A shift is coming

For those who believed the legal profession could remain insulated from the transformative force of new technologies, the swift and widespread adoption of generative AI among UK lawyers has decisively proven them wrong, says Dr Corsino San Miguel PhD.

"From Hours to Outcomes: How AI is Reshaping Legal Pricing"

A recent LexisNexis survey revealed that 82% of UK lawyers have either adopted generative AI or plan to do so, nearly quadrupling the figure from Summer 2023. The survey, which collected responses from over 800 legal professionals across law firms and in-house teams, found that 41% are actively using AI for work, a significant increase from just 11% in July 2023. Meanwhile, the number of lawyers with no plans to adopt AI has plummeted from 61% to just 15%.

Remarkably, the report highlights that the primary driver behind AI adoption is the ability to expedite work processes. A substantial 71% of lawyers identified faster delivery as the most significant benefit of AI, with enhanced client service (54%) and gaining a competitive edge (53%) also cited as key advantages. When asked to choose the single greatest benefit, 52% of respondents pointed to increased speed in delivering work as the foremost advantage. This shift towards AI-driven efficiency is expected to bring changes to pricing structures.

Time-based billing models

As AI enables lawyers to complete tasks with greater speed, the reduction in billable hours intensifies long-standing concerns about time-based billing models. The accelerated pace brought by AI is poised to further catalyse this debate. This growing tension between efficiency and profitability is pushing firms to actively reevaluate their pricing strategies, underlining that traditional hourly billing alone may no longer be viable in an AI-driven legal landscape.

Tracking billable hours remains central to law firm operations for several key reasons. It links lawyer effort directly to firm revenue, ensuring compensation for time spent on client matters. It also improves project management by identifying resource-heavy cases, allowing firms to allocate tasks efficiently and avoid overburdening staff. Additionally, tracking provides a clear measure of productivity, fostering accountability and setting realistic performance targets. Finally, accurate billable hour records are vital for financial forecasting and budgeting, helping firms manage cash flow and make informed decisions about investments or expansions.

Time vs value

However, hourly billing can misalign law firm and client interests. Clients typically seek swift, cost-effective solutions, but the billable hour model often works against these aims. Time spent on a case doesn’t necessarily reflect its value to the client, as hourly billing ignores the quality or impact of legal work. Hourly rates are often based on seniority rather than the lawyer’s competence or the value they provide. This model also prices all hours equally, leading to disproportionate costs for routine tasks while undervaluing quick but impactful legal insights, highlighting a system that prioritizes time over results.

That said, without careful consideration of their pricing strategies, firms that adopt new technology risk facing a double whammy: the cost of investing in the technology and the fact that certain practitioners may find their bread-and-butter tasks can now be completed in a fraction of the time they would typically spend generating billable hours. The result: higher expenses and reduced revenue, a dynamic that becomes increasingly unsustainable in the long run.

Business model impact

The strategic question now becomes: how will this shift impact law firms' business models going forward? It is clear that new models must evolve from the traditional labour theory of value, where pricing is tied to time spent, toward a marginal theory of value, where fees are based on the actual worth of the outcomes delivered to clients. This transition to marginal pricing will likely be gradual, with firms experimenting with hybrid models that combine hourly billing for certain services and value-based pricing for high-impact, strategic work. Early adopters who take the initiative to educate clients on the advantages of this model and demonstrate its value will position themselves for success. In the long term, as technological advancements and client demands for efficiency continue to rise, the shift to marginal pricing may become inevitable. Law firms that embrace this change proactively are likely to thrive, while those that resist risk falling behind in an increasingly competitive market.

Written by Dr Corsino San Miguel PhD, LLB in Scots law and graduate in Spanish law. Dr Corsino co-founded and led European Telecom Company before entering academia. He is now a member of the AI Research Group and the Public Sector AI Task Force at the Scottish Government Legal Directorate.

The views expressed here are personal.