On the clock: Clients are more interested in outcome than hours
The adoption of generative artificial intelligence (GenAI) by lawyers “has the potential to reinforce rather than disrupt the billable hour model”, a legal academic has argued.
Jonah Perlin, professor of law, legal practice and senior fellow at the Center on Ethics and the Legal Profession at Georgetown University, said the notion that GenAI would “necessarily and drastically reduce total billable hours” across the legal profession was “far from a foregone conclusion”.
Commentators have predicted that because GenAI would significantly reduce the time that lawyers needed to spend on certain tasks and eliminate other tasks entirely, the total number of hours they could bill would decline, with a consequential impact on firms’ finances and ultimately the adoption of a different charging model.
While this was “one possible outcome”, Professor Perlin argued in a paper [1] that GenAI “has the potential to reinforce rather than disrupt the billable hour model”.
This was because, although GenAI would “inevitably produce some efficiency gains for some lawyers”, the total decrease in hours worked that would result “will not necessarily be substantial for many lawyers”.
Even if there was “a substantial decrease” in hours worked by individual lawyers on tasks that they currently spent time on, GenAI had the potential to “positively impact” four other variables – hours worked, rate charged, granted reductions (ie, write-offs) and expenses – in ways that had “the potential to offset some or all of these lost billable hours”.
The academic observed that the death of the billable hour had often been predicted but never come to fruition. Alternative fee arrangements (AFAs) had increased but “largely supplemented, rather than supplanted”, hourly billing.
Even when firms employed AFAs for pricing legal work, they “often still use billable hours as a way to capture internal productivity metrics” because time worked was seen as the simplest way to measure output.
It was “unsurprising” that many lawyers who billed by the hour were “increasingly anxious” about AI’s potential to increase efficiency. “Yet the situation may not be quite as dire as it first appears for the viability of the billable hour.”
Professor Perlin explained: “Although clients are aware of their hourly billing rates, they are really paying for outcomes.
“Therefore, if lawyers can credibly show their clients that AI-enhanced workflows enable them to focus more on high-value tasks, rate increases may not only be tolerated, they may be welcomed.”
When it came to ‘write offs’, he said that although GenAI might “allow at least some more sophisticated clients” to scrutinise invoices in new ways or demand additional discounts, GenAI adoption also had the potential “to help lawyers decrease these reductions”.
GenAI tools may allow lawyers to prepare legal bills “that better conform with client guidelines and expectations” and “prepare bills faster in the first instance”.
They had the potential to help lawyers and the law firms “better predict the cost of certain tasks and matters in advance”; by reducing billing “for the kinds of routine tasks that clients regularly refuse to pay for (or to pay full fees for)”, there might be “fewer line items that clients can reasonably dispute in the first place”.
On expenses, Professor Perlin said: “To the extent that firms are able to increasingly outsource work to generative AI tools for lower costs than they would have to pay junior associates, this means that the firm – and by extension the firm’s equity partners – will be able to retain more of the gross revenues collected.
“Alternatively, and more hopefully for the profession, if generative AI simply allows junior lawyers to do ‘higher-level’ work earlier in their career, then these junior lawyers can be billed out at higher rates.”