Weighing Whether Law Firms Can Bill Clients for AI Costs

Carolyn Elefant applies longstanding billing principles to a rapidly changing technological reality as she examines whether AI costs are billable in a recent ethics opinion for MyShingle.

Rising AI pay-per-token pricing, including premium models now costing significantly more than earlier tools, has pushed firms to consider how to recoup expenses. This mirrors an earlier shift in legal research billing, when firms moved from absorbing library costs as overhead to charging clients for metered Westlaw and Lexis searches.

The costs flipped again when flat-fee subscriptions made per-search billing improper.

Established guidance distinguishes overhead, the general cost of running a practice, from client expenses tied to a specific matter. Only the latter is potentially billable.

Applying this framework, Elefant concludes that AI subscriptions and platform licenses constitute overhead and can never be billed to clients, regardless of how usage is tracked.

Metered, per-token charges may only be passed through when costs are genuinely attributable to a specific matter, billed at actual cost without markup, and disclosed beforehand. But even when technically permissible, the author argues firms should generally absorb such costs rather than itemize them. Clients increasingly expect AI to be woven into service delivery rather than charged separately.

Exceptions exist for extraordinarily heavy AI use on a single matter or when a client specifically directs use of a particular tool. The opinion also offers practical cost-management strategies, including matching AI models to task complexity and implementing spending controls.

Firms should review billing practices and engagement letters to ensure any AI-related charges comply with disclosure obligations and align with client expectations regarding fees.

Given the divergence among state ethics authorities, attorneys should account for jurisdictional risk when developing firm-wide AI billing policies.

Outside counsel spend considerations may prompt clients to scrutinize how firms allocate technology costs. Firms should document AI governance and usage tracking to support defensible billing decisions if disputes arise.