10. The Billable Hour and AI: Texas Opinion 705, the Fee Reasonableness Standard, and the Flat-Fee Transition

FutureLaw 2026 in Tallinn surfaced what may be the most important near-term pricing implication of AI for midsized firms. Texas Ethics Opinion 705 (adopted December 2025) holds that lawyers using AI on hourly matters may bill for actual time spent using, refining, and checking AI outputs — but may not bill for time "saved" by the tool. The practical consequence, as argued by Texas Bar Ethics Committee member Rampenthal at the conference: if you cannot bill the saved time, the only way to capture AI's economic value under hourly billing is to eliminate it. Clio's pricing data reinforces the pressure: 67% of corporate legal departments and 55% of law firms expect AI to change how hours are billed; 71% of clients already prefer flat fees for an entire case. For midsized firms, the transition is an opportunity if managed proactively — under flat-fee arrangements, AI efficiency gains flow directly to firm margin.

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