Extract from Jon Campisi’s article “Can AI Make Fixed Fees More Profitable? Deal Work Is Offering Clues”
Generative AI is most likely to change the pricing and profits of transactional practices first, while effects on large litigation matters may lag.
The end of the billable hour has been prophesied for years. But, as the steady adoption of artificial intelligence upends how legal work gets done, the promised efficiencies from automation are most likely to emerge in certain elements of deal work, like due diligence and contract review and analysis.
“AI is forcing firms to rethink pricing models,” said T.J. Henry, a veteran leader at distributed law firms who now serves as CEO of Lucendo Law. “As efficiency increases, firms will have to decouple revenue from hours and start pricing based on outcomes, risk, or strategic value.”
And the biggest firms, with their well-established history of working on large deals, are likely to be in the strongest position to take advantage of these efficiencies.
“With AI, firms with more private data about transactions on which they advise, which will be a benefit of scale, will have more value to provide to their clients,” said Kent Zimmermann, a consultant with Zeughauser Group. “Some of those firms will have an opportunity to charge for value rather than just for time, which has the potential to enhance profitability.”
Transactional practices often already utilize alternative fee arrangements, with flat-fee payment structures fairly typical in that space, so shifting away from hourly billing shouldn’t be earth shattering, said Nikia Gray, executive director of the National Association of Law Placement.
