The Billable Hour Question
The demise of the billable hour has been predicted for many years, but according to one Australia Biglaw leader it could be on the way with the arrival of ChatGPT and other AI tools.
The Australian Financial Review’s Michael Pelly reports MinterEllison CEO Virginia Briggs saying that many of the firm’s clients are struggling with the idea of whether the billable hour is the best way to measure value.
The death of the billable hour, of course, has been the question that has existed for many years for many clients, but AI is changing the dynamics markedly.
Briggs said that although Minters have been offering alternative billing arrangements to clients for some years, it has taken a number of years for the alternative arrangements to be accepted.
“. . there is still a general tendency for many of our clients to have trust in something that is more familiar – billing based on hours worked – and they are reluctant to try more value-based pricing.”
AI, however, may serve to break that cycle at last.
In Australia and New Zealand law firms charge hourly rates which can be more than $1200, billed in six minute ‘bites’.
She said she doesn’t believe the billable hour necessarily provides a good measure of value and that ultimately it will be General Counsel who will help drive the change.
General Counsel have a major influence on legal spending and as their numbers and influence have grown, so too has the move towards reassessing the way law firms charge for their services.
The firms would need to show that whilst there were material cost savings there would be no loss of value and no increased risk by using AI.
“I suspect it might have to start with some smaller project where we demonstrate what is actually doable,” she said.
Such value-based pricing occurs with other professional services. She said Minters would be looking at working with ‘prompt engineers’ who narrow the gap for information provided by AI tools like ChatGPT.
She believes that whilst major changes are coming to the legal market, as they are with many others, there is a need for specialists to “deeply understand” clients’ businesses and their industries so the correct prompts can be put in place and applied to complex problems.
Another upside to the development would be for law firms to retain talent so that they’re not doing the menial, tedious work that AI can do so effectively now.
The Minters challenge is one affecting all law firms. Australian giant Gilbert + Tobin have offered a $20,000 ‘AI bounty’ for meritorious ideas as to how the technology can accelerate the growing disconnect between time spent on legal work and the value delivered.
G+T chief operating officer Sam Nickless said that while law firms had dabbled with alternative pricing arrangements in areas like automated document review, advanced AI would bring these issues to the core of the firm’s services.
