On September 1, 2026, the Financial Times reported that Goldman Sachs, Morgan Stanley, and Citi had asked their law firms to lower their bills. The reason: technology had sped up routine work. Two weeks earlier, another part of Citi had published numbers that seem to point the other way. Citi's Law Firm Group, which counts law firms as its clients, said the hours firms billed to clients in the first half of 2026 rose 4.2% from a year earlier. One side of the same company says the work got faster. The other says billed hours grew more than twice as fast as usual.
The banks aren't just asking for lower rates. They want bidding, fixed fees, and efficiency data to change how firms bill
The banks didn't stop at asking for lower rates. They asked firms to change how they bill. According to Best Law Firms, Citi made bidding mandatory for its law firms and began asking them how they use AI and how much it has cut costs. It also said it would introduce a new billing approach within a year. Morgan Stanley asked for arrangements such as competitive bids and fixed fees, and Goldman Sachs asked for data showing how much efficiency had improved. The summary the FT made public says the three banks told firms that because technology has made routine work faster, their bills should come down. The full FT article is paywalled, so the bank-by-bank demands can only be confirmed through Best Law Firms' account.
Rates are behind the pressure. Citing data from legal spend analytics company Persuit, Best Law Firms reports that the average hourly rate for associates (junior lawyers) is $798, up 33% from 2023.
NYT DealBook reported that Kyle Poe, who works at legal AI company Legora, said corporate in-house legal teams are asking firms for across-the-board cuts of 20% to 30%. That figure describes in-house legal teams broadly, not the three banks. Legora sells legal AI to law firms, so it stands to gain the more the idea that AI cuts costs takes hold.
Citi traced the rise in billed hours to a rebound in M&A deals, not to AI
Citi credited deal work, not AI, for the increase in billed hours. Its explanation was a sharp rise in transactional advisory work across both large and mid-market M&A. Bloomberg Law reported that Citi's Daniel Greenfield said there is no sign yet of AI eating into demand for law firms.
Citi's Law Firm Group compared billed hours in the first half of 2026 with the first half of 2025. Growth came in at 4.2%, more than double the long-term average of 1.5% to 2% that Citi cited. Total firm expenses rose 9.7% over the same period, and Bloomberg Law's headline said AI is driving up expenses. A Wells Fargo survey also found rising demand, but it pointed to a different cause.
| Survey | Sample | First-half demand growth | Stated cause |
|---|---|---|---|
| Citi Law Firm Group | Not given in public descriptions | Billed hours +4.2% | M&A deal rebound |
| Wells Fargo Legal Specialty Group | More than 140 law firms (69 of the top 100 U.S. firms by revenue) | Hours worked +4.8% | Data center and financing work driven by the AI investment boom |
In the Wells Fargo survey, lawyer headcount at firms rose 2.9%. Hours worked rose 4.8%, so each lawyer worked more hours too. Wells Fargo saw the AI investment boom as one reason firms got busier, because it lifted demand for advice on data center development and financing.
Citi's 4.2% and Wells Fargo's 4.8% both add up hours across the whole industry. On their own, they can't show whether any single piece of work now takes less time, and they can't be used as proof that AI failed to save time. Citi's underlying report isn't public, so its sample size and method aren't disclosed either. Still, a mismatch remains: lawyers use AI every day, yet billed hours went up. In a separate Citi survey of 57 firms, two-thirds said their associates use AI daily. Bloomberg Law columnist Roy Strom called the situation a “mystery.”
If AI had already sharply cut the time Big Law firms spend serving their major clients, billable hours shouldn't be rising. (Roy Strom, Bloomberg Law)
Law firm AI spending was 0.25% of revenue at the end of last year, and Greenfield said firms expect that spending to accelerate. For now, the cost of AI shows up in firms' expenses, not on client bills.
Learning AI eats time at first, so firms now count up to 100 hours of it toward annual billable targets instead of billing clients
Associates at large firms have an annual billable-hour target to hit. Ropes & Gray lets more than 1,000 associates and counsel count time spent experimenting with and learning AI toward that target, up to 100 hours per person. The firm's official page describes this time as “Innovation Hours,” with up to 100 hours credited per year. The time never appears on a client bill, but inside the firm it counts as work. A firm spokesperson said associates have logged more than 35,000 hours under the program this year. Note that Ropes & Gray's AI page is a promotional page, and the 35,000-hour figure comes from a spokesperson.
The reason for the program comes from the people doing the work. Kevin Schoonveld, a ninth-year associate at Ropes & Gray, told Reuters:
When you first try out an AI tool, you put a lot of time into it, and you don't see big efficiency gains right away. (Kevin Schoonveld, Ropes & Gray)
In January, Holtzman Vogel announced it would credit up to 100 hours a year of AI education and training as billable time for first- through third-year associates. From the announcement we reviewed, it isn't clear whether those hours appear on client bills or, as at Ropes & Gray, count toward an internal target.
Akerman has credited time spent on AI projects since April. Associates picked AI projects posted on an internal portal, building an AI agent that reviews construction contracts or logging cases where AI research tools got things wrong. Akerman chair Scott Meyers said he understands that billable hours may decline somewhat. If the firm has to fill the gap left by fewer billable hours some other way, he said, it would likely mean mixing billable hours with credited hours. In other words, if AI shrinks the hours a firm can bill clients, it would fill the rest of the annual target with credited time such as AI projects. Targets are still set in hours. What changes is the kind of work that fills them.
Hours actually fell on the bill at clients like AT&T, which took document review and first drafts away from firms and gave them to an in-house team
In January, AT&T set up LegalEdge, a 38-person in-house legal team. The team uses AI to handle document review, research, witness interviews, and first drafts in place of outside firms. Without outside counsel, it also handled the renegotiation of AT&T's sponsorship deal with the Dallas Cowboys (including naming rights to AT&T Stadium) and a false advertising complaint against a rival carrier. General counsel David McAtee described the result:
What we're seeing is a reduction in associate hours. (David McAtee, AT&T general counsel)
AT&T handled thousands of hours of work in-house this year but said the savings are still hard to estimate. It does expect to cut the number of firms it uses from about 30 to 18 to 20 over the next two years. Hours fell on the bill not because firms finished faster, but because the client took the work itself.
This approach has a flip side. In the same Reuters column on AT&T, law firm partners complained that when clients send over AI-generated drafts, fixing them takes longer than writing from scratch. In a survey by legal technology company Morae, cited by Best Law Firms, up to two-thirds of senior legal professionals worried that the cost of checking AI output could eat into efficiency gains.
So the fight between clients and firms is widening from hourly rates to who does which work
Strom turned the discount demand on its head. If AI really saves time, he argued, hourly billing is the best arrangement for clients: firms pay for the AI, and associates who use it bill fewer hours. As for why hours are rising, he raised the possibility that firms are putting the time freed up by faster work into extra services or more thorough work. The negotiation clients should push for, he wrote, may be about the scope of work in the AI era.
Gretta Rusanow, head of advisory at Citi's Law Firm Group, called moving away from hourly billing one of the biggest opportunities. She added that clients who know the work takes less time might actually welcome hourly billing. Citi's Law Firm Group serves law firms as clients, so its interests differ from those of Citi's legal department, which is pushing for discounts.
Public figures so far don't show whether the time firms saved with AI lowered client bills or, as Strom suspects, went into extra services and more thorough work.
Clients and firms used to fight over hourly rates. Since AI arrived, the hours firms bill have actually gone up, and the bill doesn't show where the time saved on faster work went. So the fight is widening from rates to which work goes to the firm and which work the client does itself.
Further reading
Big Law AI Cost Savings Remain a Mystery as Billable Hours Jump One column covering Citi's first-half figures, the 57-firm survey, and the counterargument that hourly billing may actually favor clients. news.bloomberglaw.com
How AT&T is using AI to reduce its reliance on law firms How a 38-person in-house team took over law firm work, along with complaints from firm partners. reuters.com
Law firms give lawyers time off billing grind to test-drive AI A detailed look at how Ropes & Gray and Akerman count AI learning time toward billing targets. reuters.com