Welcome to Attorney Intelligence, where we break down the biggest advancements in AI for legal professionals every week.

This week, I’m thinking about fee models. Nearly every conversation with managing partners, innovation leaders, and CFOs eventually circles back to the same question: What happens to the billable hour in an AI world? The tension feels obvious. Artificial intelligence compresses time. Clients are demanding greater predictability. Alternative fee arrangements continue to expand in visibility and rhetoric. And yet, despite the headlines forecasting disruption, the billable hour remains firmly in place.

The reality is more nuanced than either defenders or critics admit. The billable hour is not collapsing. It is evolving. And the real transformation underway has less to do with abandoning time as a metric and more to do with how intelligently firms understand and use it.

1 - Why the billable hour keeps winning

Recent industry commentary might lead you to assume that hourly billing is fragile or outdated. The data suggests otherwise. 90% of legal spend still flows through standard hourly arrangements. Firms have continued to grow billable hours in recent years, and rate increases have remained robust, averaging 9.6% year-over-year in 2025. Am Law 100 firms saw rates jump 8.3%, the second-largest increase in four years, and "robust" rate increases are expected to continue into 2026. Profits per partner, particularly among large firms, rose 12.3% to an average of $3.15 million in 2024. This is not the profile of a system in decline.

The majority of firms—between 72% and 84% by recent counts—now offer alternative fee arrangements (AFAs). However, those arrangements often remain anchored in hourly assumptions. Most firms apply AFAs to fewer than 40% of matters, and only about 23% of legal work is actually performed under an AFA despite widespread availability. Even fixed fees are typically modeled on historical time data and adjusted for risk or efficiency.

The persistence of the billable hour is not accidental. Hourly billing offers flexibility in environments defined by uncertainty and complexity. Legal matters frequently evolve in unpredictable ways, and time provides a defensible, adaptable mechanism for allocating cost.

If the billable hour remains dominant, then where in the pricing model is pressure accumulating?

2 - The old critique: Time does not equal value

The critique of hourly billing has always centered on one core argument: Time does not necessarily correlate with value, and inefficiency can be rewarded under a pure time-based model.

Cognitive research reinforces this concern. Sustained deep work tends to occur in concentrated bursts rather than continuous stretches. Frequent interruptions reduce productivity and increase the time required to complete complex tasks. In an hourly framework, however, the clock continues to run regardless of cognitive fragmentation or diminishing marginal focus.

Yet the critique often stops at the surface. It treats time as a philosophical flaw rather than as a data asset. The more important distinction is this: Time as a proxy for value may be imperfect, but time as structured economic data is extraordinarily powerful!

Time entries reconstructed at the end of the week–gaps plugged with guesswork–cannot support meaningful insight. But when time is captured accurately, categorized clearly, and linked to matter-level outcomes, it becomes a dataset capable of informing pricing, staffing, and risk allocation decisions.

The debate, therefore, is not truly about abandoning time as the fundamental unit of pricing. It is about whether firms operate on unstructured time or intelligent time.

3 - Why firms should focus on realization, not rates

To understand where economic leverage truly sits, attorneys should shift their focus from rates to realization. Realization measures the percentage of recorded billable time that a firm ultimately collects. If ten hours are billed but two are written off or discounted during pre-bill review, realization stands at 80%. This metric determines profitability far more directly than headline hourly rates.

Every firm thinks about realization. Few have the infrastructure to actually move it. The challenge isn't awareness—it's execution. Take matter budgeting: Firms that scope matters in advance see at least a 9% improvement in realization. Yet budgeting remains inconsistently applied, because doing it well requires clean time capture, consistent task coding, and real-time visibility against estimates. Most firms don't have that at scale. So pricing decisions still rely on instinct instead of data.

4 - From billing mechanism to economic infrastructure

AI is already compressing the time it takes to do legal work. That's not news. The real question is what firms do with that reality.

The answer isn't replacing hourly billing with fixed fees. It's turning time into pricing intelligence. Clients are gaining access to increasingly sophisticated spend analytics. Firms that don't build their own intelligence layer will find themselves negotiating blind.

The competitive advantage won't belong to firms that abandon time. It'll belong to those who understand it most clearly—using structured time data to forecast profitability, model AFAs, staff smarter, and protect margins before write-offs happen, not after.

The deeper mutation

The billable hour is not disappearing. It is mutating from a billing mechanism into economic infrastructure. As long as legal work remains complex and uncertain, time will continue to play a central role in pricing. What will change is how firms capture, analyze, and leverage that time.

Modernization of the business of law will not begin with a wholesale rejection of hourly billing. It will begin with disciplined data practices, intelligent budgeting, and the integration of AI into operational systems rather than only into drafting tools. Firms that treat time as structured economic data will be positioned to design more sophisticated fee arrangements, protect realization, and navigate client expectations with confidence.

Legal bytes

Here are the latest updates in legal tech and AI:

Harvey comes to the Lone Star State - Legal tech startup Harvey announced that it would be opening an office in Dallas, Texas, in April (Harvey).

Antitrust enforcement turns its attention to ‘Acqui-Hires’ - Attorneys at a recent conference hosted by Baker McKenzie discussed how the boom in AI investment has spurred new regulatory scrutiny of so-called acqui-hires, where large companies buy startups primarily to capture their talent (Law 360).

Infosys partners with Anthropic on AI services - Indian IT services provider Infosys has agreed to work with Anthropic to develop and deliver AI services to businesses across the financial services, manufacturing, and telecommunications sectors (Wall Street Journal).

Curious about turning time data into pricing intelligence?

PointOne's automated time capture provides the clean, structured data foundation that intelligent pricing requires. We're building a pricing intelligence layer on top of that infrastructure—helping firms forecast budgets, improve realization, and price with confidence rather than instinct.

Book a demo to see how PointOne transforms time into structured economic data.

Until next week,

Katon