AI highlights ‘critical flaws’ in time-based billing

In fact, emerging technology’s ability to automate many time-consuming tasks, such as legal research and document review (traditionally billed by the hour) has – and will likely continue to – raise “questions about how firms will balance efficiency with profitability”.

Some have also predicted that the rise of generative AI (GenAI) will mean that billables will “inevitably decline,” with one report from late last year suggesting that traditional billing may be incompatible with GenAI innovation.

To combat this, should firms give away more for free? A recent opinion piece published on Artificial Lawyer suggested exactly that: BigLaw firms should, where work is predominantly done by AI, give away those services “for free” rather than billing for them.

Following this sentiment, G2 Legal Australia director Daniel Stirling said the idea that law firms could “continue to bill in the same way but give away the AI-generated work for free” is a “possible solution” – but that this type of work isn’t (or won’t be) particularly valuable for firms.

“That type of work would become very low cost anyway, due to the vast time savings involved,” he said.

“I believe that larger firms will be reluctant to stop using the tried and trusted method of the billable hour to charge for their work. I understand that this can be counter-intuitive in the opinion of some clients, given that the rewards increase the longer the firm takes to complete the work. As AI evolves and drives efficiency in the working world, this method could slow down innovation within law firms as it could reduce revenue and profits.”

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NewLaw firm Sprintlaw has operated on a 100 per cent fixed-fee model since its establishment because it “simply didn’t make sense” for the kind of work the firm does, according to co-founder Alex Solo.

“For start-ups and small businesses, simplicity, transparency, speed, and affordability are critical in meeting their legal needs. That’s especially true in a tech-enabled practice like ours, where AI and automation help us deliver high-quality outcomes faster and more affordably,” he said.

“That said, the billable hour still has a place – particularly in bespoke, open-ended matters where scope is hard to define upfront, or where the value lies in the time-intensive strategic input of senior lawyers. But even in those situations, clients are increasingly expecting some degree of clarity – and at minimum, a more collaborative conversation about value.

“The idea of giving clients more ‘for free’ might make sense in a world where AI has commoditised large parts of legal work – though it depends heavily on each firm’s strategy and the type of clients they serve.”

NewLaw firms have been advocating for new pricing models since the pandemic – with Aptum Legal managing director Nigel Evans emphasising back in 2021 that remote work shone a light on the “human qualities” of lawyers.

“Without professional props like marble foyers and an Origin Espresso on arrival to influence perceptions, I think clients are more aware of what they’re actually paying for. Fixed, value-based pricing aligns with that awareness because it provides the transparency and certainty of an accountable scope of work towards an outcome, not just an estimated and unreliable cost for a process and the lawyer’s time,” he told Lawyers Weekly.

However, hourly billing still “predominates in modern practice”, according to Dye & Durham APAC managing director Carl Olson, despite the disruption of traditional billing during the pandemic.

“Proponents argue that it delivers transparency on input costs, but there is growing pushback from legal consumers seeking greater value for money,” he said.

“COVID significantly disrupted the hourly billing model, with many corporates demanding better value by insisting that senior experts handle matters directly while reducing or eliminating charges for junior staff traditionally billed under the leverage model. This sparked debate about whether this trend signalled the end of the traditional lawyer ‘apprenticeship’ system.”

Marque Lawyers also took a “step away” from the six-minute billable hour 17 years ago – and consequently, partner Damian Sturzaker said that giving away services “for free” in light of AI and automation doesn’t make much sense for the firm.

“We have always felt that measuring value based on how long a task took doesn’t make much sense at all. As such, the question of providing ‘freebies’ doesn’t arise. The idea is to match what value the client expects to receive from a piece of legal advice and to charge according to that value.

“Seeing AI use in legal workflows becoming a much more widely adopted concept has highlighted the critical flaws in the time-costed way of operating. Time-costed firms are encountering a major dilemma: embrace AI in their workflows and gain an edge on their competition, or resist the increased productivity and efficiency offered by AI in order to protect precious billables,” he said.

“The former option risks major disruptions to their billing operations, while the latter leaves them vulnerable to being left in the dust. For Marque, a firm that has largely left the billable model behind, new technologies don’t require us to make concessions. Instead, we can focus purely on how we can achieve the best outcome for our clients.”

For firms offering hybrid models, when part of a task is completed using AI, the “predictable cost” of that tech means firms can then offer fixed pricing more broadly.

This is something Hicksons | Hunt & Hunt has found, and the firm now “delivers large-scale document reviews for certain matters using AI technology”, legal digital transformation lead and partner David Fischl explained.

“The cost of using AI for these reviews is typically based on the number of pages, which supports transitioning away from hourly billing towards outcome-based pricing. In such cases, document review may have a fixed price, while the remainder of the litigation process remains billed at traditional hourly rates – a clear hybrid pricing model,” he said.

“There has been speculation that legal services will increasingly be provided for free to attract other work. While we acknowledge potential growth in this approach for services targeting individuals and SMEs, similar to the ‘freemium models’ prevalent in cloud services, we do not anticipate this becoming common practice for larger businesses. These entities typically require more premium, tailored services.”

Tech-driven, client-centric pricing moving forward

Last year, a report from Dye & Durham and Australasian Legal Practice Management Association’s (ALPMA) found that there was a “steady” increase in the number of firms across the country that offer fixed-fee or alternate pricing arrangements to clients, with 56 per cent offering them in the past year (up from 45 per cent two years ago).

Speaking to Lawyers Weekly recently, Clio APAC general manager Denise Farmer also cited research revealing that “87 per cent of top Australian firms now offer clients a choice in billing, including fixed or task-based fees”.

“The Australian legal sector is moving further away from traditional billing structures and towards more flexible and transparent pricing models,” she said.

This, JSA NSW director Andrew Tiedt opined, is a result of technological developments in law changing “the value proposition that lawyers can offer clients”.

“Just like photocopiers, email, and mobile phones did in the past, AI will change the resourcing required to provide certain services to clients. As the legal industry adjusts to these changes, lawyers are going to have to reconsider what they charge for, and how they charge for it,” he said.

“There are many services and products that lawyers provide their clients that may become much cheaper and easier to provide. This will generate opportunities to provide these services or products more cheaply or even for free. The challenge will be working out which of these services or products will be valuable to clients, and how it is that providing them will lead to the sort of work that firms can charge for.”

The rise of GenAI in the profession, Olson added, is a “potential game changer” for many legal businesses.

“As corporates gain access to the same tools as their legal providers, they are less willing to pay for hours – arguably a measure of inefficiency – and more inclined to pay for expertise and outcomes. We expect billing to shift towards fixed-fee structures that reflect a lawyer’s depth of experience and unique skill set, much like medical specialists charge for their services,” he added.

“Research also shows many lawyers prefer this approach as it provides a fairer, less stressful way to be judged and rewarded for their work. While these changes will transform how legal services are valued, it’s unlikely firms will offer free services simply to attract clients.”

And particularly as technology enables greater pricing certainty for clients, the legal profession, as a result, is increasingly moving away from traditional billing models.

“In situations where AI technology exclusively handles the task without direct lawyer involvement, the entire service can be priced on a fixed basis. However, the transformation driven by AI technology is not solely about pricing. It also empowers lawyers to engage in more strategic, higher-value work by automating routine tasks. This shift benefits clients and lawyers alike, providing quicker turnaround times, clearer communication, and more predictable pricing,” Fischl said.

“Ultimately, the future of legal service delivery is not about competing on price alone. Rather, it’s about consistently providing value for money. AI technology enables greater accuracy and efficiency, allowing firms to offer reliable, predictable pricing models.”

While the efficiency gains behind the scenes are a key focus of many firms, the profession also needs to prepare for more client-facing AI. This tech is “bridging the gap” between the profession and the public, making understanding and navigating the legal system easier than ever.

“The public is able to access basic information and advice through AI, rather than having to commission legal advice from professional lawyers. It is by no means unfathomable that, in the very near future (if not already), businesses will be able to ‘employ’ in-house counsel paid for by a subscription, rather than a salary,” Sturzaker said.

“This means that lawyers will likely need to adapt to taking on higher-order legal requests and processes. The law, and the legal profession, has always been about more than simply completing tasks. Rather than seeing AI as a threat, we should see it as a chance to focus on the parts of law that matter most: complex thinking, human judgment, and doing good.”

Making legal services more accessible has also been a focus of Sprintlaw, which offers software tools like document generators and legal health checks on a “freemium basis”, with Solo emphasising the importance of a balance between strategy and value.

“Looking ahead, I think we’ll see a hybrid model emerge more broadly across the industry: time-based billing where justified, combined with fixed or value-based pricing for repeatable, tech-enhanced work,” he said.

“Ultimately, it’s about matching pricing models to the work being done – and the value being delivered – rather than just sticking to tradition. The firms that get this balance right, for the clients they serve, will be the ones likely to succeed.”