advances in legal tech over the last ten years, lawyers have become more efficient. The arrival of generative AI has made this efficiency even clearer, more apparent, and indeed more transparent. As a result, clients are putting pressure on law firms to justify their prices and explain the costs and value they deliver in a more convincing way than merely billing for time spent, for example, in six-minute increments. After all, many aspects of the job have become easier, and an increasing number of tasks can now be completed much faster as both processes and fee earners have become more efficient. So, why should the old billing method, which focuses solely on the time spent on tasks, remain the standard?
While it's easy to challenge traditional practices, it's important to remember that we are still at the very beginning of the journey with legal AI. Foundational models continue to improve and will likely maintain, or even accelerate, their current pace of advancement. Smart legal tech vendors are working hard and fast, focusing on extracting maximum value from the most effective foundational models for their use cases by emphasising techniques like retrieval-augmented generation (RAG) and user interfaces that enable end-users to work quickly while verifying output. Notably, solid verification and precise pinpoint citations have become standard features in these tools, which is logical. Lawyers need to stay in control and at the centre of the process because, fundamentally, their clients are purchasing highly tailored and sophisticated advice. While AI will assist in delivering that final advice by enabling lawyers to complete large parts of the process—particularly the laborious ones—more quickly and efficiently, we will never reach a point where AI can replace the nuanced tasks typically handled by qualified lawyers, and nor should we. The advice lawyers offer, and bill for, is highly complex and nuanced—it requires a deep understanding of the commercial, legal, and human elements—which AI will not master.
However, these advancements are making clients more savvy and enabling them to ask more questions of their law firms. In their day-to-day operations, companies are also utilising AI across most functions, making them aware of its potential gains and benefits. As a result, the billable hour is increasingly being called into question and has become an easy target for criticism. Nevertheless, it remains the dominant billing mechanism, particularly for law firms dealing with corporate clients, and it is not likely to disappear any time soon.
So, can AI and the billable hour co-exist?
AI is offering an unprecedented opportunity for innovation in the legal sector. It is now widely accepted that law firms must adopt AI and do so effectively to maintain their competitive advantage. No previous technology, except for the internet itself, has had the same potential and inevitability to transform this industry—and many others. As law firms increasingly integrate AI, the billing model will also evolve, but the billable hour is unlikely to disappear entirely. For high-value matters such as corporate strategy, due diligence in M&A, or cross-border tax advice, billing by the hour will still be prevalent. The billable hour allows firms to offer flexible arrangements to their clients and adjust work based on seniority, specialisation, and the demands of the matter. It also facilitates efficient resource management and the delivery of high-quality advice. Lastly, the billable hour is the only billing system that fully appreciates the human element of legal services. Given the nature of the service lawyers provide, there must be a method of billing that quantifies the time of the individual delivering it, and it will always play some part in the overall billing strategy—whether the client sees that or not.
Just as the internet changed the delivery of work, so will AI. While the fundamentals will remain the same and firms will continue to bill by the hour for a long time to come, new billing methods are likely to emerge that will be more convenient for customers. These methods will likely diversify a firm's revenue streams without eliminating the traditional billing model, which offers both firms and clients simplicity, flexibility, and clarity.
The end of the billable hour is not on the horizon. However, some gradual evolution and adjustments are likely once the adoption of AI increases and truly transforms the practice of law and the delivery of services. If implemented effectively, these adjustments can be beneficial for both firms and clients.
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