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09/03/2025

AI Indicates Possible Shift to Fixed Fees

By Kyle Bates

This week’s key terms/concepts:

• Billables: The time engaged in a professional service subject to a fee, typically calculated hourly.

• Fixed-fees: A predetermined charge for a professional service, with no time-related costs.

• Artificial Intelligence (AI): The general technology that enables machines to perform tasks requiring human intelligence, such as analysis, learning, and decision-making.

At the end of last year, research by legal technology company Clio revealed that 54% of UK law firms expect fixed-fee billing to increase in the next 12 months, signalling a possible future shift away from billable hours. The billable system has persisted since the 1980s, typically providing bonus incentives that firms offer lawyers who meet or exceed their targets, often set to 2,000 hours annually.

What is the significance of this?

The rise of Artificial Intelligence (AI) in the legal sector is reshaping how law firms charge clients. Traditionally, firms have relied on billable hours, where lawyers track time in six-minute increments. However, AI-driven efficiencies may pose a disruption to this model, prompting firms to explore alternative billing structures. AI can now perform tasks like conflict checks and legal research far more efficiently, reducing the time lawyers spend on these tasks, meaning that a portion of administrative billable hours could be automated.

How does this impact the legal sector?

AI’s automation of routine tasks will allow lawyers to shift their focus on the most crucial work, such as complex litigation, negotiations, and strategic consulting. A survey by Thomson Reuters found that lawyers expect AI to cut their billable hours by as much as 12 hours per week, improving efficiency while potentially boosting profitability. However, this automation may also pose risks for paralegals and junior associates whose work often involves research and document review, as a demand for such roles may decline.

For clients, this transition offers greater transparency and cost predictability. High legal fees have long fuelled concerns over exaggerated billable hours, with UK firm partners charging up to £1,500 per hour and US firms reaching $2,000. Fixed-fee models could help address this issue by ensuring clearer pricing structures and greater certainty.

Billable hours remain the standard method of charging clients, but the current legal climate suggests that this may change in the future.

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