New research indicates shift in fixed-fee billing

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According to research by legal software company Clio, 54% of UK law firms expect fixed-fee billing to increase over the next 12 months.

The billable hours system works in a self-explanatory manner, firms bill the total hours their lawyers work on a client’s case. However, many law firms are exploring alternatives to billable hours as increased AI use is speeding up previously time-consuming tasks. Clio’s research showed that 81% of administrative billable hours could be automated and anticipated a 62% increase in AI use by UK firms in the next 12 months.

As AI use rises, firms are recognising that hourly billing may not reflect the value of the work being delivered. Sarah Murphy, general manager of Europe, the Middle East and Africa at Clio, explained: “Many legal departments are questioning billable hours when they know that technology can significantly reduce the time required for certain tasks.”

The flat-fee billing system is slowly emerging as a replacement to the traditional billable hours system. Law firms, particularly those based in London, are under pressure to increase their revenues and profit. This, alongside rising lawyer’s salaries, causes firms to drive up their fees. However, problems arise when justifying bills to clients.

Murphy commented: “General counsels are under pressure to control legal costs, and unpredictable hourly billing often doesn’t align with corporate budgeting needs”.

In contrast, alternative billing structures “can offer better value, and it’s certainly much better for budgeting and forecasting”, according to Mike Ward, executive chair of data intelligence firm Armalytix.