The shift is accelerating faster than many anticipated. Thomson Reuters data shows alternative fee arrangements rising from 20 percent of legal work in 2023 to a projected 70 percent by 2025. Legal technology spending jumped 9.7 percent in 2025 alone, driven by AI adoption. Yet despite these investments, Thomson Reuters' 2026 report documents stagnant realization rates—the gap between what firms bill and what they actually collect—suggesting the repricing has already begun. Approximately 90 percent of legal spending remains tied to hourly billing in a $900 billion market, but that concentration is fragmenting as early adopters of AI tools close the information asymmetry that once protected margins.
Attorneys should treat this as a structural shift, not a cyclical trend. Firms that continue pricing routine work hourly while competitors offer fixed fees will face client defection. In-house counsel should audit their outside counsel agreements now, pushing for transparent AI-driven cost reductions rather than absorbing them as margin. The window for gradual transition is closing; by mid-2026, repricing pressure will likely force rapid decisions on staffing, service delivery, and fee structures. The question is no longer whether the billable hour survives, but how quickly individual firms and departments adapt to what replaces it.