TL;DR

A&O Shearman’s partners have agreed this autumn to put about £820 million ($1.1 billion) into AI over five years, the firm told the FT in a report published on 5 November. Most of that is lawyers’ time rather than cash, since every practice must devote a minimum 3% of its billable time to building tools. For UK law firms, the headline is less the sum than how it is paid for: a firm with its roots in London is pricing AI as forgone fee-earning hours.

How the money works

Practice heads choose how to hit the target, by assigning some people full time or by spreading the work across associates and partners, and the firm will track the hours. Since this summer, AI usage has also fed into bonus and performance assessments for associates, partners and business staff. Tasks are weighted differently, with personal productivity distinguished from creating precedents and prompts others can reuse.

Global head of AI David Wakeling says this is about “redesigning the service completely”, not telling people to “use AI more”. He told the FT it is “a mistake to chase the latest AI model constantly”, arguing instead for systems built around a specific team’s expertise.

The total is the firm’s own figure, and the FT report gives no split between hours and technology spend. The same applies to ContractMatrix, the contract tool built with Harvey and Microsoft: Wakeling declined to share financials, but put revenue in the “tens of millions of US dollars”, up ninefold on the previous 12 months.

The billable hour remains

The firm’s most revealing number may be the smallest. Fixed-fee income has risen 15% in two years, partly thanks to AI, it says, yet most fees are still charged by the hour. In our view, that leaves an open tension: a firm paying for AI in billable time still earns most of its money from that same unit.

Rival approaches are in view: Freshfields struck a deal with Anthropic in April to co-develop products, and our June report covered warnings of AI overreliance at City firms. A&O Shearman, the FT notes, was Harvey’s first customer in 2022.

Looking Forward

In our view, tying pay to AI usage creates its own risk: what gets measured gets done, whether or not it improves client work. Clients will want to see whether savings reach them, and the fee mix is the figure to watch. UK firms without magic circle budgets may find the 3% model easier to copy than the headline number, because it needs a decision about time before it needs a cheque.