The verdict on tomorrow: what’s next for legal?

The UK legal market is on the cusp of significant change, with technology and AI transforming how legal work is performed and how fast it can be delivered. This is upending billing practices, with long-held traditions of pricing work by the hour becoming increasingly outmoded as corporate legal teams refocus on value and outcomes.

At the same time, in-house teams are facing budget constraints and pressure to control costs, meaning the billable hour is increasingly misaligned with their needs. To that end, more than half of general counsels (54%) expect a higher proportion of work to be kept in-house over the next five years, according to Thomson Reuters Institute’s State of the UK Legal Market 2025 report.

An in-house shift

“More work will be kept in-house as more processes can be automated with AI and tech, which means in-house lawyers will be able to handle nominal types of work that would normally be outsourced to a law firm,” says Lara Oyesanya, previously chief legal officer at payments business Zepz and currently a director at PensionBee.

Even if lower-value work is not being done in-house, general counsels are more likely to send that work to an alternative legal services provider (ALSP) than a law firm, says Oyesanya. “Even if an ALSP charges by the hour, the rate is still lower than what you’d pay a law firm,” she says.

On average, about 62% of annual legal spend is still billed at an hourly rate, with 29% of spend attributed to value-based billing, Thomson Reuters Institute’s data shows. Almost a third of UK in-house teams (32%) have a high desire for value-based billing, compared to 26% in the US.

Given that growing focus on value, general counsels are calling for firms to offer more alternative fee arrangements (AFAs) to reduce dependence on hourly rates to price work.

“Firms are more amenable to fixed fee arrangements, but they always start from the basis of the billable hour to give a fixed fee,” says Oyesanya. 

Some firms are hedging their bets by agreeing to a fixed fee (which carries a risk if the matter takes longer to complete than anticipated) but adding a success fee at the end if they deliver on the client’s desired outcome, she says.

Value over hours

Legal professionals also believe AI will have a significant impact on hourly billing, with 64% of corporate legal teams and 58% of law firms believing there will be a lower proportion of hourly rates in five years. To date, however, AI-related efficiencies are not feeding through to lower costs for corporate legal teams.

“If you are using AI to automate a lot of the work that you do, one would expect that that will flow down to clients, but we haven’t seen that – the discussion is law firms increasing their fees, sometimes as high as about 20%,” says Oyesanya. “It’s going to be a very slow process. Modelling and charging will change, but I’m not sure it’s going to be as quickly as expected.”

Firms say much of their discussions with clients are about pricing clarity to avoid being clobbered by any unexpected bills. For example, Adam Kudryl, chief legal officer and head of corporate at Harper James, says there is not as much pressure to move away from the billable hour as the media might suggest, but corporate legal departments are looking for more cost certainty.

Firms also say there can never be a one-size-fits-all approach to billing, as different sectors and jurisdictions will have divergent needs.

“It’s about working with the specific client to agree on the billing approach that best works for them and what they are trying to achieve,” says Andrew Edginton, chief operating officer at Gowling WLG. “Rather than react to pressure from clients, we try to lead the discussion, to explore the full range of billing models in a proactive way that helps find the right solution for our individual client.”

One challenge with alternative billing models is that, in most cases, fee earner pay is directly linked to the billable hour. For Kudryl, firms could look to the past when lawyers were remunerated based on the fees they brought in – an approach that could be tweaked to focus instead on value delivered.

“It’s going to be down to how open-minded the firms are to making a change and sharing success with their lawyers,” he says. “For larger, really established law firms, it’s going to be really difficult to suddenly change the remuneration model and the incentive model for their lawyers overnight.”

For clients, pricing will likely move to a blended model. Work will be split into predictable matters that can be completed at a fixed cost and advisory elements where the billable hour will still apply, adds Kudryl.

Law firms are approaching this change in different ways. For example, Edginton says Gowling has a range of billing models that can be adjusted based on the value of the firm’s work and the client’s commercial objectives.

“It’s a continuing process though, whereby listening to the pressures our clients are managing helps us to learn and adapt our billing models further,” he adds.

Other firms are also exploring how billing model changes will impact lawyer pay.

“We have been looking closely at different ways to remunerate our lawyers and investing in technology to advance the billing process,” says Adam Al-Shaybany, director of pricing and legal project management, client value, EMEA at Reed Smith. “We are also highly aware of the need to consider these challenges in tandem with the rise of AI and the impact this may have on the practice of law. Value-based pricing remains a key focus for the firm.”

Measuring outcomes

Amid this heightened focus on value, firms will have to move beyond the billable hour metric to one that measures outcomes. This may also require a shift in thinking from clients where faster work doesn’t automatically mean cheaper fees if the value of the output remains the same.

“It’s bringing the clients on that journey and helping them understand that the value and the outcome is more important than the time it takes to get there,” Kudryl says.

Technology and AI can also help ease the transition away from billable hours by helping firms price work more accurately in advance. AI technology can also be used to monitor matters in progress to help identify issues that might impact prices before they emerge.

“Whether that’s through the use of AI to inform at an earlier stage of potential risks in transactions that can then be reflected in the billing model, or providing the ‘self-service’ apps that allow clients to monitor and manage their unbilled work-in-progress in a way that works for them,” says Edginton.

With client demands around cost and service delivery changing, law firms must continue to innovate on billing structures and ensure they are leading the conversation on what value means and how it should be priced.

As client expectations around value evolve, AI will play an increasingly important role in transforming experiences. It will affect how work is performed internally in legal departments and how legal services are delivered by external providers.

This is going to shape not only expectations around the speed of delivery but also what companies are willing to pay for different types of legal work. Furthermore, in-house teams are increasingly using AI to perform tasks that may have previously been outsourced to law firms, or they are sending those tasks to alternative legal services providers (ALSPs).

Strategically embrace AI

Given this backdrop, law firms must strategically embrace AI to remain relevant to clients now and in the future.

“Just as ALSPs are handling more administrative, technology-related tasks, law firms can capture that work themselves as well,” says Zachary Warren, technology and innovation insights lead at Thomson Reuters Institute. “We are seeing many major law firms starting to put together technology-enabled service offerings for the low-level stuff that they’re able to do more quickly for a flat fee, and provide what their clients want just in a different way than normal.”

At the same time, some firms are also deploying AI to support higher value work, such as large-scale bet-the-company litigation or major M&A transactions, adds Warren.

While GenAI adoption won’t make a bad lawyer good, it can help amplify the differences between those who are stellar performers and those who are not, says Warren.

For example, if those stellar performers can now spend less time on admin and more time on strategic thinking and other areas of legal expertise, high performers will be at a greater advantage.

“Since you’re doing a higher proportion of work, that lets the bright lights shine even brighter,” says Warren.

Communicate with clients

Despite all the talk around AI, there is a disconnect between law firms and their clients when it comes to AI usage. According to Thomson Reuters’ 2025 Generative AI in Professional Services Report, 57% of corporate legal departments said GenAI should be applied to legal work, though 71% of law firm clients said they had no idea if their firms were using it or not.

“What we’re seeing right now is a lot of firms and their corporate clients really aren’t having that conversation,” says Warren. 

While firms might be looking at adopting AI for internal use cases, there is still some reluctance to extend that to client-facing work. That’s either because they don’t have adequate data policies or procedures in place, or because they are concerned about pushback from clients, says Warren.

“There still seems to be a little bit of a standoff as to who is making the first move between firms and clients to try and get clarity around this,” he adds.

Some firms may also be put off by a small number of incidents where outsized negative publicity has raised concerns around AI safety, either among clients or firms themselves.

“I often hear from firms that say we have a couple of clients that tell us they don’t want us using GenAI, and that’s their excuse for not using it for anybody,” says William Josten, a senior manager at Thomson Reuters Institute. “Sometimes they might say they are still concerned about hallucinations and things like that. Those are edge cases, and it’s the type of thing that is actually fairly easily avoidable if you apply a little bit of due diligence reviewing the work.”

These concerns underscore the importance of AI education. Law firms must not only understand the tools they are using but also the data underpinning how those AI tools work. This enables them to better demonstrate to clients how their data is being used and to provide reassurance that it is safe.

“By doing that research, by providing that education, and by having your own sound policies in order, you can have that conversation with clients,” says Warren. “Some might come back and say we still don’t want you to use AI, but many firms still haven’t gotten to that first step of necessarily fully understanding the tools that they’re using to be able to have that back and forth conversation with their clients.”

Shifting AI perceptions

Josten also predicts that the number of general counsels who won’t want AI used in their work will dwindle fairly rapidly given how embedded AI already is in everyday life.

“Because of the way that AI is becoming incredibly pervasive, it’s going to be almost impossible to avoid in very short order,” he says. “The idea that you’re going to avoid AI altogether, that’s simply not going to be a thing. You have to get comfortable with this.”

Given the direction of travel on AI, firms are going to have to be even more nimble and ready to adapt to shifting client demands and expectations.

“We’ve been in a buyer’s market in legal services for a while where a lot of the power is held with the end corporate client,” says Warren. “Introducing AI into that conversation isn’t necessarily changing the dynamic, but it’s just yet another place where corporate clients are going to hold a lot of power over how their firms function.”

For example, some companies are explicitly stating in their outside counsel guidelines that if their panel firms are not using technology to work more efficiently, then they may drop those firms from their panels.

“That should be a wake-up call to law firms, not only from an internal operational standpoint, but from a business development standpoint – we need to be listening to what our clients have to say, and increasingly what they’re saying is use technology and use AI,” says Warren.

Firms are not just juggling client expectations around AI but they are also having to navigate concerns from some of their own lawyers who may worry that their jobs are at risk. While those concerns may be true to an extent, it is for a different reason than they may assume.

“AI will not replace the lawyer, but the lawyer that uses AI will replace the one that doesn’t,” says Josten.

By strategically adopting AI, law firms can ensure they remain competitive, can meet client expectations and that lawyers have the tools to do their jobs more effectively.

With a weak economic outlook and geopolitical uncertainty framing the operating backdrop for many companies, corporate legal budgets are under more strain than ever. More than a quarter of legal departments anticipate their legal spend will decline this year (28% compared to 22% a year ago), according to Thomson Reuters Institute’s State of the UK Legal Market 2025 report. This is prompting more in-house teams to scrutinise their resourcing decisions.

“This year we’ve seen corporate legal departments increase the focus on efficiency, which means they are rethinking their resourcing model,” says Elizabeth Duffy, senior director for client engagement at Thomson Reuters Institute. “They’re trying to deliver value more than ever, they’re assessing how they use technology in their own operations, and they’re also reassessing what value means in the legal department in terms of the work they do and how they measure it.”

Cost-containment pressure also means more work is likely to be pulled back in-house. More than half of corporate legal teams (54%) expect to see a higher proportion of work kept in-house over the next five years. This is enabled by increased adoption of technology, with 41% of general counsels saying they are excited about the potential for AI-based tech to make time for more complex, strategic work.

“This should unlock the efficiency that they’ve been trying to get at for years. It will allow the internal team to move beyond just reacting to business needs and start providing more strategic, proactive advice,” says Duffy.

More flexible resourcing

As technology evolves, it will make it easier for legal teams to resource work more flexibly. For example, while companies will still need outside counsel expertise to support in-house teams when working on complex, high-stakes work, tech will increasingly enable in-house teams to play a bigger role in those types of matters.

There is another layer of work that is less complex, such as employment disputes or simpler deal work. This is currently outsourced to law firms. However, it could be brought in-house if technology and AI free up lawyers’ time. Routine, process-driven tasks, such as high-volume document review, contract review, contract management and due diligence, could be handled by these tools.

This will be made possible either by companies investing in technology themselves to do that work or by outsourcing to lower-cost third parties, such as alternative legal services providers (ALSPs).

This is particularly relevant in the UK market, where 65% of legal departments are using ALSPs, compared to 52% in the US.

While this is partly being driven by price, ALSPs are also becoming more sophisticated, says Duffy. They are expanding beyond task-based work such as document review to taking on whole projects or segments of workflow, and in some cases, even advisory work.

“Often when you work with an ALSP, the first discussion is about scope, and they’ll get really detailed on breaking down the work to a task level, looking at the process, who will do what on the ALSP side and on the client side,” says Duffy. “I don’t think law firms across the board are as consistently good at that project management and scope conversation. They’re definitely working on it, but I do think that’s an advantage the ALSPs have.”

A mismatch between law firms and corporate legal teams

Despite 54% of corporate legal teams expecting to see more work kept in-house over the next five years, only 35% of UK-based lawyers are anticipating this shift, highlighting a potential mismatch between evolving client needs and how prepared firms are to adapt.

“That’s not good, because it’s going to leave those firms out of alignment with how clients' needs are changing. That makes them down the line less relevant and less attractive to work with compared with the firms who are already making changes,” says Duffy. 

Duffy adds that while many firms are exploring what AI means for their business models and what changes they need to make, they are at different stages of that discussion. This means, in some cases, plans haven’t been communicated firm-wide, explaining some of that disconnect around workload expectations.

In any case, firms must ensure they are advancing their thinking about new service models and how work is priced.

“This could mean flexible resourcing models or it could mean it’s a commoditised package of work on the routine side, but also a more holistic strategic advisory layer on the high-value work, and obviously different fee structures for both,” says Duffy. “So it’s moving away from the billable hour toward alternative fee arrangements that better align with the client’s business objectives.”

Adopt a client-centric strategy

As firms develop new service models, they should adopt a client-centric strategy that ensures new pricing or delivery models are built in collaboration with clients, taking into consideration their needs and pain points, and then refining based on client feedback.

“Sometimes firms think they have to just come up with the best new idea in a silo or in a vacuum, but working up these new approaches in collaboration with strong client relationships gives the best foundation to introduce change and make it a success,” says Duffy.

This will become increasingly critical for firms as more work is brought in-house and clients demand more transparency around value. ALSP outsourcing is also likely to continue growing. Roughly half of law firms (49%) and 33% of corporate legal departments predict that GenAI advancements will increase ALSP usage over the next three years.

“If it’s not a dramatic change in the next 12 months, we’ll definitely see a strong movement on this over the next three to five years as there is an increasing shift away from billable hours to more value-based billing,” says Duffy.

This means firms who don’t rethink service delivery and client value will be at risk of losing work, as competitors are already pressing ahead with making these changes.

“The firms who don’t rethink what they're doing will become less relevant, will see their revenue shrink and they will see weaker relationships with clients over time,” says Duffy.

Law firms must be prepared for this shift by aligning with changing client expectations and ensuring their service model is fit for a tech-enabled future.