Wall Street banks ask elite law firms to cut hourly billings arguing that AI is speeding legal work

Three of Wall Street’s biggest banks are demanding lower fees from elite attorneys — arguing that artificial intelligence is sharply reducing the costs of gruntwork that used to require more billable hours.Goldman Sachs, Morgan Stanley and Citigroup are pressing outside lawyers to cut costs as AI speeds up routine legal tasks including research, document review and contract analysis, according to the Financial Times.“If the number of hours they’re working on a matter has come down because of AI ..

.our expectation is for costs to come down significantly per transaction,” Adam Meshel, Citigroup’s global head of legal, told the FT.The shift could take aim at a business model that has long helped make partners at top firms extraordinarily wealthy.Big Law firms traditionally boost profits by billing clients by the hour for armies of junior associates.

AI can now accomplish some of that work far more quickly, potentially leaving firms with fewer hours to bill.Top lawyers have “for a long time been compensated on the foundation of [associates billing for long hours],” Morgan Stanley general counsel Eric Grossman told the FT.“Their compensation model is now extraordinarily unstable.”The technology’s ability to speed up legal work could amount to “a fundamental altering of the revenue foundation for these mega firms,” Grossman added.Citi has begun asking law firms competing for its business to spell out how much they are saving by using AI, according to the report.Meshel said a “different working model” would probably be in place within a year, adding that he wants the new arrangements developed collaboratively with the bank’s outside lawyers.Morgan Stanley, meanwhile, plans to put most of its outside legal work out for competitive bids by the end of the year and use alternatives to hourly billing such as fixed fees, according to the report.Morgan Stanley is still prepared to pay top dollar for the judgment and expertise of leading attorne...