Key takeaways
- California's State Bar guidance says lawyers must not charge hourly fees for time saved by generative AI.
- Time spent writing prompts and reviewing AI output can be billed as actual time.
- ABA Formal Opinion 512 treats firm-wide AI tools as overhead, and matter-specific tools as direct costs billed without a surcharge unless agreed otherwise.
- California Business and Professions Code section 6148 requires bills to clearly state their basis and identify costs.
- Tool usage logs by user and matter help a firm support a disputed bill.
How should a law firm bill for AI-assisted work?
Bill for the time lawyers actually spend and the costs the client agreed to, and say so in writing. The State Bar of California's generative AI guidance says a lawyer may use generative AI to create work product more efficiently and "may charge for actual time spent," such as crafting prompts and reviewing and editing outputs. The same guidance says "a lawyer must not charge hourly fees for the time saved by using generative AI."
ABA Formal Opinion 512, issued July 29, 2024, reaches the same place under Model Rule 1.5. Lawyers who bill hourly charge for actual time spent, even when an AI tool makes the work faster.
For a managing partner, the practical impact of AI on legal billing is a records question: can the firm show it billed AI-assisted work fairly if a client asks?
What is the impact of AI on legal billing for hourly work?
Hourly bills cover only the time lawyers and staff spend directing and checking the tool. California's guidance names two examples: crafting or refining prompts, and reviewing and editing outputs. Checking citations, confirming facts against the record, and rewriting the draft into the firm's own work product all fit that description.
What a firm cannot do is record the hours the task would have taken without AI. If a research memo once took six hours and now takes two, the hourly bill reflects two.
Can a firm charge clients for AI subscriptions?
Sometimes, and only on terms the client understands. California's guidance says costs associated with generative AI "may be charged to the clients in compliance with applicable law," and that a fee agreement should explain the basis for all fees and costs, including those tied to generative AI.
Opinion 512 draws a line between general overhead and direct costs. A tool that supports the firm's ordinary practice is overhead and should not be charged to clients without a contrary disclosure in advance. Absent an advance agreement, a matter-specific AI tool can be billed only at its direct cost plus reasonable expenses directly tied to providing it, with no surcharge. The opinion also says lawyers may not bill for time spent learning a tool they will use regularly, though that time may be billable when a client asks for a specific tool the lawyer does not already use.
Does a flat fee avoid the problem?
Not entirely. Opinion 512 notes that a flat or contingent fee can still be unreasonable if AI lets the lawyer finish the matter far more quickly than the fee assumes. California applies its own test: rule 1.5 of the California Rules of Professional Conduct prohibits an "unconscionable or illegal fee," and the factors include "the amount of the fee in proportion to the value of the services performed," "the time and labor required," whether the lawyer failed to disclose material facts, and whether the client gave informed consent to the fee.
Flat fees remain a sound way to share AI efficiency with clients. They still need a basis the firm can explain if a client later asks how the number was set.
What does California law require in the fee agreement and the bill?
Two things that matter here. Under Business and Professions Code section 6148, when total expense to a client, including attorney fees, is reasonably foreseeable to exceed $1,000, the agreement must be in writing and state the basis of compensation, including hourly rates, statutory fees, or flat fees. Certain matters are excepted, including corporate clients and emergency services.
Section 6148(b) also says all bills "shall clearly state the basis thereof," and that the cost portion must clearly identify the costs and expenses incurred and their amount. If an AI tool is billed as a cost, the invoice needs to say so in plain terms.
How do you set up AI billing step by step?
Treat it as a short project with four owners: the managing partner, billing, IT, and the attorneys who use the tools. The steps below are a starting point; each firm's fee agreements and client guidelines will shape the details.
- Inventory the AI tools in use and classify each as firm overhead or a matter-specific cost. A firm-wide subscription used across matters fits the overhead description in Opinion 512.
- Update the engagement letter template so it explains, in plain language, whether and how AI-related costs are billed. Route the language through the firm's ethics counsel.
- Add a time entry convention for AI-assisted work, such as "prompting and review of AI-generated draft," so the narrative matches what California's guidance describes.
- Brief timekeepers that recorded hours must match the time actually worked on the task.
- Check each institutional client's billing and outside counsel guidelines for terms on AI use or AI charges.
- Make sure the AI tools themselves log activity by user and matter, so a disputed bill can be supported with records.
- Review the first month of AI-assisted bills as a group and adjust the conventions before they spread.
What records protect the firm if a client challenges a bill?
Time entries that describe the AI-assisted work, an engagement letter that disclosed the approach, and tool logs that show who used what on which matter. Rule 1.5's factors turn on disclosure, consent, and proportion, and each of those is easier to show with contemporaneous records than with recollection.
This is also where IT and billing meet. A firm whose AI tools sit behind firm sign-in, with usage logs retained, can answer "how much of this was AI" with data. A firm whose attorneys use personal AI accounts cannot. Those logs belong in the same retention plan as the rest of the client file; our guide to how long attorneys have to keep files in California covers the timelines.
How s90 helps
s90 manages IT for law firms across Los Angeles and Orange County. We set up AI platforms with firm sign-in, policy enforcement, and prompt monitoring, so usage is logged by user and the firm has the records its billing and ethics decisions rely on. If you are working through AI billing conventions and want the technology side to match, we're glad to help.
