Punt: Business case has largely been made
General counsel (GCs) see cost savings as the most important benefit from external law firms’ use of AI, according to research which advises firms to address the issue head-on.
“The expectation is that pricing models adapt to reflect evolving commercial relationships between client and external provider,” said Deloitte.
Some 85% of GCs it surveyed believed AI would change how law firms price their work; the share of work conducted on an hourly rate model was expected to fall from 72% today to 44% within two to three years.
This “significant structural shift” was driven by client demand for pricing models “that better reflect the economics of AI-assisted delivery”.
Deloitte’s report, The AI imperative: Reshaping of the legal industry, said 78% of legal department leaders considered cost reduction the most important benefit from their external providers’ use of AI.
This was followed by improved quality of legal services (57%), increased innovative pricing (55%), enhanced data analytics and insights (49%) and accelerated delivery of work (45%).
In-house teams would look both to “capture the benefits” of their external advisers using AI while also using the technology to do more work themselves.
Deloitte predicted that, in three years’ time, in-house teams would have increased capacity to meet demand – but 30% of it would be delivered by agentic AI. A tenth of those surveyed said AI was already fully embedded in their departments, while 61% were in the deployment phases; in 2024, when the research was last conducted, three-quarters reported no adoption.
“This pace of change over two years is remarkable for the legal industry,” Deloitte said.
This reflected the pressure GCs were under to use AI to reduce costs. “Some general counsels are committing to bold legal department cost reduction targets in the range of 20-40% over the next two to three years, which in turn is being passed on to outside counsel.”
Nonetheless, a majority of GCs (58%) thought their teams would “stay broadly the same size but change meaningfully in composition, seniority and skillsets”.
“The expectations are for a shift to more strategic work, a more senior team required to manage a more complex work profile as routine work is automated, and different non-legal and technology skills are brought in.”
The minority predicting that in-house legal teams would shrink has doubled since 2024 to 20%.
The report was based on a survey of more than 100 legal department leaders at global companies.
“As AI takes on more routine, high-volume work (the kind traditionally done by paralegals, trainees, and junior associates) demand for those roles is likely to fall, and salaries with it,” it said.
“The effect runs in the opposite direction for specialist roles. Legal engineers, who combine legal knowledge with process design expertise, are already commanding higher salaries in a market where that skillset is rare.
“The longer-term structural consequence is a move away from the traditional legal pyramid, with large numbers of junior lawyers at the base, towards a leaner diamond model with fewer junior and senior generalist roles, and a broader middle layer of lawyers with hybrid technical and legal skills.”
The roles companies were most likely to invest in when responding to AI were those involving change and delivery, followed by hybrid roles such as legal engineers.
Most legal departments remained at the early stages of engagement with providers on AI, with 58% of GCs saying their external law firms “rarely” or “never” proactively discussed the benefits of AI, “a striking finding given the intensity of client-side expectation”.
A tiny minority, 4%, had “directly experienced benefits from providers’ use of AI”.
Law firms were at “a fork in the road”, Deloitte cautioned. “Reactive partners will wait for the client to raise AI, and in doing so, cede control of the conversation entirely.
“When the client initiates, they arrive with pre-formed expectations of cost reductions, revised pricing models, and demands for transparency over how AI efficiency gains have been applied to their matters.
“The conversation begins on the client’s terms, with the firm in a defensive posture.
“Proactive partners can shape the conversation before the client defines it. By initiating early dialogue around AI; how it is being deployed, where it is delivering efficiency, and what that means for the client relationship, these firms retain the ability to frame benefit sharing as a collaborative conversation rather than a concession.”
For those firms that brought clients “into the conversation on deployment”, co-developed approaches where appropriate, and demonstrated transparency on how efficiency gains were reflected in pricing, “AI becomes a differentiator and a relationship deepener, which could lead to higher volumes of work from their clients.
“For those that do not, it becomes a potential source of client friction.”
Richard Punt, Deloitte Global’s legal leader, said the debate on AI had moved from speculation to return on investment.
“The business case has largely been made. Attention is now turning to the question of how best to execute and ensure that the investment being made translates into meaningful, measurable value.”
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