An in-house lawyer, replying to a frightened paralegal on Reddit, described what her department was doing about law firms and AI: “we’re already rewriting our billing guidelines to specify that firms need to be transparent about their use of AI. We’re paying you $800+/hour for your expertise in a field, not to provide computer generated advise.” The sentiment is everywhere.
The numbers explain why outside counsel guidelines AI sections went from rare to standard. The ACC and Everlaw’s 2025 survey of 657 in-house professionals found 59% do not know whether their firms use GenAI on their matters; Axiom’s July 2026 survey of 528 in-house leaders found 92% expect or are negotiating AI-related rate cuts, and few get them. A clause is how a legal department stops guessing.
Why OCGs now have AI sections
Clients are not mandating AI: Thomson Reuters’ 2026 State of the US Legal Market found more than 80% of senior corporate counsel do not require outside counsel to use it. They want visibility. Litera’s May 2026 report found 85% of firms feel or expect direct client pressure on AI strategy and 51% say a client influenced an AI investment decision in the past year.
Nobody yet knows how to price the answer, as Gartner’s Weston Wicks told Bloomberg Law. Also a brand signal: on the r/legaltech thread where an innovation committee compared quotes, one lawyer noted “There is increasing client pressure to have some sort of ‘name brand’ (i.e. Harvey, Legora, Lexis, West) AI”.
The four clause types: disclosure, approved tools, data, billing
| Clause type | What the client typically requires | The firm’s sensible response |
|---|---|---|
| Disclosure and approval | Written disclosure, often prior approval, before any AI system receives confidential information or informs substantive work | Disclose per matter type, not per prompt; offer a standing approved-tools schedule |
| Approved and prohibited tools | No consumer or free-tier chatbots for client work; named enterprise or legal platforms only | Map the schedule to your own policy; propose additions with terms attached |
| Data | “Company data may not be used to train a provider’s or third party’s models”; retention and deletion controls; responsibility for subprocessors | Evidence it: no-training clause, retention default, DPA, on one page |
| Billing | Only time actually spent; no “reconstructed ‘equivalent time’”; nothing for subscriptions or tool training; AI costs at cost with prior approval | Agree, then open the fixed-fee conversation first |
The billing row is the one firms feel. Poppy Legal’s guidance: “If AI changes neither the staffing model nor the fee, ask what value the client is receiving.”
Sample language: Poppy Legal and Layer3Labs
Poppy Legal’s eight provisions include a sample clause that opens:
“Outside Counsel must disclose and obtain written approval before using an AI system that will receive Company Confidential Information, materially inform legal advice or substantive work product, materially affect staffing, timing, or fees, or take external or autonomous action.” — Poppy Legal, sample “Use of artificial intelligence” clause, from its guide to addressing AI in billing guidelines
Layer3Labs reduces the market to five provisions (disclosure and consent; approved tools; confidentiality and privilege; billing; human review) and an eight-step firm checklist, from inventorying clauses to logging usage by tool and task.
Draft a "Use of artificial intelligence" section for our outside counsel guidelines; we are [company, sector, jurisdictions]. Cover: disclosure and prior written approval before any AI system receives our confidential information or informs substantive work; prohibited consumer tools and an approved-tools schedule we can update; no training on our data, retention limits, deletion at matter end; independent review by a qualified lawyer; billing for actual time only, nothing for subscriptions, tool training or hypothetical time saved; incident notice within [48 hours]; the notation "AI-assisted; attorney reviewed". Plain, enforceable, under 400 words; mark privilege-sensitive points [CHECK WITH COUNSEL].What in-house teams are really asking for
Behind the clause sit five questions, listed by Shumaker, Loop & Kendrick’s Lloyd Wilson: how AI is incorporated into the work; how accuracy is ensured; how quality and completeness change; how timelines change; how client data is protected. Thomson Reuters warns that “Firms leading with price concessions risk training clients to expect discounts rather than pay for capability”.
Firm-side response: the one-page AI statement
Anton Levchik, CFO of Seward & Kissel: “If you can’t explain to your clients what you’re doing in AI space, your clients will assume that you are overpriced.” The answer is a page of facts, sent before the questionnaire. Greg Siskind’s rule for pitches applies: disclose that AI assisted, “but make sure the client understands that it was done with the firm’s close oversight” (see AI for RFP responses and pitches).
Draft a one-page statement of our firm's use of AI for [client], using only the facts in <facts>[tools and tiers, their training and retention settings, our verification rule, our policy date, our training record]</facts>; add no tool, certification or safeguard that is not there. Cover: what we use AI for on this client's matter types and what we do not; the contractual terms that stop training and limit retention; who reviews AI-assisted work and how citations are verified; how AI affects staffing and billing. Factual tone, no claim that our AI is better than anyone's. Under 450 words.Negotiating “no AI” clauses
Some guidelines simply prohibit AI. Accepting that is easy and usually dishonest: Thomson Reuters found 34% of professionals already use unsanctioned “shadow AI” tools.
Three counter-proposals work. First, an approved-tools schedule naming enterprise or legal platforms with their terms attached, which the client can veto. Second, counsel-directed use: in United States v. Heppner Judge Rakoff treated a defendant’s own consumer-Claude chats as unprivileged but left open that counsel-directed use might make the tool “a lawyer’s agent within the protection of the attorney-client privilege”. Third, a court-tested standard: the protective order in Morgan v. V2X (D. Colo., March 2026) bars AI platforms unless the provider is contractually prohibited from training on inputs or disclosing them, which Akin Gump notes “practically bars the use of most ‘low-to-no-cost’ AI tools”.
Insourcing pressure and the ALSP trust gap
In the ACC and Everlaw data, the insourcing candidates are drafting (78%), contract management (71%) and research (62%). Axiom’s February 2026 GC survey found 80% plan to move significant law-firm work in-house or to alternative providers within 24 months, and its July 2026 AI report found in-house teams prefer ALSPs over law firms for AI-enabled work by 52% to 24%.
Meta’s global head of legal operations, Mike Haven, told a CLOC audience in May 2026 that he was already asking firms for fixed fees: “Now, I am telling top law firms that you need to do this for you.” The in-house view is in AI for in-house counsel.
Aligning OCGs with ABA 512 and Rule 5.3
The best clauses contract for what the ethics rules already require. ABA Formal Opinion 512 supplies each row of the table.
- Disclosure and consent. For self-learning tools informed consent is required before inputting client information, and “Merely adding general, boiler-plate provisions to engagement letters purporting to authorize the lawyer to use GAI is not sufficient.” A clause requiring disclosure per tool is that consent, negotiated in advance.
- Supervision. “Managerial lawyers must establish clear policies regarding the law firm’s permissible use of GAI”; North Carolina’s 2024 Formal Ethics Opinion 1 extends Rule 5.3 to “third-party software companies.” The human-review clause is a Rule 5.3 clause.
- Fees. Bill actual time, including the 15 minutes of prompting and the review, but not learning the tool: “A fee charged for which little or no work was performed is an unreasonable fee.”
The opinion is unpacked in ABA Formal Opinion 512 explained; the disclosure question, which differs between Pennsylvania and New Jersey, in do lawyers have to disclose AI use.
A checklist for both sides
In-house: decide whether you want disclosure, approval or both, per matter or per tool; attach an approved-tools schedule naming tiers, not just vendors; copy the Morgan v. V2X standard into the data clause; ask the five Shumaker questions; then review invoices against the clause; GC AI’s invoice-review skill (a vendor product) does that first pass and drafts the correction email.
Review the attached invoice against our outside counsel guidelines <ocg>[paste the AI and billing sections]</ocg>. Flag: block billing; vague narratives; rate overages; unapproved timekeepers; duplicates; tasks the firm has told us it runs with AI billed at pre-AI durations; AI disbursements without prior approval; missing "AI-assisted; attorney reviewed" notations. Table: Line | Issue | OCG clause | Suggested adjustment. Change no numbers. Then draft a courteous email to the billing partner listing the adjustments and asking how AI was used.Firm: compare the clause with your own AI policy and mark each requirement COMPLY, GAP or CONFLICT; send the one-page statement unprompted; keep the usage log Layer3Labs recommends (it is also on the list of artefacts to have ready at malpractice renewal); have the pricing conversation first; never claim a safeguard you cannot evidence.
Where to go next: the prompts sit in the prompt library, the pillar on AI for law firm business development covers the pricing conversation, and the rest of the cluster is in the business development hub. Which tier of ChatGPT, Claude, Gemini or Copilot you are on is a five-minute settings exercise done live in AI Lab for Lawyers, and the question most firms cannot answer without asking IT.
Frequently asked questions
What AI clauses are in outside counsel guidelines?
Four types recur across the published templates: disclosure and written approval before an AI system receives client confidential information or informs substantive work; a list of approved tools and a ban on consumer or free-tier chatbots; confidentiality terms requiring no training on client data, limited retention and deletion at matter end; and billing rules limiting invoices to time actually spent, with nothing for subscriptions, tool training or hypothetical time saved. Incident notice and an 'AI-assisted; attorney reviewed' notation often follow.
Can a client prohibit a law firm from using AI?
Yes. Outside counsel guidelines are contract terms, so a client may forbid AI entirely, restrict it to named tools or require approval per matter. Firms should negotiate rather than accept a blanket ban: 34% of professionals already use unsanctioned tools, so a ban drives AI use underground rather than stopping it. The workable alternative is an approved-tools schedule with contractual no-training and retention terms, human review and disclosure on request, which protects the client better than a prohibition nobody polices.
Do firms have to disclose AI use to clients under OCGs?
If the guidelines say so, yes, as a matter of contract. Absent a clause, the ethics rules make disclosure fact-specific: ABA Formal Opinion 512 requires it when the client asks, when client information will be input into a tool that raises confidentiality risk, or when AI use affects the basis of the fee. New Jersey, Kentucky, Virginia and North Carolina see no routine duty; Pennsylvania leans towards transparency. Most OCG clauses remove the doubt by requiring disclosure up front.
How should a firm respond to a client AI questionnaire?
With facts, not adjectives. State the tools and tiers you use on the client's matter types, the contractual terms that stop training and limit retention, who reviews AI-assisted work and how citations are verified, how AI affects staffing and billing, and how you will tell the client if that changes. Greg Siskind's advice for pitches applies: disclose that AI assisted, with the firm's close oversight. Never claim safeguards or certifications you cannot evidence.
Are clients cutting fees because of AI?
They are asking, and mostly not getting. Axiom's July 2026 survey of 528 in-house leaders found 92% expect or are negotiating AI-related rate cuts and that relief has largely not materialised; ACC and Everlaw found about 60% of in-house teams see no savings yet. Wall Street is the exception: Citi, Morgan Stanley and Goldman Sachs are pressing firms for lower fees and fixed-fee bids. Firms that explain their AI use tend to keep the work.