Final 12 months, I wrote an article about whether AI signals the end of the billable hour. In that article, I requested what Generative AI will do to the billable hour.
- Charges will go up.
- Charges will go down.
- Work will shift to different charge preparations.
- Work will go in-house.
- All the above.
My reply was “the entire above.” I’m now qualifying my reply. AI can have much less influence within the close to time period on the shift towards different charge preparations, together with mounted charges. The billable hour is extra embedded, particularly in Biglaw, than most understand.
Three issues should change for the billable hour to provide solution to fixed-fee preparations. Legislation companies should have a change in mindset, tradition, and infrastructure. That’s simpler stated than performed. In the long run, competitors and shopper calls for will pressure the change. AI can have an oblique influence.
Mindset
Most companies invoice by the hour and don’t profit from effectivity when billable hours are diminished. Generative AI will drive efficiencies, but it surely won’t change the mindset of marking up billable hours. It’s nonetheless simpler to boost charges when work turns into extra environment friendly. If 10 hours change into 5 hours of labor, purchasers ought to anticipate an hourly charge at a better price.
Why is that this?
Legislation companies have to be 100% owned by lawyers, and probably the most expedient solution to accomplish that is via partnerships. The partnership enterprise mannequin encourages the distribution of earnings yearly to its lawyer house owners. Legislation companies depend on billable hours as an easy measure of labor and legal professional contribution. Revenue comes from marking up hours, and that’s very totally different than a enterprise mannequin the place capital is retained and the place the income mannequin permits for a deal with effectivity.
Conrad Everhard, founding associate at Flatiron Companions regulation agency, which offers fixed-fee companies for mergers and acquisitions, and different transactions, says, “Biglaw is like an ocean liner. Due to longstanding tradition, staffing fashions, and compensation, they’re locked right into a cycle the place effectivity doesn’t assist the underside line. It’s a mindset that makes it very onerous for Biglaw to pivot. However Biglaw is at an inflection level. Effectivity is being pressured on it by technological innovation and AI.”
Tradition
Mindset informs tradition. Just lately, one other Biglaw agency simply mandated associates to work four days every week within the workplace. In-office coverage helps companions really feel extra snug concerning the work (billable hours) being performed by associates, and it offers a extra acquainted method for associates to be taught and be mentored (at the very least that’s from a associate’s perspective).
Gen Z is extra digitally adept than prior generations. Their default studying and communication kinds are via know-how. What number of companies are evolving their fashions to acknowledge that the following technology of attorneys and purchasers will desire a greater work-life steadiness and more virtual meetings? What number of companies understand they are going to need to work together through textual content or Zoom, and that they’re extra more likely to spar with an AI mentor and reserve human interplay to these occasions when it’s really wanted?
The purpose is, there are new fashions and new approaches like on-line studying, digital conferences, and hoteling. A agency’s economics and a agency’s cohesiveness have to be balanced, however proper now, I’d argue that Biglaw is usually leaning towards acquainted legacy practices versus evolving these practices towards these which might be more likely to be valued in a future state. It’s not a criticism, however it’s actuality.
Infrastructure
Actual property is an instance of infrastructure tied to a conventional mindset. How usually do purchasers come to the workplace lately relative to the previous? There are occasions when in-person conferences are required or when a “warfare room” setting must be arrange. Actual property is simply the tip of the iceberg. The complete again workplace of a agency is organized across the billable hour. It’s the premise for associate compensation, measuring the profitability of engagements, and for measuring the efficiency of associates.
Even when a big agency wished to maneuver away from the billable hour, it must rethink incentives, retrain employees, change course of, and retool infrastructure. To do this requires setting apart nonbillable time for planning and retraining. It requires a rewrite of main methods, and that requires capital.
Can Biglaw transfer away from the billable hour?
The Catch-22 of retooling infrastructure is that the partnership mannequin and incentives are tilted towards the disbursement of earnings to companions. Nonbillable time and capital funding are the enemies of disbursing earnings. Like their company counterparts, regulation companies require retooling to function in another way. However companies have a much bigger problem as a result of the steps required are counter to the mindset.
When the acquainted mannequin of the billable hour begins to interrupt down, we’ll see extra change. For now, many purchasers nonetheless ask for work by the hour. Companies could make the transfer, however the transfer received’t be straightforward. The catalyst might be competitors and altering expectations from purchasers. AI might be a behind-the-scenes driver. For now, AI will not be but incompatible with the first, legacy mannequin of the billable hour.
Everhard provides, “I believe there might be an evolution of the pricing mannequin over time. However like in different industries, the catalyst for change will come from exterior. New market entrants, AI, and tech will pressure regulation companies to rethink the outdated playbook. That may drive the change. That’s what we did at Flatiron. We obtained exterior the normal agency mannequin and adjusted all the pieces. We deploy labor in another way. And we closely leverage AI and know-how, particularly our personal ‘deal working system’ that permits us to deal with complicated transactions with so much much less labor and time, with higher outcomes.”
Companies will proceed to be worthwhile utilizing the billable hour within the close to time period. Competitors from new companies that function extra cost-effectively will ultimately come. They may embrace know-how and have a mindset to ship worth with improved effectivity. This may elevate consciousness with purchasers and put stress on companies to shift their mannequin.
The large query is, how lengthy will it take for Biglaw to really feel the stress?

Ken Crutchfield has over forty years of expertise in authorized, tax, and different industries. All through his profession, he has centered on development, innovation, and enterprise transformation. His consulting follow advises traders, authorized tech startups and others. As a strategic thinker who understands markets and creating merchandise to fulfill buyer wants, he has labored in start-ups and enormous enterprises. He has served in Basic Administration capacities in six companies. Ken has a pulse on the developments affecting the market. Whether or not it was the Web within the Eighties or Generative AI, he understands know-how and the way it can influence enterprise. Crutchfield began his profession as an intern with LexisNexis and has labored at Thomson Reuters, Bloomberg, Dun & Bradstreet, and Wolters Kluwer. Ken has an MBA and holds a B.S. in Electrical Engineering from The Ohio State College.