Major clients of large law firms are increasingly calling the billable hour unsustainable, pointing directly to artificial intelligence as the catalyst for change. Private equity firms and Wall Street banks including Morgan Stanley, Citigroup, and Goldman Sachs are pushing for cost reductions, arguing that AI should let firms complete legal work in less time. Yet a disconnect is emerging: demand for law firm hours rose 4.2% in the first half of the year, far above the typical 1.5% growth rate, according to Citi's law firm banking group.
Clients describe a future where AI-driven efficiency lowers legal costs, much like Ford's assembly line transformed automobile pricing. The reality, however, does not yet match that story. If AI had already dramatically cut the time required to service major clients, total hours billed should be falling-not climbing at an unusually high rate.
The pricing paradox
Complicating the picture is how clients talk about capturing AI savings. Many say they will negotiate for those savings or move away from the billable hour altogether. But if AI truly reduces the hours needed, the billable hour could actually be the most direct vehicle for passing savings to clients. The firm pays for the AI tools, associates bill fewer hours, and the client's cost drops.
Gretta Rusanow, head of advisory services at Citi, sees this dynamic as "one of the biggest opportunities" for large law firms. "You might have clients who would love the billable hour because they recognize that it takes less time to do the work," she said. Three-fourths of firms surveyed by Citi this summer expect the billable hour model will be impacted by AI by 2028, and roughly half say it already has been.
Rusanow argues the moment has arrived for firms to move beyond hourly billing. "A continued reliance on the billable hour is just dismissive of the high quality of work they produce for their clients," she said. "The firms recognize that and they are looking at it."
Pressure from the business side
Law firm leaders should not dismiss what clients are signaling. The cost of Big Law services has climbed sharply, and business executives have taken notice. One senior in-house lawyer at a major client, speaking anonymously, said business leaders "sort of say this model doesn't seem sustainable, and the ability to keep charging what they're charging doesn't seem sustainable."
In-house legal departments face real pressure to cut fees. Their business counterparts have bankrolled the AI infrastructure buildout and have every incentive to push service providers toward adopting AI tools. That financial backdrop adds weight to client demands for efficiency.
Law firms appear willing to adopt the technology, even if they resist voluntarily cutting prices. Two-thirds of firms told Citi that associates use AI daily, and more than half said partners do the same. For professionals navigating this shift, structured training can help teams apply these tools effectively-resources like an AI Learning Path for Paralegals focus on practical skills for document review and contract analysis.
What's really happening with the hours
One possible explanation is that even when certain tasks become faster, law firms use the recovered time to deliver additional services or more thorough work. If that is the case, firms should be transparent with clients about it. If AI tools enable more work rather than fewer hours, that conversation needs to happen openly.
The negotiation clients may need to demand is not about pricing models alone, but about the scope of work in the AI era. If AI truly cuts down hours, it may be the law firms-not the clients-who protest the billable hour.
Why this matters for legal professionals
For lawyers and legal operations teams, the tension between AI adoption and the billable hour is not theoretical. It will shape compensation structures, client relationships, and how firms measure productivity over the next five years. The Citi data shows firms are already using AI tools daily while billing more hours than before. Understanding whether those tools are reducing effort, increasing output, or both is essential for anyone managing legal budgets or negotiating fees. Professionals who can articulate the actual impact of AI for Legal work-backed by data, not vendor promises-will be better positioned as clients push for change.
Your membership also unlocks:
