Big companies push law firms to cut fees as AI reduces hours

In short: More big legal clients are telling law firms to charge less when AI helps get work done faster, adding pressure to the traditional bill-by-the-hour model.

What's going on

Large law firms have long charged clients by the hour, often tracking time in small blocks like six or 15 minutes. That model works well when legal work takes many people and many hours.

Now clients say AI is changing the math. Sources told the Financial Times that Goldman Sachs, Morgan Stanley, and Citigroup expect outside law firms to pass on savings from AI. Their argument is simple, if fewer lawyers and fewer hours are needed because of AI, the bill should go down too.

Revolut is also changing how it hires and reviews law firms. Its chief legal officer, Tom Hambrett, said the company is moving away from long, stable spots on law firm “panels” (a regular shortlist of approved firms). Instead, it plans more frequent reviews, and firms that do not deliver good value could be removed.

Smaller “AI-first” law firms are using this moment to compete with big firms. One example is Three Points Law, started by former partners at Mishcon de Reya, which pitches using AI rather than “an army” of junior lawyers.

What to watch

Clients and law firms are still split on how to price AI-assisted work. Some buyers want “alternative fee arrangements” like fixed fees, fee caps, subscriptions, or win-based fees, which are more like paying for a job to be done than paying for time spent (like paying a flat rate for a house repair instead of paying by the hour). Watch whether more big clients make these pricing models a requirement, and whether hourly rates keep rising anyway.

Source: Financial Times