Clients Push Big Law Firms to Use Generative AI for Cost Savings

Welcome back to the Big Law Business column. I’m Roy Strom, and today we look at how clients are digging in on firms’ use of new technology. Sign up for Business & Practice, a free morning newsletter from Bloomberg Law.

Law firm partners are wrestling with a new question from clients: How are you using generative artificial intelligence to lower the cost of your work?

Large corporate clients are increasingly asking law firms to explain how they are using AI as a prerequisite to winning their business, a trend that could be the camel’s nose under the tent for broader changes to the Big Law business model.

More general counsels are pushing their law firms to use the technology to deliver better, faster services, said Mark Smolik, chief legal officer at DHL Supply Chain Americas. They are looking for “measurable cost savings,” he said.

“We are done waiting,” he said. “The dynamics of the traditional buy-sell relationship in the legal industry are shifting.”

To be sure, GCs’ questions are still a nascent trend. It’s unclear how many companies are actually deciding which firms to hire based on responses to the questions.

But law firm partners said the questions are showing up in requests for proposals that clients put to law firms before making hiring decisions. They’re being asked to describe how they’re investing in technology to make their work more efficient, and what role AI will play in the process.

Nobody expects the billable hour to go away, but to the extent the questions are used to lower costs, they represent a new form of client pushback on fees. Law firm billing rates have soared in recent years, rising 9.2% through first half the year according to Wells Fargo.

Some clients see AI helping them achieve savings from more efficient work.

The questions also mark a shift from clients’ initial reluctance to allow firms to use AI on their matters, often out of fears related to data privacy and hallucinations. Firms have been pushed in the past to implement other changes, like adopting more diverse hiring programs and using earlier technologies like online legal research.

“We have certainly started to see clients asking those questions,” said Hilary Strong, a Latham & Watkins partner who co-chairs the firm’s data center team.

Strong recently used AI tool Harvey to generate a key list of issues based on a markup of a purchase agreement. Latham last month announced a firmwide license for the tool.

Laurie Mims, managing partner of San Francisco-based litigation firm Keker, Van Nest & Peters, said more clients are requiring some work traditionally done by junior associates be assisted by AI, a trend she expects to grow quickly. That’s even as most clients still don’t want the firm using the technology, she said.

The push from clients is already causing the firm to think about how its model for training young lawyers will change, Mims said. The firm hasn’t found an answer to that question yet, but its management committee is discussing the issue as it considers rolling out more AI tools, she said.

“Figuring out how we are going to continue to develop our talent is the thing that is the biggest challenge for law firms like ours,” she said. “We want to keep our model. We like our model.”

David Cunningham, chief innovation officer at Reed Smith, said the firm has begun to receive questions about AI from clients in recent months. Clients are also asking if the firm can help apply AI to their own legal department and business operations, he said.

“Some of our clients have started requiring the use of AI in certain situations, just like predictive coding in ediscovery was initially suspect, but then became expected,” he said. “We are in the early days of this transition.”

Many of the AI questions from clients are asked by legal operations professionals, a growing rank of legal department employees who put together RFPs, manage projects, and seek cost savings, said Bob Couture, a senior research fellow at Harvard Law School’s Center on the Legal Profession.

Law firm partners who get involved in those conversations can solidify their relationships with clients and help build AI programs for the work, he said.

That doesn’t necessarily mean cheaper bills. While the tools might speed up some aspects of the work, law firms are looking to spend more time on substantive legal questions, he said.

“They used to spend 80% of their time collecting data and information and 20% of their time doing strategic analysis,” Couture said. “They want to flip that by using AI.”

Worth Your Time

On Cleary Gottlieb: The law firm elected capital markets lawyer Jeff Karpf to take over from Michael Gerstenzang as managing partner, Chris Opfer reports.

On AI: Justice Amy Coney Barrett said the technology is correctly predicting questions that will be asked by Supreme Court Justices at oral argument, Maia Spoto reports.

On Munger Tolles: The law firm was hired by New York Attorney General Letitia James’ office to deal with two federal subpoenas the office is facing, Tatyana Monnay reports.

That’s it for this week! Thanks for reading and please send me your thoughts, critiques, and tips.