Key insights:

• • • Client expectations around AI have shifted from curiosity to accountability 鈥� Law firms are now being asked not just whether they use GenAI, but to prove how it delivers measurable cost savings on specific matters 鈥� a question most firms still cannot answer with hard data.

    • A growing contradiction defines firm/client relationships 鈥� As clients simultaneously demand AI adoption, require granular billing transparency, and in some cases refuse to pay for work performed with AI, they鈥檙e creating a pricing and value paradox with no clear resolution for their law firms.

    • The ROI challenge around AI is fundamentally a relationship problem 鈥� Driven by a widening gap between what clients expect to save and what firms can demonstrate, a rift has developed between clients and firms, which is compounded by the fact that few firms have a coherent GenAI strategy in place.

NEW YORK 鈥� opened with a keynote conversation featuring Mindy Kaling, the Emmy-nominated writer, producer, and Tony Award-winning playwright, who reflected on a career built around one enduring fascination: messy relationships. She talked about growing up wanting to write something like Sex and the City, only to end up helping to chronicle the internal politics of a Scranton, Pennsylvania paper company in The Office. She talked about her love of watching people navigate breakups and power struggles and then finding the comedy in it all.

If she’s looking for new material, the three standing-room-only panels that followed could keep her busy for seasons.

Not surprisingly, the relationship between clients and their law firms has always been complicated 鈥� bound by mutual need but strained by competing incentives. Now, that tension is starting to reach a rolling boil as many law firms can鈥檛 seem to agree on exactly how the gains of their use of AI tools, especially generative AI (GenAI), are going to be split, or even if they鈥檙e going to be split at all.

AI is no longer optional or experimental 鈥� and many clients simply assume it’s already in use.

Across three 成人VR视频-sponsored sessions during this week鈥檚 Legalweek event, that tension surfaced again and again 鈥� not as a future concern, but as a present reality. Today, clients are arriving at the table more informed, more demanding, and more willing to use AI themselves. Firms are investing heavily in AI, but they still are struggling to quantify returns in terms their clients will accept. With the rates that law firms charge increasing 鈥� averaging more than 7% growth in 2025, and likely to stay on that pace in 2026 鈥� it sets up a collision with savings mandates that have yet to produce a shared framework for measurement. And underneath all of it, a fault line is building pressure 鈥� one that, as Ellen Hudock, GSK’s Chief of Staff Legal and Compliance, is not being resolved.

In 2026, GenAI has become the thing neither side can stop talking about, the thing both sides agree matters, and the thing that neither side can agree on how to handle.

This is not the story of an industry resisting change. Nearly everyone at Legalweek agreed that AI adoption is no longer optional. The harder questions, however, and the ones that echoed through every panel, every audience comment, and every hallway conversation is who benefits, how much, and who gets to decide.

Proving AI鈥檚 path to saving clients money

Three years ago, the client question was simple: Are you using AI, and would you use it on our matters? In 2026, that question has matured, and the new version is much harder to answer.

GSK鈥檚 Hudock described the shift bluntly during one panel. GSK is learning as much as it can from its outside law firms about how they’re deploying GenAI, she said, and are always looking to partner on new use cases. However, she noted that the conversation has moved well past curiosity. The pressure to deliver savings 鈥� internally and externally 鈥� is intense, and the questions have sharpened accordingly: What are you using? How are you using it? How does it generate savings?

Clearly, firms are hearing this message. Matthew Beekhuizen, Chief Pricing and Innovation Officer at Greenberg Traurig, noted that the pace of AI-driven change has accelerated sharply, particularly since October 2025. Clients who had previously said nothing about AI are now asking how it’s being used on their specific legal matters.

Indeed, AI is no longer optional or experimental 鈥� and many clients simply assume it’s already in use, said Mark Brennan, a partner at Hogan Lovells.

The trouble is that firms still can’t give clients the answer they most want to hear. When pressed on how much cost savings AI is actually achieving, the response from the firm side is often: We’re still gathering the data. Mitchell Kaplan, Managing Director of Zarwin Baum, acknowledged the industry is still in the anecdotal phase of measuring returns.

Sergey Polak, Director of Technology Innovation at Ropes & Gray, described the current state of ROI measurement as being based more on conventional wisdom rather than hard evidence. Hudock’s response to this was pointed: That’s exactly the situation in which clients want to partner. Supply the work, and let’s figure it out together.

The contradictions in the room

If the evolution in client expectations were the whole story, it would be manageable; however, the reality is messier than that, because clients are not speaking with one voice.

During another panel, Barclay Blair, Senior Managing Director of AI Innovation at DLA Piper, laid out the contradictions in sharp relief. Blair, who introduced himself as “the extremist on the panel,” is seeing clients who expect AI to be used and are asking how it will achieve specific savings targets. At the same time, many law firms are still receiving directives that feel lifted out of 2023, such as demands for warrants that models are unbiased, and declarations that firms cannot use AI without explicit permission. In 2026, both postures are arriving in the same inbox.

When pressed on how much cost savings AI is actually achieving, the response from the firm side is often: We’re still gathering the data.

The billing conversation captures this tension perfectly. Polak of Ropes & Gray noted that clients are beginning to ask for line-item transparency on invoices 鈥� was AI used on this task, and how much time or money did it save? Simultaneously, as Blair observed, other clients are issuing guidelines stating they won’t pay for certain services if performed by AI. This isn’t clients barring AI outright; rather, its clients demanding firms adopt AI, then using that very adoption as leverage to negotiate a decrease in costs. Not surprisingly, this becomes a self-reinforcing cycle with no obvious exit 鈥� at least, not for law firms.

Meanwhile, Zarwin Baum鈥檚 Kaplan raised a billing paradox that GenAI is making harder to ignore. As AI compresses work that once took hours into minutes, an itemized hourly bill increasingly tells a story that undersells the value delivered. His proposed answer: a return to the single line-item services rendered bill, which actually predated the billable hour. Kaplan then asked whether clients would actually accept it.

The advice to the law firms in the room from DLA Piper鈥檚 Blair was more blunt: Don’t wait for the client to set the terms. Lead the conversation about AI ROI and set the meeting. As Blair described, this is now the time to negotiate how value gets shared, while both sides are still figuring out the rules 鈥� not after one side has already written them.

The pressure hasn’t yet found a release valve

None of these tensions exist in isolation. They are symptoms of a structural mismatch between what clients need from the economics of legal AI and what firms are currently able to demonstrate 鈥� and the numbers suggest the legal industry is less prepared for this conversation than it thinks.

As 成人VR视频’ Steven Petrie pointed out, those law firms with a GenAI strategy are 3.9-times more likely to achieve ROI than those without one. Yet, only 22% of firms have such a strategy, Petrie said. That gap 鈥� between the firms that are thinking systematically about AI’s role in their business and those that aren’t 鈥� may turn out to matter less than the gap between what clients expect to save and what firms can show they’ve delivered.

The ROI question, in other words, is not just a measurement challenge, rather it鈥檚 a relationship challenge. And like all the best relationship drama, the tension doesn’t come from disagreement about whether the relationship matters. It comes from both sides wanting something slightly different from it 鈥� and neither being quite sure if both sides can get what they want.

If Mindy Kaling is still looking for complicated relationships to write about, she knows where to find them. This one鈥檚 going to need a few seasons to work itself out.

You can find more of here

Key insights:

• • • Rate growth remains at all-time highs 鈥� While this is good news, firms also need to plan for what may lie ahead when that growth cools.

    • Potential financial pressures are accelerating听鈥� Strong demand and rates are driving growth in revenue and profitability, but firms need to keep an eye on realization and expenses which are flashing troublesome signs.

    • A strong 2025 brings no promises for 2026 鈥� This year鈥檚 momentum is an opportunity to plan for the next shift in the market.

Many law firms may be preparing to pop champagne corks in a few weeks to celebrate what is shaping up to be a record-setting 2025. As firms close the books on the year, however, it may be prudent to not only celebrate, but also to prepare themselves for potential headaches that could start in the new year after the celebrations die down.

The 成人VR视频 Institute鈥檚 recent Law Firm Rates Report 2026 laid out the paradox that is fueling the end-of-year party vibes: Law firms now are enjoying unprecedented pricing power and demand growth; but at the same time, the underlying economics reveal potentially destabilizing pressures that may await them in 2026. And the recent Law Firm Financial Index (LFFI) for the third quarter of 2025 found, those pressures continue to intensify.

Tectonic pressures growing

While the Rates Report raised fundamental questions about what鈥檚 driving rates higher and why long-held beliefs about what constitutes better rate performance may be incorrect, the Q3 LFFI likened this year鈥檚 surging demand and rate growth to rising tectonic pressures that can both lift mountains but also fracture previously stable ground.

Firms have arguably never had it better when it comes to rates. Worked rates have climbed steadily for the past four years, reaching levels that are not only historical highs, but are also easily outpacing inflation, representing genuine growth in pricing power. Coupled with strong demand, many firms are experiencing a windfall in revenues and profits this year.

And the upward momentum continues to gain strength. Demand growth accelerated to 3.9%, according to the Q3 LFFI, even as worked rates held steady at Q2鈥檚 all-time high of 7.4%.

Hiding cracks in the foundation?

Beyond questions about whether the current growth in demand and rates is sustainable, there are signals that the impressive performance may be masking warning signs of potential trouble ahead.

First, expenses are now rising faster than rates, and expense growth is accelerating. Direct costs are up 8.5% year-over-year, while overhead expenses climbed 7.5%, according to Q3 LFFI data. This is an extremely risky proposition because expense growth is generally sticky and hard to control, especially during intense growth periods because firms feel they need to continue feeding the human capital and overhead infrastructure that is driving growth.

However, history teaches a harsh lesson: Revenue can vanish overnight, but expenses rarely do.

Second, realization is wobbling in troubling ways. Firms saw an unseasonal downtick in collection realization in Q2, counter to normal seasonal patterns in which realization typically improves throughout the year. This wobble may feel uncomfortably familiar to anyone who survived the aftermath of the global financial crisis that began in 2007. While Q3 showed some recovery in realization, the long-term trend since 2021 has been a slow decline, which means that despite record standard rate increases, the percentage of those rates actually collected continues to erode.

Third, work continues to shift down market. The Rates Report noted that corporate clients with annual revenues of more than $10 billion saw their effective paid rates decline at a double-digit rate in 2025, even as law firms reported average worked rate increases of 7.4%. This reflects how price-sensitive matters had been shifted towards smaller, lower-cost providers while the largest firms seek to retain higher value work.

The challenge then becomes for law firms to identify which matters justify premium pricing and which are vulnerable to downstream migration. Strategic partnerships with smaller firms or alternative legal providers could potentially be an avenue for larger firms to retain client loyalty while protecting their margins.

Looking ahead

While many law firms are enjoying the fruits of a bountiful 2025, it鈥檚 not too early for firm leaders to turn their attention to 2026 and determine what their strategies will be. This is no time for complacency or an assumption that next year will merely be a replay of 2025. Instead, firms need to start mapping contingency plans in case demand or pricing falter, expense growth accelerates further, or work continues to flow downstream to lower-cost law firms.

The flashing lights in the distance may turn out to not be celebratory holiday displays but rather caution signs that lie in wait for the year ahead. The warning lights aren’t showing red yet, but they’re definitely moving from a festive green to a cautionary amber.

You can download a copy of the 成人VR视频 Institute鈥檚听Law Firm Rates Report 2026 here

Key takeaways in Q3:

• • • Strong Q3 performance 鈥� The Law Firm Financial Index (LFFI) score increased by 8 points compared to Q2 2025, highlighting a quarter of robust demand and industry resilience.

    • Client-driven demand shift 鈥� Midsize law firms led the increase in transactional practices, while Am Law Second Hundred firms dominated counter-cyclical growth, driven by large corporate clients shifting work to lower-rate providers.

    • Strategic caution advised 鈥� Persistent risks, rising costs, and unresolved long-term challenges mean firms must remain cautious and strategic.

Law firms demonstrated remarkable performance through a geopolitically tense third quarter of 2025, as clients increasingly sought legal guidance to navigate market complexity and global uncertainty. This surge in demand propelled the 成人VR视频庐 Institute鈥檚 Law Firm Financial Index (LFFI) score to 63 for the third quarter, marking a notable rise from earlier in the year.

Jump to 鈫�

Q3 2025 Law Firm Financial Index

Yet, as a closer look reveals, the industry鈥檚 strong performance sits atop tectonic forces that, while driving change, also carry the potential to disrupt long-term stability.

Firms on shifting ground

At the core of this shift is a surge in client activity that鈥檚 breaking records 鈥� and coinciding with a period in which the price for legal services is rising like never before. Transactional practices are thriving, with mergers and acquisitions, corporate law, real estate, and tax practices seeing a marked uptick in demand. Midsize firms have stepped into leadership roles within these practices, demonstrating agility and resilience as they capture fresh business opportunities and respond swiftly to evolving client needs.

However, this isn鈥檛 just a story of expansion. The competitive landscape is being redrawn as clients reassess their legal partnerships. Many are prioritizing value and flexibility, shifting work to firms that offer more competitive pricing 鈥� a trend we鈥檝e noticed for the past year or so. This is obviously working to the advantage of those firms seeing significant demand growth as a result, but the more expensive law firms are also seeing boosted performance, as the trend helps them secure higher rates on the work they do maintain.

In response to this rising demand, many firms 鈥� especially those in the Midsize and Second Hundred tiers 鈥� are investing heavily in talent and technology. Even as the cost of hiring continues to climb, some firms are broadening their search beyond traditional legal roles to include specialists in technology, data, and knowledge management. These strategic hires are aimed at boosting operational efficiency and enhancing client service in an increasingly AI-driven environment.

With overhead rising and competitive pressures mounting, law firms must strike a careful balance between strategic investment and disciplined cost management.

Emerging fault lines of legal strategy

As the Q3 2025 LFFI report shows, the current environment is marked by both promise and risk. Economic and geopolitical uncertainties loom large, and the next shake-up could be just around the corner. Law firms are enjoying a period of robust growth certainly, but the ground beneath them remains unsettled. The ability to navigate uncertainty, anticipate change, and respond with agility will be critical in the months ahead.

For law firm leaders, partners, and strategists, this is a moment to reflect on the lessons of the past and to prepare for the challenges of the future. The industry rewards those who can balance ambition with caution, invest wisely in talent and technology, and stay attuned to the evolving needs of clients. A firm鈥檚 success will depend on its leaders鈥� ability to rise above the turbulence and seize the opportunities that lie ahead.

As the legal landscape continues to shift, one thing is clear: The forces reshaping the industry demand careful navigation, and firms must now approach the path forward with greater caution and strategic foresight.

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a full copy of the 成人VR视频 Institute’s “Q3 2025 Law Firm Financial Index” by filling out the form below:

Key takeaways:

• • • The legal market is experiencing uneven growth 鈥� While some law firms are emerging as performance leaders due to their effective use of technology and client management, others risk falling behind.

    • Law firms are increasingly investing in AI technology鈥� They鈥檙e doing this in order to stay competitive, meet client expectations, and address concerns about being left behind as clients themselves adopt advanced tools.

    • Clients now expect law firms to use AI 鈥� Clients want this not just for efficiency鈥檚 sake, but so that firms better understand their clients鈥� businesses and provide more valuable, tailored guidance and solutions.

WASHINGTON, DC 鈥� As the opening session of the 成人VR视频 Institute鈥檚 24th Annual Law Firm COO & CFO Forum began, presenters painted a somewhat rosy picture for the state of the legal market. After all, legal demand is climbing as are billing rates, which is a net positive overall, explained Jen Dezso, Director of Client Relations at 成人VR视频.

鈥淚t鈥檚 a pretty good time to be a law firm,鈥� Dezso said. 鈥淢ore so than we thought it would be at the beginning of the year.鈥�

Jump to 鈫�

The 24^th Annual Law Firm COO & CFO Forum Executive Summary

Despite the good times, however, there are darker clouds behind the silver linings. For example, all this growth isn鈥檛 being distributed evenly, and this bifurcation seems to be driving some firms into a group of performance leaders and others into a group of laggards. 鈥淧reviously, the rising tide lifted all boats,鈥� Dezso said. 鈥淭his time, we鈥檙e not seeing that.鈥�

Other metrics, such as realization and expenses, are moving 鈥� albeit slowly and tentatively 鈥� in the wrong direction. This hasn鈥檛 really been seen since 2008-鈥�09, which were not great years for law firms, she noted, adding that this may add a wrinkle of worry to forecasts for the current fourth quarter and for next year.

Still, there are a lot of positives, Dezso said, especially around law firms鈥� opportunities for growth and the largely optimistic view of many large corporate clients. Indeed, recent research shows that about one-third of corporate clients 鈥� including 41% of those with annual revenues of $1 billion or more 鈥� plan to increase their legal spend over the next year.

As the big questions shift

The annual COO & CFO Forum attracts not only its namesake executives and corporate clients but an alphabet soup of C-Suite roles that range from Innovation and Legal Operations Officers to Chiefs of Strategy and Growth.

鈥淚t鈥檚 a pretty good time to be a law firm. More so than we thought it would be at the beginning of the year.鈥�

Many of the legal professionals gathered for this event in the past may have been seeking answers to the age-old questions that puzzle lawyers every time they gather: What do clients want and how can I best deliver it to them? Now, however, those questions have evolved, quickly morphing during this time of AI-driven innovation. Today, the question is: How can I best use advanced technology to not only give my clients what they may not know they need, but also to demonstrate the value of what I am offering?

Not surprisingly, top of mind for many speakers and attendees were the twin and intertwined concerns of technology investment and client management. Indeed, if the legal market is going to become rocky over the next year, these questions around tech investment and implementation will become more critical than they even are now.

The AI question鈥� and answer

During a panel on formulating business strategy during turbulent times, one panelist said that it wasn鈥檛 that long ago that some corporate clients said they didn鈥檛 want their outside law firms using AI, whether out of fears over data security or potentially damaging hallucinations. Now, however, it鈥檚 not whether an outside firm will use it, but how and to what impact on service and price. 鈥淢ost clients want their outside firms to use AI because their corporate teams are already using it,鈥� the panelist noted.

In fact, several panelists said it was this pressure 鈥� fears of being left behind by their own clients 鈥� that is pushing more law firms to expand their investment in AI-driven tools and solutions. Of course, that is only part of the battle. 鈥淎I is already here,鈥� another panelist explained. 鈥淏ut the next part of this equation is how law firms are going to invest in training our lawyers to use this technology to clients鈥� advantage.鈥�

How to train lawyers to leverage the most of a firm鈥檚 investment AI is a key question that hinges not only on aspects of lawyer training, hiring, and retention, but also on aspects of AI implementation and client management.

鈥淲e don鈥檛 have the advantage any more of walking the dog slowly on this,鈥� said another law firm panelist, adding that firms need an implementation strategy to get ahead of the game in areas such as pricing, because clients are already thinking about that. 鈥淭hey want their law firms to use it, for example, to look at trends in business data and create specific solutions for clients while keeping their data secure.鈥�

A little understanding… okay, a lot

In fact, that鈥檚 what ties law firms鈥� use of AI so closely to issues of client management: Clients, more than anything, want their outside law firms to more closely understand them, their business, their market, and their internal operations. Only in this way, clients say, can their outside lawyers offer the best service and provide the best guidance 鈥� and if AI gets them there faster, so much the better.

鈥淲e want to see that our outside counsel does not just understand where we, as a business, are now, but rather that they understand where we want to go,鈥� said one corporate client, noting that these relationships should develop into true partnerships. 鈥淚f you help us grow, we can help you grow.鈥�

Again, many corporate clients and their outside firms now see that the pathway to becoming true partners runs directly through AI. It is this advanced technology that can best and most rapidly allow firms to deepen their understanding of clients鈥� businesses and needs while providing the metrics that can help firms demonstrate the value they are bringing to clients.

As these two factors 鈥� AI investment and client management 鈥� continue to swirl around together, each influencing and impacting the other, it鈥檚 the firms that can best use the implementation of AI-driven technology to understand their clients and articulate the value of the services they can offer that will end up in the performance-leader group, rather than in with the laggards.

You can download

a full copy of the 成人VR视频 Institute’s “The 24^th Annual Law Firm COO & CFO Forum Executive Summary” by filling out the form below:

Key findings:

• • • Expense growth is accelerating 鈥� Both direct and overhead costs are rising faster than in Q1, posing a potential risk if revenue growth slows.

    • Law firms are adapting strategically 鈥� With Am Law 100 firms leveraging pricing power over headcount expansion, other firm segments are investing in technology and smarter resourcing to manage costs.

    • Overhead spending trends are shifting 鈥� Increased investment in tech and benefits, and a decline in occupancy costs are signaling a move toward hybrid work and operational efficiency.

The story of 2025 has been the ongoing trade war, which has driven uncertainty around global economic and policy matters. Coupled with rising geopolitical instability, the situation has left economists and business leaders holding their breath. Yet the US legal market鈥檚 second quarter was unexpectedly calm 鈥� and surprisingly prosperous, according to the 成人VR视频 Institute鈥檚 Law Firm Financial Index for Q2, which rose as more clients turned to their outside counsel for guidance.

This rise can be attributed to an increase in legal demand of 1.6% and robust worked rate growth of 7.4%. Together these gains offset a 1.3% productivity decline. While these topline gains are encouraging, law firm leaders should remain vigilant on the expense side.

Both direct and overhead expenses saw a modest increase in growth this quarter compared to Q1, rising to 7.9% and 6.6% respectively, continuing a trend underway since the second half of 2024. Revenue growth is still outpacing expense growth, keeping profits strong, but any slowdown in revenue could leave firms in a lurch, just like we saw in 2022.

After the robust level of demand and rate growth of the first half of 2025, an increase in spending might have been expected heading into the rest of the year, as law firms continue to chase the opportunities in front of them. However, the broader instability shows no signs of easing, suggesting continued volatility across the global market that will eventually impact firms.

This may leave firms stuck between a rock and a hard place 鈥� the strength of the legal market offers opportunities for growth; however an increase in spending in that push for growth could leave firms overexposed to a slowdown if clients may become reluctant to spend. This means firms should consider ways of slowing expense growth in other areas, in order to be able to continue to invest in their growth strategies.

Breaking down direct expense growth

When looking at how firms can limit their direct expense growth, one option that should be considered is to adopt the same strategy observed among Am Law 100 firms since 2023. While direct expense growth is at 7.9% for the market, the Am Law 100 firms saw a slower growth rate at 6.9% as these firms have limited their headcount growth.

Reducing hiring classes and stricter performance management is one of the easiest ways to slow direct expense growth, but it has opportunity costs. As previously mentioned, legal demand remains strong so law firm leaders will not want to miss out on the chance to increase their market share. Indeed, the Am Law Second Hundred and Midsize firms have seen much greater success by seeking to expand their market share in recent years.

Other options such as reducing compensation packages or cutting benefits are unlikely to be successful solutions for firms because those solutions may see talented individuals leave and dampen firm morale amid an ongoing talent war. With very little wiggle room on the direct expenses to maneuver, one way to slow expense growth will rely on leveraging process improvements, technology, and smarter resourcing 鈥� not pay cuts.

Changing overhead expense trends

Over the past three years, the proportion of firms鈥� overhead expenses has seen shifts as well, indicating a change in priorities. The proportion going to occupancy and office expenses has been trending downwards, while technology and benefits expenses have been on the rise.

Rising technology spend will not surprise firm leaders; it鈥檚 widely seen as essential to long-term efficiency and profit margins. In fact, many law firms have shown a willingness to invest, especially in AI driven tools. Certainly, leadership will want to see a return on these investments 鈥� and if results are not produced or are not at the levels expected, firms could be tempted to cut their losses and scale down investment into technology, especially in the event of an economic downturn. Given the arms race brewing around these tools, however, such pullback may reduce the long-term competitiveness of the firm.

Occupancy鈥檚 share of overhead expenses has decreased by 1.9 percentage points in recent years, suggesting that even while firms pushed for a full return to the office, commercial real estate costs have not kept up with revenue growth. With long鈥憈erm office leases up for renewal and negotiation, leaders may again embrace a shift toward broader hybrid work to further increase those savings.

Support staff compensation has remained at almost one-third of all overhead expenses, maintaining essentially the same proportion of overhead expenses over the last three years. That does not tell us the full story, however, as support staff covers several different functions for law firms and the growth and the changes in those areas tell us about what business functions firms are prioritizing.

The 成人VR视频 Institute鈥檚 Staffing Ratio Survey indicates that the growth of full-time equivalent (FTE) support staff per lawyer mirrors broader overhead trends 鈥� one which emphasizes technology, business development, and management roles. Firms are focusing on improving internal business processes to better support lawyers, with the aim of enhancing efficiency and quality across their operations. At the same time, functions that are declining are in more manual-task roles such as word processing and research, signaling that technology investments have been delivering tangible results to the bottom line. This shift is particularly significant because word processing staff constitute the largest share of support staff at 28%, down from 36% in 2016.

What is next for the legal market?

Despite 鈥� and partly because of 鈥� a turbulent economy, the US legal market remains resilient, posting another quarter of continued demand growth and robust worked rate increases. Yet the memory of rapid expense inflation is fresh for law firm leaders, and with ongoing trade tensions and geopolitical uncertainty, the threat is real.

As firms choose expense strategies, they must balance supporting short-term opportunities with long鈥憈erm sustainability. Actions such as cutting headcount can lift near鈥憈erm margins but risks leaving firms under鈥憆esourced when growth returns, given the time required to ramp up headcount. Data suggests that firms are willing to invest in process and productivity improvements, which may increase near鈥憈erm pain to secure longer鈥憈erm gains.

In the second half of 2025, leadership decisions made amid volatility will be pivotal. Firms that pair disciplined cost control with smart, forward-looking investment will be best positioned not only to weather the pending storm but to accelerate when conditions improve.

You can get a fully copy of the听成人VR视频庐 Institute鈥檚 Law Firm Financial Index听for the second quarter of 2025 here

Key insights:

• • Benefits of cooperation 鈥� Cooperative purchasing can significantly streamline procurement and level the playing field for smaller government agencies.

  • There are various models to follow 鈥� Different cooperative models offer distinct value: piggybacking improves access to competitive pricing with flexible adoption, while joint solicitations aggregate demand to secure more aggressive discounts by committing volume across multiple agencies.

  • Support is needed, and questions remain 鈥� Policy and institutional support are accelerating adoption, but trade-offs remain. State-backed entities and regional cooperatives expand contract access and scale, yet questions persist about true cost savings.

As of 2019, $4.45 trillion was spent across all levels of government, 50% of that spent by state and local entities, according to the U.S. Congressional Budget Office. These agencies have a fiscal responsibility to taxpayers to ensure that they receive competitive pricing on the goods and services they purchase.

Larger government agencies may have sophisticated procurement divisions with professional buyers and individuals responsible for soliciting and negotiating contracts in the best interest of the municipality. Meanwhile, smaller municipalities, which are less likely to have standalone procurement divisions, often receive less competitive pricing and haven鈥檛 had the staff capacity or expertise to negotiate the best terms for their purchasing needs.

Fortunately, new cooperative purchasing models are on the rise, and that could level the playing field between local governments no matter their size, while they also streamline procurement processes and save taxpayers money.

Cooperative procurement basics

Cooperative procurement takes two main forms: .

Piggybacking, the more common form of cooperative procurement, is when one agency utilizes another agency鈥檚 contract (even though they were not part of the original solicitation process.) This piggybacking allows for one agency to receive competitive pricing based on another agency鈥檚 solicitation efforts; and because suppliers are not guaranteed volume of purchase, discounts are not the most aggressive in this format.

Joint solicitation is less frequently used and occurs when two or more agencies combine their purchasing needs into a single solicitation 鈥� the equivalent of buying in bulk. Each agency is bound by the contract, but one entity is typically the lead agency. This offers suppliers an opportunity to guarantee larger purchase minimums and command more aggressive pricing discounts.

There are also membership-based entities that are helping to make government procurement easier and quicker, especially for smaller entities.

For example, is a Texas-based technology engine that connects government agencies and suppliers to facilitate peer engagement for public sector entities. Their leadership described a traditional local government solicitation process as lengthy, taking anywhere from 6 to 9 months for agencies to identify a need, solicit bids from suppliers, evaluate, and then execute a contract. The timeframe is streamlined up to 60% for Civic Marketplace users by accessing templates for solicitations, cooperative contracts, shortcuts to connect with pre-vetted vendors, and centralized vendor data. This platform also works to address another barrier of local government purchasing 鈥� the inequity between agencies of different sizes and sophistication.

New cooperative purchasing models are on the rise, and that could level the playing field between local governments no matter their size, while they also streamline procurement processes and save taxpayers money.

While Civic Marketplace is membership-based, it is not tied to a regional geography. Members can access volume-based pricing by aggregate demand across cooperative members as well as accessing shared contract language. States including Michigan and Minnesota have created special government entities to provide access to cooperative purchasing mechanisms.

Overall, these methods offer government agencies, especially smaller ones, a way to remain compliant with regulations, award contracts impartially, and remain transparent, all while engaging with peer communities with similar needs that can help agency procurement professionals foster a better understanding of pricing, scope of work, and vendor relationships compared to a wholly decentralized approach to purchasing.

Further, several state legislation and executive actions have also driven cooperative development. In Minnesota, for example, is a membership-free cooperative enacted by the state legislature, and public sector entities in the United States and Canada can access shared contracts and piggyback off them at no charge. Suppliers are also able to access the network at no fee, although a percentage of the contract fee is paid back to Sourcewell when a contract is utilized.

In Michigan, the (MMSA) was created as a virtual city by the governor鈥檚 office in 2012. The entity provides a small number of local municipalities within Michigan with procurement for very specific services including managed IT, cybersecurity, electronic payments, and more. MMSA has received positive feedback from vendors, noting that the streamlining of this process connects them with more prospective clients and allows them to flatten their pricing.

What are public procurement鈥檚 future needs?

The need for automation and streamlining in public procurement is evident, as the estimates that the size of the public sector鈥檚 purchasing manager workforce will lag behind private sector growth over the next decade by 1.3%. Fortunately, cooperative purchasing will enable smaller government agencies to be more agile with limited resources, and using pre-vetted, competitively solicited contracts will save them time and money.

Yet, the evolving space of cooperative procurement is not without criticism. Some argue that cooperative procurement is more about convenience than it is about realizing cost savings, and others argue that public procurement is a space that will likely be dominated by private sector players that are compensated off the top of executed contracts, costing taxpayers more than they might have paid otherwise. So far, there is limited data to speak to whether cooperative procurement opens opportunities for small, diverse, or local vendors 鈥� but anecdotally, it appears that broad online process benefits larger vendors who can deliver at scale.

As government agency leaders evaluate cooperative procurement for their own internal processes, they must weigh what is more important for them: convenience and time savings, realizing true cost savings, or directing more procurement dollars toward local and diverse-owned public suppliers.

You can find out more about the challenges that government agencies face here

Key highlights:

• • • “Nothing says strategic priority like funding鈥� 鈥� Ioannou’s most powerful insight is that directing capital through a sustainability lens is what enables companies to build lasting strategic resilience.

    • Progress typically involves tension 鈥� Acknowledging trade-offs across cost, timing, and stakeholder impact allows organizations to navigate complexity with greater clarity, reinforce internal alignment, and demonstrate that sustainability is being pursued through deliberate, not decorative, choices.

    • Preparing for difficult obstacles 鈥� The challenge is no longer whether sustainability matters, but what we are willing to do when it becomes inconvenient. Ioannou鈥檚 perspective challenges leaders to build resilient structures and processes that can withstand hostile terrain rather than fair-weather sustainability programs.听

In recent years, Environment, Social & Governance (ESG) issues have shifted from a period of mainstream momentum to an era marked by skepticism and backlash. For Prof. Ioannis Ioannou of the London Business School, the question is no longer whether sustainability matters. 鈥淭he real challenge,鈥� he writes in , 鈥渋s what we are willing to do when it becomes inconvenient to say so.鈥�

Unlike some typical ESG toolkits that focus on messaging or compliance, this playbook calls for deeper strategic reflection. It is designed for leaders who remain committed, even as external validation fades.

Here are three actions from the playbook that can help organizations move from performative commitments to those initiatives that can have a more enduring impact.

Action #1: Treat capital allocation as the litmus test of strategic intent

鈥淣othing says strategic priority like funding,鈥� says Prof. Ioannou, noting that capital allocation is where strategic commitment becomes visible. When sustainability priorities shape where capital flows 鈥� what gets funded, delayed, or redesigned 鈥� they move from rhetorical statements to structural choices.

This goes beyond simply adding ESG metrics to project evaluations. Indeed, sustainability must be embedded into the logic and architecture of investment decisions, Ioannou emphasizes. 鈥淚t needs to be present from the start 鈥� at the first gate 鈥� not treated as a reputational check once everything else is locked in.鈥� That includes integrating environmental and social criteria into how initiatives are assessed, which risks are priced in, and how long-term returns are understood.

鈥淚f ESG appears in reporting but doesn鈥檛 shape executive compensation, capital approvals, or promotion decisions, it鈥檚 a signal that the organization hasn鈥檛 yet internalized it,鈥� Ioannou explains, adding that financial and non-financial outcomes should be tied together across both individual and institutional metrics.

For many organizations, this shift requires challenging a deeply ingrained capital allocation mindset. 鈥淲e鈥檝e trained generations of business leaders鈥� to default to short-term financial returns,鈥� Ioannou says. 鈥淭hat logic often crowds out longer-term investments in resilience, innovation, and systemic adaptation.鈥� Overcoming this legacy of short-termism means rethinking how value is defined, especially under conditions of ecological, social, and geopolitical disruption.

Action #2: Make trade-offs visible and treat them as part of serious strategy

鈥淪ustainability work that avoids trade-offs isn鈥檛 strategy 鈥� it鈥檚 storytelling,鈥� says Ioannou. Indeed, a defining mark of credible ESG leadership is the willingness to address the inherent tensions involving costs, timelines, stakeholder impacts, and business models and to engage those conflicts directly, rather than trying to smooth them away.

Organizations frequently frame sustainability as universally beneficial. While that instinct may serve communications goals, it does little to strengthen strategic capacity. 鈥淩eal progress almost always introduces tension,鈥� Ioannou explains, adding that confronting these trade-offs should be made routine. 鈥淟eaders should ask: What shifts as a result of this decision? Who carries the burden? What timelines change, and what expectations must be reset?鈥�

These answers could help bring clarity into operations by translating difficult decisions into language that invites accountability. 鈥淚f a supplier shift increases costs by 8% but reduces water usage by 30%, that鈥檚 not a dilemma to hide. This is a strategic choice to make transparently,鈥� he explains.

Organizations need to normalize this mindset through scenario planning, making ESG-informed business cases, and promoting cross-functional alignment, Ioannou recommends. When sustainability decisions live only in specialist teams, they remain abstract; but when they鈥檙e interrogated through operational, financial, and reputational lenses, these trade-offs become manageable.

鈥淚t鈥檚 easy to achieve consensus when the work stays abstract,鈥� he adds. 鈥淭he question is what happens when hard choices emerge, such as when costs surface, when values compete, and when speed slows down? Navigating these tensions openly is what makes sustainability real 鈥� it鈥檚 how leadership moves from messaging to meaning.鈥�

Action #3: Distribute ownership and build governance depth across the business

鈥淩esilience doesn鈥檛 come from the brilliance of one ESG leader 鈥� it comes from what remains when the spotlight moves on,鈥� says Ioannou.

This means that boards of directors must develop the fluency to govern sustainability not as an adjacent risk, but as a core strategic focus. 鈥淒irectors don鈥檛 need to master every metric, but they need to understand how climate, inequality, and systemic disruption affect the business over time,鈥� he says, adding that boards need to treat ESG competence as a prerequisite for their directors in order to offer meaningful oversight. And this needs to be supported by tailored training, engagement with scenarios, and deepened dialogue around risk and resilience.

However, governance doesn鈥檛 stop at the boardroom. 鈥淪ustainability can鈥檛 thrive as a silo,鈥� Ioannou explains. 鈥淚t must be integrated into how the organization plans, executes, and adapts鈥� This includes embedding ESG considerations into stakeholder engagement, procurement processes, product development, capital budgeting, and performance management.

Other key elements of this, he notes, is identifying internal champions and the importance of succession. 鈥淟ook beyond the sustainability team. Who in finance, HR, or operations has the influence and insight to make sustainability actionable? 鈥f the work vanishes the moment someone leaves, then it was never embedded. The question isn鈥檛 just what you鈥檝e achieved 鈥� it鈥檚 what you鈥檝e institutionalized,鈥� he says.

As organizations seek to build governance structures that enable sustainability and continuity they also need to create lasting initiatives to support this strategy 鈥� such as ESG committees with cross-functional mandates, internal working groups linked to business planning cycles, and incentive systems that reward collaborative delivery 鈥� and foster the conditions under which the work can scale and endure.

鈥淲hen the political noise fades, what matters is what you鈥檝e built 鈥� structures, practices, and decisions that hold shape under pressure,鈥� Ioannou concludes. 鈥淭hat鈥檚 the difference between performative ESG and resilient leadership.鈥�

You can find more information in our听Sustainability Resource Center听here

Key insights

• • • Data analytics empowers full-population testing 鈥� Leveraging data analytics is enabling audit firms to move beyond sampling and achieve deeper risk identification, fraud detection, and process optimization.

    • Audit efficiency and client value increase 鈥� Audit firms are advancing through the use of automation, real-time dashboards, and analytics-driven insights that support strategic business advisory, not just compliance.

    • Successful adoption requires investment 鈥� Firms need to put their resources into technology, data governance, and auditor upskilling, which would position firms to lead in a future of continuous, AI-enhanced auditing.

Outside audit firms are experiencing a profound shift as data analytics becomes central to the profession. Leveraging advanced technologies to analyze entire data sets, rather than just samples, enables auditors to deliver more accurate, efficient, and comprehensive engagements. For firms committed to growth and innovation, the use of data analytics is a vital pathway to better risk identification, optimized fieldwork, and expanded advisory capabilities.

Strategic benefits for audit firms

Modern clients expect more from their outside auditors than basic compliance. They look for insights that can help them make strategic business decisions. The use of data analytics enables auditors to go beyond verification, drawing out meaningful observations from trends, anomalies, and key performance indicators. This approach allows firms to provide valuable advice on emerging risks 鈥� such as those in supply chains or revenue cycles 鈥� and pinpoint operational bottlenecks or cash-flow inefficiencies. By viewing audit data through a strategic, advisory lens, auditors can become trusted business partners that deliver value far beyond traditional compliance.

Indeed, audit efficiency also is significantly enhanced through analytics. Fieldwork, often the most labor-intensive part of the audit, is streamlined as automation handles the reconciliation of large volumes of transactions, invoices, and payments. Visual dashboards empower teams to quickly identify high-risk areas, focusing attention where it matters most, rather than relying on fixed checklists. This data-driven prioritization results in more focused audits, broader coverage, and reduced risk of oversight. The time saved can then be invested by audit professionals in addressing higher-order concerns or engaging in more meaningful discussions with clients.

Fieldwork, often the most labor-intensive part of the audit, is streamlined as automation handles the reconciliation of large volumes of transactions, invoices, and payments.

Further, by incorporating analytics into risk management, auditors can transform their ability to detect fraud and other irregularities. Predictive models can highlight patterns that warrant closer scrutiny, such as unusual journal entries or transactions that were processed at odd hours.

These kinds of anomalies are often missed by traditional sampling methods. In an environment in which regulators and clients are increasingly vigilant about fraud, having the tools to identify the early signs of risk not only strengthens audit integrity but also builds client trust and confidence in the firm鈥檚 capabilities.

Implementation considerations for audit firm leaders

Adopting an analytics-driven audit approach requires more than new tools, it demands a comprehensive strategy. Technology infrastructure must be modernized to support secure, integrated data management and visualization. Ensuring data quality is critical, as the accuracy of analytics hinges on structured, reliable client data. This means establishing protocols for data extraction and cleansing while working closely with client IT teams from the outset of each engagement.

Equally important is investing in people. Audit professionals need training not only in the use of analytics tools but also in the interpretation of data and the ability to draw relevant conclusions. New roles, such as audit data specialists or digital audit leads, are emerging as essential. Also, learning and development programs should integrate analytics into continuing professional development, fostering a culture in which data fluency is as valued as technical accounting knowledge. Cross-functional collaboration among auditors, data scientists, and IT specialists is quickly becoming the norm.

Another consideration? Client protection. With greater use of client data comes increased responsibility for ethics, security, and privacy. Firms must implement robust data governance, including strict access controls, encryption, as well as compliance with data protection regulations like the European Union鈥檚 General Data Protection Regulation or California鈥檚 Consumer Privacy Act. Transparent communication with clients about how their data will be used and protected not only ensures compliance but also strengthens the client relationship.

With greater use of client data comes increased responsibility for ethics, security, and privacy.

Forward-thinking audit firms already are embedding analytics into every aspect of their operations 鈥� from pricing models and engagement-scoping to client relationship management. By offering deeper risk assessments and real-time dashboards, firms can win new business and differentiate themselves in the marketplace. Further, automation drives efficiency, reducing the need for non-billable hours and enabling more competitive pricing. With scalable tools and processes, midsize audit firms now can take on larger, more complex clients, expanding their reach and capabilities.

In the long run, a reputation for analytics-driven insight makes a firm more attractive to both clients and top audit talent.

The road ahead: Continuous auditing & AI integration

The future of audit lies in continuous auditing, a process in which transactions are monitored in real time. The integration of AI and machine learning will enable predictive risk alerts, automatic anomaly detection, and context-aware report generation. Firms that invest in these advanced technologies now will be at the forefront of a new, smarter, and more strategic audit paradigm.

Data analytics is not just a technological upgrade 鈥� it鈥檚 a mandate for transforming how audit firms deliver value. By adopting data-driven approaches, firms can provide higher quality audits, richer client insights, and more resilient business models. Those who act decisively today will not only meet current audit challenges but also secure their place as leaders in the profession for the years ahead.

You can find out more about how firms are here

For corporate law departments, the cost of an AI-related investment might be on a different scale due to the smaller size of the team, but it is no less daunting given the incessant budgetary pressures that many corporate general counsel (GCs) are under daily. The need to implement an AI-focused strategy along with adopting the tech to support and moving the department toward an AI-driven future is becoming an unavoidable reality for many corporate law departments. Knowing that expense is inevitable, however, does not address the question of how to justify it or calculate the return on that investment (ROI).

Framing the ways we think of ROI

One of the classic measures of ROI is as a multiplier. If a business spends a certain dollar amount on something, they can gauge ROI based on how many multiples of that amount return to the business in gain.

However, this doesn鈥檛 really apply to AI in the GCs鈥� office, for obvious reasons. First and foremost, the GCs鈥� office typically does not generate revenue for the business, so calculating the revenue generated as a result of an investment in legal tech does not work the same way as it would for a sales or marketing team 鈥� but that鈥檚 not to say there aren鈥檛 ways to calculate return of value to the business.

One potential measure of ROI on new AI tech can be found in its impact on outside counsel spend. If better technology enhances the capacity of the in-house legal team such that there is less need to hire outside counsel, that should factor into the ROI for that specific tech investment.

Of course, there are potential complications here. First, outside counsel rates continue to climb, so even if less work is being sent to outside counsel, total spend on outside counsel may still go up. Second, matter volumes for in-house law departments are increasing nearly across the board and are predicted to continue to do so. As a result, increased matter volumes may exceed even the AI-enhanced capacity of the in-house law department.

How to best respond to these complications is also a matter of framing. Reporting outside counsel spend in raw dollars may not be the best measure of the benefits the in-house team has gained from its AI investment. There are a few other metrics GCs should consider tracking and reporting that might better highlight the benefits the in-house team has gained from AI, including:

• • • ratio of in-house legal matters compared to work sent to outside counsel;
    • increase in total legal matter volume compared to increase in volume sent to outside counsel;
    • percentage increase in matters handled in-house;
    • qualitative measures of the complexity of matters being handled in-house; and
    • savings in projected outside counsel spend at current rates compared to actual outside counsel spend.

The latter measure could actually be quite insightful. It requires multiple data points but speaks the kind of direct financial language in which boards of directors are fluent. Essentially, the GC would need to calculate the amount of work that is now being done by the in-house team as a result of their new-found AI-driven capacity, then calculate what it would have cost to have had outside counsel do that work.

This measure would account for both work that has shifted in-house and away from law firms as well as any new work resulting from the overall increase in matter volume that the in-house team is taking on without involving outside counsel.

Finding creative ways to confront reality

None of this is to suggest that these are the only, or even the best, metrics to meet the challenge of calculating ROI. The more important point is that GCs should be looking creatively in how they think about ROI. Further, the business鈥檚 CFO can be an invaluable ally in formulating an approach because the finance team is so often tasked with creating the reporting that other executives and the board rely on when guiding the business. The CFO already speaks the language, and GCs should use them as an interpreter and ally to help shape metrics that tell an effective story for the legal department.

It鈥檚 also important to remember that part of the ROI of AI technology is the same as any other technology upgrade. How does the business calculate the ROI on an upgrade to company-provided laptops or phones? How did the business justify making the switch from desktop systems to laptops? While the move to AI is, in many ways, of a different character than past tech upgrades, at its root, what we are talking about in moving to AI-enabled tech is a move to the latest and greatest tech, particularly given its impending ubiquity.

And GCs would be well advised that waiting to learn about and invest in AI until they have the ROI calculation figured out is likely not a safe approach. Nearly 8 out of 10 corporate law departments have reported increasing matter volumes, according to our recent data. At the same time, between 60% and 70% report flat to declining budgets and attorney headcount. This confluence of factors will only ramp up the pressure on GCs to figure out how to handle the increasing demand placed on their departments by the broader businesses they serve.

And while AI provides options to help address these volume and capacity challenges, the results of any investment can and should be tracked and reported to show that the business has not just spent money on new technology for its lawyers but has increased its lawyers鈥� own ability to contribute to the business鈥檚 success.

You can find out more about pricing AI-driven legal services here

Jump to 鈫�

Q4 2024 Law Firm Financial Index Report

Interestingly, law firms were quick to invest in several internal areas late in 2024, with significant resources going to technology and knowledge management. Of course, this sent expenses up, with overhead expenses rising 6.9% and direct expenses climbing 6.2% as well, after firms paid bonuses to their associates and staff.

Key takeaways in Q4

• • • The LFFI score dropped to 64, reflecting a slight deceleration in firm performance.
    • Expenses surged in Q4 due to sizeable bonuses and renewed investments, particularly in knowledge management and technology.
    • Despite the spending spree, law firms managed to achieve double-digit profit growth.

The balance of demand and expenses

Demand growth showed a slight decline from Q3’s record-high performance, with notable structural advantages puffing up the final figure. Counter-cyclical practices, which had seen record growth over the past two years, experienced a significant slowdown in Q4, the new LFFI report shows. Conversely, transactional practices saw rapid growth, potentially influenced by the US presidential election. The result was a passing of the torch so to speak, in which transactional growth achieved a growth rate higher than that of counter-cyclical practices.

While this was always a long-heralded possibility, weakness in other areas led to growing concern for 2025鈥檚 demand growth potential, even if Q4鈥檚 overall demand growth only slightly deteriorated from Q3.

This increase in transactional demand kept the Index relatively high, however, one of the major forces that pulled it down was productivity, which in the face of further hiring in Q4, dropped back to near-parity to Q4 2023. Typically, firms usually have seen a not-insignificant decline in productivity every year since the global financial crisis that began in 2007. However, the fact that firms saw actual productivity growth earlier in 2024 buoyed the Q4 Index result. Now, it seems that firms are again seeing productivity (at least as measured as hours-per-lawyer) becoming a drag on their performance, rather than the boon it briefly had been.

Not surprisingly, law firms’ spending adjusted for inflation skyrocketed at the end of Q4 as firms locked down talent and brought more technology online. This surge in spending, while denting the Index’s score, did not overly perturb the bottom line, as firms still saw profit growth in the double digits. Still, the spending boost remained substantial. Year-end bonuses for firms brough rolling 12-month average expenses growth to some of its highest levels in more than a year and notably increased their pace of acceleration. Indeed, it鈥檚 difficult to shift such metrics so drastically in a single quarter, clearly illustrating the scale of firms鈥� interior investments.

Looking ahead to 2025

The forecast for 2025 suggests a more static demand environment in the first half of the year, with an eventual uptick by year-end. This will not only remove one of the key drivers鈥� of 2024鈥檚 performance (demand growth) but also further increase the performance drag of productivity declines. As such, law firms will need to rely on rates and realization to improve revenue-per-lawyer performance In 2025, which will likely return firms to more traditional Index levels.

Of course, a myriad of events could alter this trajectory in 2025, from transactional demand accelerating further in the new year as clients adjust to an increasingly chaotic world to generative AI seeing its first full year of making an impact in the aggregate. Overall, the Q4 2024 LFFI report outlines an industry that, despite facing challenges, remains on a solid path to continued financial health.

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