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

In the modern legal landscape, automation tools are reshaping how law firms handle everyday tasks. But are these costs reimbursable? Let’s break it down.

Personal injury firms and other practices across the country are increasingly turning to technology to streamline operations and improve client service. From automated claim setup to AI-powered demand letters, solutions like Precedent are now essential components of efficient workflows.

But with innovation comes a familiar question: Can law firms pass these costs along to clients as reimbursable expenses?

In this article, we’ll explore what federal rules, the American Bar Association, and several state bars say about billing clients for technology-related services. We’ll also highlight best practices that help ensure compliance and transparency.

The Short Answer: Yes—With Clear Disclosure and Reasonableness

At the federal level and in most states, expenses related to third-party legal services are generally reimbursable, provided they are:

• Clearly disclosed to the client in a fee agreement.

• Reasonable in amount.

• Necessary to the representation.

According to the ABA Model Rules of Professional Conduct, specifically Rules 1.5 and 1.8, any costs billed to clients must be fair and communicated in advance. The ABA has also formally encouraged the use of artificial intelligence and technology in law firms, acknowledging their role in improving access to justice and operational efficiency.

However, there are some important caveats to keep in mind.

What Makes an Expense “Reimbursable”?

Reimbursable expenses typically include any costs directly related to advancing a client’s matter. Established categories are:

• Court and filing fees

• Deposition and expert witness costs

• Investigation and research expenses

• Travel and administrative costs

When it comes to services like Precedent’s Demand Composer or Claim Setup, the same logic applies—if the service benefits a specific client’s case, the cost can generally be billed to that client, assuming you:

✅ Itemize the expense clearly
✅ Show why it was necessary
✅ Get informed consent through a signed agreement

If a service benefits your firm generally (e.g., subscriptions or tools not tied to any individual case), it’s often more appropriate to account for those costs in your overall fee structure rather than bill them directly to clients.

What About Precedent’s Responsibility?

Precedent’s contracts are strictly between our platform and your law firm, not your clients. That means:

• Precedent itself typically bears no liability for how you choose to bill clients.

• If a dispute arises about billing, the terms of your firm’s agreement with Precedent govern any obligations.

• Our agreements generally include standard indemnification and limitation of liability provisions.

To protect all parties, it’s always smart to ensure your client engagement letters reference any expected use of third-party vendors and related costs.

Best Practices to Reduce Risk

Even though reimbursing technology expenses is common and often permissible, transparency and good communication are critical. Here are key recommendations:

✅ Disclose Up Front: Your engagement letter should specify that you may use third-party technology or AI services and that associated costs will be passed through.

✅ Keep Costs Reasonable: Fees must not be inflated or used as a hidden markup on your firm’s work.

✅ Itemize Clearly: Invoices should separate technology expenses from attorney fees.

✅ Be Consistent: Ensure the billing practices align with the terms outlined in your initial fee agreement.

✅ Stay Informed: Because rules vary by state, always confirm your jurisdiction’s specific guidance.

How States Handle Reimbursable Tech Costs

While the ABA provides a helpful framework, state rules can differ in emphasis and enforcement. Here’s a quick snapshot of guidance from a few key jurisdictions:

• Arizona: Requires written disclosure of fees and expenses, especially for contingency fee matters.

• California: Mandates clear communication and prohibits unconscionable or hidden fees.

• Florida: Emphasizes reasonableness and transparency, with disciplinary cases highlighting the importance of clear billing practices.

• Texas: Has ruled that non-refundable retainers and expense charges must be reasonable and well-documented.

• New York and Pennsylvania: Both require that expenses be directly tied to the client matter and explained in detail.

As you can see, the overarching principle is clarity, fairness, and alignment with professional conduct rules.

A Word About Ethics and Security

Ethical compliance doesn’t stop with billing. If you use an AI-powered service, it’s your responsibility to ensure:

• Data security standards (HIPAA, SOC 2, encryption) are met.

• Confidential information is safeguarded.

• The use of technology doesn’t compromise your duties of loyalty and communication.

Precedent, like other reputable vendors, prioritizes these safeguards—but each firm must still do its due diligence.

Final Thoughts: Moving Forward With Confidence

As AI becomes the norm rather than the exception in legal practice, firms can and should leverage tools that save time and improve outcomes. When implemented properly, reimbursing these costs is not only permissible—it’s often expected, provided you follow established guidelines.

If you’re evaluating how to incorporate Precedent’s services or any similar platform into your workflows, remember:

✅ Transparency with clients is non-negotiable.
✅ Keep documentation thorough and up to date.
✅ Check your local rules and update your engagement agreements accordingly.

The future of law is more efficient, more data-driven, and yes—more automated. But it still rests on the foundations of integrity, clarity, and client trust.