AI and the Billable Hour

Under hourly billing, revenue equals hours times rate. If AI cuts a five-hour memo to one hour of prompting and review, the firm bills one hour. That is the conflict: efficiency that helps clients directly reduces the revenue of a time-based business. Ethics rules settle the most basic question. ABA Formal Opinion 512, issued in July 2024, says a lawyer billing hourly may charge only for time actually spent, which includes time writing prompts and reviewing and correcting AI output. The lawyer may not bill for the hours the tool saved. The opinion also says lawyers generally should not bill clients for time spent learning a tool they will use across their practice. Costs for general-purpose AI are usually treated as overhead, not as a charge passed to clients. A charge for a tool used specifically on a client's matter needs to be reasonable and communicated in advance. All of this rests on Model Rule 1.5, which requires reasonable fees and a clear explanation of how fees are calculated. Flat fees, capped fees, subscriptions and value-based pricing are the usual alternatives. With a flat fee, the firm keeps the efficiency gain, and the client gets a predictable price. The fee must still be reasonable, though, so a flat price set when a task took days can become hard to justify once AI makes it quick. One misconception is that AI removes billable work. Checking, exercising judgment, talking with the client and taking responsibility for the result all remain, and careless review creates risk rather than savings. Another is that the change affects only revenue. Much of the routine work AI absorbs is how junior lawyers have traditionally learned, which raises questions about training and about the leverage model, in which many associates' hours support partner profits.