Can Law Firms Bill Clients for AI-Powered Legal Services? Understanding Reimbursable Expenses

The legal profession increasingly relies on automation tools to enhance efficiency and client service. However, practitioners frequently ask whether technology-related costs qualify as reimbursable client expenses.

Personal injury firms across the country adopt solutions like Precedent to streamline workflows—from automated claim setup to AI-powered demand letter generation. This raises an important question: Can law firms pass these costs to clients?

The Short Answer: Yes—With Clear Disclosure and Reasonableness

Expenses related to third-party legal services are generally reimbursable, provided they meet three conditions:

• Clearly disclosed in a fee agreement
• Reasonable in amount
• Necessary to the representation

According to the ABA Model Rules of Professional Conduct (Rules 1.5 and 1.8), any client-billed costs must be fair and communicated beforehand. The ABA formally encourages artificial intelligence use in law firms, recognizing technology's role in improving justice access and operational efficiency.

"Transparency, reasonableness, and documentation are the cornerstones of reimbursable technology expenses."

What Makes an Expense "Reimbursable"?

Reimbursable expenses typically encompass costs directly advancing a client's matter:

• Court and filing fees
• Deposition and expert witness costs
• Investigation and research expenses
• Travel and administrative costs

For services like Precedent's Demand Composer or Claim Setup, the same principle applies: if the service benefits a specific client's case, the cost can generally be billed, assuming you:

• Itemize the expense clearly
• Demonstrate necessity
• Obtain informed consent via signed agreement

Services benefiting your firm generally (such as firm-wide subscriptions not tied to individual cases) are better incorporated into overall fee structures rather than billed directly to clients.

Best Practices to Reduce Risk

Transparency and communication remain critical:

• Disclose Up Front: Your engagement letter should identify potential third-party technology use and associated costs
• Keep Costs Reasonable: Fees must not be inflated or serve as hidden markups on your firm's work
• Itemize Clearly: Invoices should separate technology expenses from attorney fees
• Be Consistent: Billing practices should align with initial fee agreement terms
• Stay Informed: State rules vary, so confirm your jurisdiction's specific guidance

"Most state bars agree: passing through AI costs is ethical when they're necessary, fair, and communicated in writing."

How States Handle Reimbursable Tech Costs

While the ABA provides a helpful framework, state rules vary in emphasis and enforcement:

• Arizona: Requires written fee and expense disclosure, especially for contingency matters
• California: Mandates clear communication and prohibits unconscionable or hidden fees
• Florida: Emphasizes reasonableness and transparency
• Texas: Requires non-refundable retainers and expense charges to be reasonable and well-documented
• New York and Pennsylvania: Both require expenses directly tied to client matters with detailed explanations

The overarching principle remains: clarity, fairness, and alignment with professional conduct rules.

A Word About Ethics and Security

Ethical compliance extends beyond billing. When using AI-powered services, your firm must ensure:

• Data security standards (HIPAA, SOC 2, encryption) are met
• Confidential information remains safeguarded
• Technology use doesn't compromise duties of loyalty and communication

Final Thoughts

As AI becomes standard in legal practice, firms can confidently leverage tools improving efficiency and outcomes. When implemented properly, reimbursing these costs is both permissible and often expected.

When incorporating Precedent or similar platforms:

• Transparency with clients is non-negotiable
• Maintain thorough, current documentation
• Check local rules and update engagement agreements accordingly