AI disruption forces Big Law to rethink billing: “Firms will give more for free”

Ben Thomson, LawFuel contributing editor

A mounting chorus of industry voices—from Artificial Lawyer to Thomson Reuters and Business Insider—argue that AI is rapidly eroding the economics of the traditional billable hour. The irony is that as firms strive for efficiency, they may inadvertently undercut their primary revenue driver.

The response from legal leaders appears to be that they pivot to value-based pricing, fixed fees, and AI-powered services.

1. The AI Efficiency Paradox

Generative AI now drafts contracts, conducts research, and analyzes documents in minutes instead of hours. If an AI‑drafted document replaces hours of associate time, firms billing hourly earn less—even though the output may be better. This creates a paradox: the faster you work, the less you bill.

2. Clients Expect Transparency—and Savings

Despite widespread adoption of generative AI tools, clients haven’t yet seen reduced legal fees.

The Financial Times reports that Alex Kelly, a co-founder of Inhouse Counsel AI tool BrightFlag, predicts that 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.

Many are pushing firms to demonstrate real cost savings from AI—particularly in areas such as due diligence. Forward‑thinking clients are requesting AI usage clauses in RFPs and guidelines, but few firms provide hard data.

3. Profit Pressure Signals Change

Thomson Reuters Institute’s 2025 billing report reveals large-scale write‑downs and inefficiencies that sees partners write off hundreds of hours annually.

The Thomson Reuters report speaks of the need to keep a “human-centered and client-centered approach — one that enhances the way lawyers work rather than replacing core aspects of legal
expertise, mentorship, and client relationships.”

Total operational inefficiencies may cost firms millions in lost revenue, even before accounting for AI benefits.

4. Ethics Rules Are Evolving

As Mark Palmer and Illinois disciplinary experts emphasize, rule 1.5(a) on reasonable fees now requires firms to reflect AI’s contribution in how they bill. At a minimum, lawyers must inform clients about the use of AI and adjust billing practices accordingly when AI materially reduces human time.
Source: Illinois ethics commentary on AI billing and transparency (Law Firm Resources, arXiv)

5. AI May Raise Elite Rates—If Value Justifies It

Contrary to the deflationary narrative, LexisNexis CEO Sean Fitzpatrick (pictured) believes senior partners’ billing rates could ultimately rise—up to $10,000/hour.

Hard to believe in an AI legal world maybe, but shouldn’t someone like Sean Fitzpatrick know?

The logic for the suggestion of enhanced fees comes from the enhanced, AI-powered work of higher quality and more scalable, justifying premium billing for exceptional legal insight. Hmm, maybe.

Summary: What AI Means for Law Firms

Issue	Impact of AI	What Firms Must Do
Billing Model	Hourly billing revenues shrink as time drops.	Shift to fixed, subscription, or value-based pricing.
Client Expectations	Clients expect demonstrable AI efficiency.	Provide transparency on AI usage and savings.
Revenue Loss via Write‑downs	Silent inefficiencies already costing firms millions.	Deploy AI to salvage revenue and reduce write-offs.
Ethical Compliance	Traditional fee models may become unreasonable.	Disclose AI use; adjust fees; obtain client consent.
Partner Economics	AI may commoditize routine tasks.	Rebalance partner compensation around AI-enabled value.
Value Signal Premium Rates	AI could justify elite-tier pricing for highest value work.	Develop AI-enhanced service offerings that command premium fees.

What It Means for Law Firm Leaders

For big law leaders it will mean their finance teams will need to reevaluate billing frameworks given that time-based fees are eroding with the onset of AI tools and applications and firms may need to build hybrid pricing models that blend human expertise with AI efficiencies. A new ‘thinking’ methodology needs to be assembled and Big Law needs to react urgently.
Compensation committees and equity partners need to prepare for a seismic shift: partners billing 1,800 hours may lose out to those embracing AI and delivering outcomes faster.
Legal ops and innovation teams should not only select AI tools—but also communicate ROI to both firm leaders and clients.
Marketing and client services can leverage transparency around AI usage as a differentiator—clients increasingly demand it.

Legal AI Is Here Now

AI is no longer a theoretical tool in the legal workplace, but is is already embedded in legal workflows as legal leaders like LexisNexis have reported.

Nearly 85 percent of lawyers report using AI weekly, according to a MyCase legal adoption survey, with many saying it increased efficiency and freed up time for higher-value work. Firms slow to adapt risk being undercut not by peers—but by client expectations and emerging legal-tech competitors.

The Legal AI Bottom Line

Law firms must reconcile the realities of what is happening here. AI may enhance output and rreduce hours billed, but clients expect savings as a result of the AI-driven efficiencies.

Ethics requirements now imposes an additonal demand upon law firms to provide clear communications and fair billing.

While there will be some high-end AI-powered advisory work that can demand higher billing rates, the firms will need to carefully integrate AI and rework their pricing models, as well as adjust compensation.

The time-based billing risks becoming obsolete, or at least severely compromised by the onset of legal AI.