Will GenAI finally dislodge hourly billing’s grip on the legal industry? An ILTACON debate revealed that the billable hour may not disappear entirely, but AI is set to disrupt the relationship between clients and their law firms
Key takeaways:
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The debate continues — GenAI is reigniting the debate over the billable hour in law firms but is unlikely to fully replace it within the next five years, with firms expected to adopt more hybrid billing models, panelists said.
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AFAs on the rise — If alternative fee arrangements are the answer, firms need to develop clear communication, disciplined scoping, and a shared understanding of value between clients and law firms, which remains a challenge.
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What the client needs — Clients want law firms to use GenAI not just to lower costs, but to deliver more effective and creative legal solutions, emphasizing the importance of combining human expertise with technology.
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NATIONAL HARBOR, Maryland — The death of the law firm billable hour has been advertised and failed to materialize so many times that many in the legal industry roll their eyes when they hear the next proclamation of its impending demise.
The billable hour is an easy concept to calculate and understand, and today’s levels of law firm profitability suggests little urgency to change. However, the rapidly increasing use of generative AI (GenAI) has reopened the debate with some new excitement that this advanced tech is the long-awaited catalyst to ring the billable hour’s death knell. Certainly, GenAI use will drive law firms to adopt practices that will support profitability when using other forms of billing, and it will also help articulate value and provide clients with more transparent pricing.
At the recent International Legal Technology Association Conference (ILTACON) 2025, a stopwatch-style debate — moderated by the Thomson Reuters Institute’s Zach Warren — tackled not just whether GenAI is a superior billing method to achieve firm and client goals but also what conditions must exist for a true shift toward it.
Client value and billing
Done well, alternative fee arrangements (AFAs) align client and outside counsel incentives, improve predictability, and shift focus to outcomes. “Clients don’t hire lawyers for how long something takes — they hire them for results,” said Catherine McPherson, founder of This Might Help Consulting. Mature and successful value-based pricing requires phase-based scoping, milestone holdbacks and bonuses, and constant re-scoping — steps not easily accomplished.
There’s no secret as to why firms avoid all that and stay within their hourly billing comfort zone: Law firm recruiting and compensation hinges largely on utilization and maximizing billable hours. Also, scoping an expensive project for partners not trained in project management is risky, and any changes can drive the parties back to the bargaining table, further eroding client trust and even the firm’s own assumptions of what may be required.
Riffing on a famous Winston Churchill quote, David Cohen, founder of AtJustice and former Records & E‑Discovery practice group leader at Reed Smith, noted that the billable hour “may be the worst billing system — except for all the others.” In addition, while clients may grumble, they still pay for billable hours, so firms have no true incentive to change.
There’s no secret as to why firms avoid all that and stay within their hourly billing comfort zone: Law firm recruiting and compensation hinges largely on utilization and maximizing billable hours.
However, the ILTACON panel did illuminate one major stumbling block in the shift to AFAs: Whether firms and clients can truly agree on what success and value looks like for both parties under an AFA. In a hypothetical, panelists debated whether an AFA set for $100,000 would satisfy clients if the firm completed the work more quickly in what would have cost $80,000 if billed hourly.
Cohen said the client would be unhappy they had paid more than needed, and McPherson argued that “if the client got the value and it was predictable” and the client avoided more costly litigation, they would consider that a win and a great value. The bottom line seems to be that firms and clients need more communication upfront around client value, and disciplined scoping, iterative recalibration, and tech-enabled matter intelligence will help drive success — otherwise firms will continue to default to the billable hour.
GenAI effectiveness vs. cost reduction
The promise of GenAI to drive the costs of billable hours down is attractive and often the most emphasized aspect in discussions around its impact on the shift in billing, but we shouldn’t overlook GenAI’s ability to increase how effectively and creatively law firms can solve clients’ problems. Corporate legal departments’ requests for proposals (RFPs) for outside counsel engagement often focus upon costs, but quality and predictability still matter. The lowest bids on reverse auction platforms lose out 54% of the time, and the highest bids win 18% of the time, said panelist Julio Sanchez, Senior Pricing Manager at Perkins Coie.
Still, the primary GenAI question in many RFPs, is simply “How will you use AI to lower our costs?” This makes clear that clients just want to know how GenAI will lower their fees, and this is often what clients want to discuss when GenAI comes up, said Conan Hines, Director of Practice Innovation at Fried, Frank, Harris, Shriver & Jacobson.
Still, it’s becoming clearer that clients want their outside firms to use AI to deliver more effective and creative solutions to their legal matters, with lower costs just a happy by-product. “Litigation is a business problem stuck in the courtroom,” said panelist Hunter McMahon, president of iDiscovery Solutions. In-house counsel can seem more firmly focused on their company’s business problems and how they can leverage the law to help solve internal business partners’ problems. Under the billable hour, outside counsel may be reluctant to consider other angles or solutions to a problem other than the most obvious, for fear of increasing the client’s bill.
Clients just want to know how GenAI will lower their fees, and this is often what clients want to discuss when GenAI comes up.
The panel further recommended that outside counsel should consider how using an AFA and GenAI in conjunction with their own legal and business acumen, may more quickly allow them to consider other solutions without fear of needlessly running up a client invoice. Overall, outside counsel needs to enunciate how the combination of their human value — strategy, judgment, and industry fluency — in conjunction with GenAI offers more effective and creative solutions, hopefully delivered more cost-effectively as well.
Will GenAI kill the billable hour in five years?
Overall, it’s unlikely GenAI kills the billable hour in the next five years, and panelists certainly foresee a slower shift that’s driven by client demand, not law firms’ own initiative.
For now, as the panel suggested, there likely will be more use of AFAs, especially around more predictable matters or those with repeatable processes, clearer tasks, and more predictable outcomes. To prepare, law firms should clarify their value beyond AI, increase pricing transparency, and better leverage their legal professionals to improve client satisfaction.
You can find more of our coverage of recent ILTACON events here
