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Issue #12

TwinLadder Weekly

July 2025

TwinLadder Weekly

Issue #12 | July 2025

The AI Billing Dilemma: What's a Fair Fee When AI Does the Work?

If AI saves 3 hours, can you still bill for 4? Oregon's new ethics opinion draws the line—and every lawyer using AI needs to pay attention.

The Core Problem

You draft a motion that traditionally takes four hours. Using Claude or GPT-4, you complete it in 45 minutes. The quality is identical—perhaps better, since the AI caught a jurisdiction-specific procedural requirement you might have missed.

Do you bill four hours? 45 minutes? Something in between?

This isn't a hypothetical. It's the question every firm using AI faces daily, and Oregon State Bar Formal Opinion 2025-205 just provided the clearest guidance yet.

What Oregon Actually Says

The Oregon State Bar's Legal Ethics Committee issued Opinion 2025-205 in March 2025, providing comprehensive guidance on AI use in legal practice. On billing specifically:

The unambiguous rule: "If the use of AI results in significant time savings, lawyers may not engage in billing practices that duplicate charges or falsely inflate billable hours."

That's direct. No ambiguity. If AI cut your work from four hours to 45 minutes, billing four hours violates RPC 1.5 (fees).

The Full Billing Framework

Oregon addresses multiple billing scenarios:

Scenario What Oregon Says
Time actually spent Bill only for actual attorney time—not hours "saved"
AI tool costs Must disclose intent to charge in writing, similar to Westlaw/Lexis
Learning time Requires client consent before billing for AI learning curve
General AI research Cannot charge for non-case-specific AI knowledge building

The Disclosure Requirement

Oregon requires written disclosure before charging clients for AI tool costs. The Oregon opinion states: "Lawyers must inform their clients, preferably in writing, if they intend to charge clients for the actual costs of using AI. This obligation is similar to informing clients of the intent to pass on costs associated with using research databases."

The Broader Ethics Landscape

Oregon isn't alone. 23 states have now issued formal AI guidance, with billing emerging as a consistent theme.

ABA Formal Opinion 512 (2024)

The ABA's position: time savings from AI "may mean the fee is not reasonable" under Model Rule 1.5. The Oregon opinion adopts this framework directly.

Virginia's Different Approach

Virginia State Bar Opinion 1901 takes a slightly different view for alternative fee arrangements. The Virginia committee recognized that "while AI saves time on certain tasks, creating the generative AI models takes time, skill, and effort, which can be billable."

This matters for flat-fee work. If you've invested in building custom AI workflows for your practice, that investment can factor into flat-fee pricing—even if it reduces per-matter time.

Florida Bar Ethics Opinion 24-1

Florida was early to this issue. Opinion 24-1 prohibits "any billing practices that duplicate charges or that falsely inflate the lawyer's billable hours." The efficiency gains from AI "must not result in falsely inflated claims of time."

The Competence Connection

Billing isn't the only rule implicated. Oregon's opinion ties together multiple obligations:

RPC 1.1 (Competence): Lawyers must understand AI capabilities and limitations. Using AI incompetently—or failing to use it when appropriate—can both raise competence concerns.

RPC 1.4 (Communication): While "there is no per se requirement to inform a client" about routine AI use, disclosure is required "if the client would need to know about its use to make an informed decision."

RPC 1.6 (Confidentiality): Entering client information into AI tools without appropriate safeguards risks confidentiality breaches. Oregon requires informed consent before using open AI models with client data.

RPC 5.1/5.3 (Supervision): "Managerial lawyers must establish clear policies regarding the law firm's permissible use of AI, and supervisory lawyers must make reasonable efforts to ensure that the firm's lawyers and non-lawyers comply with their professional obligations."

What This Means Practically

For Hourly Billing

The math is straightforward: bill actual time. If AI reduces a four-hour task to one hour, bill one hour.

Yes, this means reduced revenue per matter. But it also means capacity for more matters—and clients increasingly expect AI efficiency gains to benefit them.

For Fixed/Flat Fees

Here the analysis differs. If you've invested in AI capabilities that deliver consistent quality at lower cost, your fixed fee reflects that investment. The client pays for the outcome, not the hours.

Virginia explicitly endorses this: "Lawyers must consider all relevant factors in determining whether a particular fee is 'reasonable,' including their obligation to charge 'for a fee commensurate with the amount of work, including research, required.'"

For Value-Based Billing

AI strengthens the case for value billing. If your AI-assisted research identifies a $500,000 tax savings in 30 minutes, the value delivered exceeds any hourly calculation. Document the value, not the time.

Tool Review: AI Billing Compliance Features

How major legal AI platforms handle billing transparency

Harvey

Billing Features:

  • Usage analytics per matter
  • Time-per-query tracking
  • Integration with practice management systems

Best For: Large firms needing enterprise-grade audit trails

Billing Consideration: Clear per-matter usage data supports accurate billing allocation

Clio + AI Features

Billing Features:

  • Integrated time tracking with AI-assisted drafting
  • Activity categorization
  • AI usage flagging in billing narratives

Best For: Firms wanting seamless time-to-billing workflow

Billing Consideration: Automatic time capture reduces billing disputes

Microsoft Copilot for Legal

Billing Features:

  • Activity logging
  • Integration with existing Microsoft billing workflows
  • Audit trail for AI interactions

Best For: Firms already in Microsoft ecosystem

Billing Consideration: Familiar interface reduces learning curve for billing compliance

What's Working: Billing Transparency Success Stories

Success Story #1: The Engagement Letter Approach

Firm type: 25-attorney regional firm

Approach: Updated all engagement letters to include AI disclosure and billing methodology. Language specifies: "We may use AI-assisted tools for research, drafting, and document review. You will be billed for actual attorney time, not time saved. AI tool costs, if any, will be itemized separately."

Result: "No billing disputes in six months. Clients appreciate the transparency. Several have asked specifically how we're using AI—it's become a differentiator."

Key insight: Front-loading disclosure prevents back-end disputes.

Success Story #2: The Hybrid Approach

Firm type: Solo practitioner, estate planning focus

Approach: Shifted from hourly to flat-fee for routine matters. Used AI efficiency gains to maintain profitability at lower client price points.

Result: "I bill $1,500 for a basic will package that used to take me five hours. Now takes two. Same fee, but I can handle 2.5x the volume. Revenue up 40% while clients pay the same."

Key insight: Alternative fee arrangements can capture AI value without hourly billing tensions.

Hard Cases: Where Billing Gets Complicated

Hard Case #1: The Learning Curve

Scenario: Partner spends 10 hours learning a new AI tool. Subsequently saves 50+ hours across multiple matters.

Question: Can any learning time be billed?

Oregon's Answer: "Clients may not be charged for research of a general nature that is not case-specific and is intended for lawyers' own general knowledge." But client consent can change this.

Practical Resolution: Treat AI learning like CLE—firm investment, not client expense. Capture value through efficiency on subsequent matters.

Hard Case #2: The Quality Premium

Scenario: AI-assisted brief is substantially better than what the attorney would have produced manually—more comprehensive research, better organization, fewer errors.

Question: Can you bill more for the superior product?

Analysis: Value billing says yes—charge for outcome, not hours. Hourly billing says no—you bill actual time regardless of quality.

Practical Resolution: Consider shifting high-quality AI-assisted work to flat fees that reflect delivered value rather than time input.

Hard Case #3: The Verification Time

Scenario: AI drafts document in 20 minutes. Attorney spends 90 minutes verifying accuracy, checking citations, and ensuring jurisdiction-specific compliance.

Question: Is the full 110 minutes billable?

Oregon's Answer: Yes. Verification is attorney work. "Lawyers must review for accuracy any GAI output discussing case-specific facts or providing a case citation, quotation, or conclusion."

Key insight: Verification time is real work—bill it. The AI time is what you can't inflate.

Reliability Corner

State-by-State AI Billing Guidance

State Opinion/Guidance Key Billing Rule
Oregon Opinion 2025-205 No billing for time saved; disclose AI costs in writing
Virginia LEO 1901 Alternative fees can reflect AI investment
Florida Opinion 24-1 No duplicate charges or inflated hours
California COPRAC Guidelines Disclose AI use affecting representation
New York Pending guidance Expected Q4 2025
Texas No specific opinion General RPC 1.5 applies

ABA Model Rules Implicated by AI Billing

Rule Relevance
1.5 (Fees) Core reasonableness requirement
1.4 (Communication) Disclosure obligations
1.6 (Confidentiality) Data input concerns
1.1 (Competence) Understanding AI limitations
5.1/5.3 (Supervision) Firm-wide AI policy requirements

This Month's Reality Check

77% of legal professionals now use AI for document review, research, or drafting. If your billing practices haven't adapted, you're behind the ethics curve.

Workflow of the Month: AI-Assisted Work Billing Checklist

Use this before billing any matter involving AI assistance:

AI-ASSISTED WORK BILLING CHECKLIST
==================================

MATTER: _____________________________
DATE: _______________________________
ATTORNEY: ___________________________

PRE-ENGAGEMENT (Complete Once Per Client)
-----------------------------------------
[ ] Engagement letter includes AI disclosure?
    Location: ___________________________
[ ] AI cost pass-through disclosed in writing?
    YES / NO / N/A (no direct costs)
[ ] Client consent obtained for AI use?
    Date: _______________________________

TIME ENTRY VERIFICATION
-----------------------
[ ] Entry reflects ACTUAL time spent?
    Recorded: _______ Actual: _______
[ ] No time billed for AI "time saved"?
[ ] Verification/review time separately tracked?
    AI draft time: _______
    Attorney review time: _______

AI TOOL COST ALLOCATION
-----------------------
[ ] Direct AI costs for this matter?
    Tool: _____________ Cost: $_______
[ ] Cost disclosure provided per engagement letter?
[ ] Cost reasonable and not duplicative of overhead?

NARRATIVE REVIEW
----------------
[ ] Time entry narrative accurate?
[ ] AI involvement described appropriately?
    (Not required for routine use, required for
    substantive impact on representation)

REASONABLENESS CHECK
--------------------
[ ] Total fee reasonable under RPC 1.5 factors?
[ ] Fee reflects actual work, not inflated hours?
[ ] Value delivered justifies fee charged?

DOCUMENTATION
-------------
[ ] AI usage documented in file?
[ ] Human review documented?
[ ] Any verification issues noted?

REVIEWED BY: _____________ DATE: _______

Notes:
_________________________________________
_________________________________________
_________________________________________

Time investment: 3-5 minutes per billing entry Why it matters: Billing disputes are malpractice claims waiting to happen. Document your compliance.

Quick Hits

Ethics Opinions:

  • Oregon Formal Opinion 2025-205 provides comprehensive AI guidance including billing
  • 23 states have now issued formal AI guidance
  • ABA Commission released working group recommendations (February 2025)

Billing Trends:

  • 47.8% of attorneys at large firms now use AI tools
  • Billable hour model facing structural pressure from AI efficiency
  • Fixed-fee arrangements increasing as AI reduces time uncertainty

Coming Next Issue:

  • M&A Due Diligence: Where AI Excels (and Where It Doesn't)

Ask the Community

The AI billing question affects everyone differently:

  1. Have you updated your engagement letters to address AI use and billing?
  2. For hourly billers: How are you handling the revenue impact of AI efficiency?
  3. For flat-fee practitioners: Has AI changed your pricing structure?
  4. Ethics question: Should AI-generated work product be disclosed to clients even when not legally required?

Reply to share. Anonymized contributions welcome.

TwinLadder Weekly | Issue #12 | July 2025

Helping lawyers build AI capability through honest education.

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