By Andy McDonnell, Director of Innovation and Legal Tech at Lex Mundi
AI is not new to the legal industry; it has been around in some form since the 1980s. The last big AI boom in law occurred only in the last decade, when clause extraction tools such as Kira Systems hit the market with many heralding a new way of conducting due diligence review. Generally, hyped expectations around AI in law have always fallen short when faced with the reality of delivering complex legal services. The use of AI has always been curtailed by the technology, and many thought it would be limited to narrow use cases. ChatGPT’s arrival has upended this thinking.
Large language models (“LLMs”) and their chat-like interface have dramatically altered the outlook for AI in legal services. Suddenly, we have instant access to our data and insights in a form and fashion that we never enjoyed before. With AI acting as an assistant, we can now generate high quality pieces of advice or contracts within minutes, which traditionally could take days and with multiple lawyers feeding into the product. With agentic systems now able to carry out series of defined tasks in a workflow, we are rapidly moving from enhancing work product to AI performing work, and this is just the beginning. LLMs will fundamentally change how we provide services to our clients and successfully navigating that change will be the difference between the firms that remain in business and those that fail.
Why and how AI will Change our Business
We paint a dramatic picture but the change to come is dramatic. Traditionally, legal services are human capital intensive, requiring specific expertise and creativity to develop business solutions to legal problems. In commercial law, large firms service large clients with small armies of junior lawyers at the base of the law firm pyramid, bringing that army to bear on matters where manpower is required, such as document review. While these firms have processes in place to utilise existing knowledge, automation, and legal project management, the core remains the same: highly leveraged juniors charged out in six-minute increments.
With AI, this must change, both in the interests of the client and law firm. AI will soon do the heavy lifting those highly leveraged juniors once took on, and more – it will draft, advise, train, and price work. Law firms simply will no longer need the same army of juniors to produce the same volume of work, and those firms will be able to produce that work much quicker. Clients will expect, and eventually demand, expedited legal services, leaving the idea of billing for those services in six-minute increments commercially untenable for law firms.
Larger firms that have made investments in AI-enabled platforms that feed into advice have a head start over firms that are leaving AI to others. What happens to the army of juniors? Without the work to sustain them, we believe the base of the law firm pyramid will contract. This is not an “end of lawyers” argument: we think lawyers will continue to thrive in the age of AI – instead, this is simply an acknowledgment that, in the current market dynamics, junior lawyers will not be required at the same scale and will need different upskilling than previously. This assumes two things:
- The industry will not grow at a fast enough rate to sustain both widespread AI adoption and the number of juniors currently being recruited; and
- That new lines of business will not be created perhaps as a result of AI, which will require firms to leverage junior lawyers to offset the work displacement AI will cause.
The fate of junior lawyers is an issue of concern but one which cannot be solved until law firms tackle the incoherence of mass AI adoption with their current business model: selling time.
Value = Time
Law firms must embrace AI which requires significant capital investment, both in the technology and human expertise, to ensure that the firm will get the best possible result from their investment today and into the future. This investment in AI (if successfully implemented) will result in that law firm being far more efficient in delivering high quality legal services to clients: AI will dramatically cut down the time on the clock, but the clock is generally how lawyers currently quantify value.
For too long lawyers have equated the value of the output of their expertise, ingenuity, and effort on a client’s behalf with time. The billable hour has been the dominant billing method in Big Law for a long time , and has had the inadvertent effect of clients believing they are buying time rather than the output of their law firms. We say inadvertent, because there is no lawyer who says they are selling time, and law firms specifically sell their experience and ingenuity. However, the hourly billing method has stuck itself in the mind of the client directly to the value a lawyer provides.
Accordingly, law firms now must uncouple their output from time, and this is only natural. The value a client receives does not lie in causing armies of lawyers to toil for hours on an innovative, business savvy solution to a complex legal problem. The value lies in lawyers delivering a straightforward solution to a client’s problem. By moving away from a billable hour model, the law firm and its lawyers, are incentivised to use AI to expedite matters.
This wont be an easy transition for law firm, lawyer, or client, all of which have enjoyed the simplicity and certainty of the billable hour methodology. However, this is the opportunity law firms must seize now, to redefine the value they bring to their clients without time as a metric. This could lead greater collaboration, and deeper connections between law firm and client, strengthening long standing relationships and being in the best position to engage the next generation of digital native clients.
