Profession can “unlock new opportunities” by staying at the forefront of digital innovation
The future of the costs legal market is “closely tied to its ability to embrace and leverage new technologies” like artificial intelligence (AI), major research for the Costs Lawyer Standards Board (CLSB) has declared.
“By staying at the forefront of digital innovation, Costs Lawyers can unlock new opportunities, enhance their service offerings, and remain competitive in a rapidly changing legal environment,” said specialist legal consultancy Hook Tangaza.
“The challenge of how to help the sector unlock these opportunities is significant. The costs market is small and fragmented with little buying power and, despite the broadly positive inclination of the costs sector in favour of technology, there are barriers to its adoption and dissemination.
“These include concerns over regulatory compliance, the cost of technology investment, and making the business case for technology investment in the costs sector. Addressing these barriers will require a combined effort from regulators and professional bodies, the courts and the profession.”
But the report – Costs Lawyers, Technology and Regulation – said the experience of costs budgeting showed that the market could move if it was given direction.
“A similar effort may be needed to create an environment that supports technological innovation and adoption in costs… there is still scope for some more creative design thinking in the world of costs which would help to create a better environment for the development of transformative software.”
The CLSB commissioned the report to help it respond to statutory guidance issued earlier this year by the Legal Services Board on its expectations of the frontline regulators to promote technology and innovation to improve access to legal services.
Hook Tangaza, which also produced the 2022 review of the profession, said the CLSB has “a pivotal role to play” in guiding Costs Lawyers through this period of technological change.
“By promoting technological proficiency, ensuring regulatory compliance, and supporting continuous professional development (CPD), the CLSB can help Costs Lawyers grasp the opportunities presented by this new technological era and to deliver more value both to their clients and to the legal sector in general.”
It found the technological environment in which Costs Lawyers operate to be “changing, albeit slowly”, and overall “the current use of technology amongst Costs Lawyers is typical for the legal sector as a whole”.
Neither the extension of fixed costs nor digitisation of the courts had driven greater use of technology, the report said, but it saw more advanced technology as having a role in time, such as “predictive AI” – using big data sets to predict likely case outcomes and costs – and blockchain, the use of which in contracts could reduce the scope for disputes.
The report was informed by a survey of 145 costs professionals – 126 of whom were Costs Lawyers – and six in-depth interviews.
This showed that 87% used Microsoft Office (11% Google Workspace), meaning that most of the costs sector was using cloud storage and processing “whether consciously, or not”. Three-quarters used video conferencing tools, half both case management tools and legal research tools, and 37% accounting tools.
Perhaps unsurprisingly, Costs Lawyers worked in solicitors’ firms had access to a wider suite of technology tools than those in costs firms, who in turn were twice as likely as sole practitioners to have access to case management tools.
When it came to specialist tools, the report found the general view from the costs profession was that “a combination of the virtual monopoly position of CostsMaster, coupled with the small market for costs software, had meant little investment or innovation in this area of software, with no development of AI features, in contrast to many other software packages”.
When it came to AI, the report found “pockets of experimentation within the costs sector, but they are isolated. Even those Costs Lawyers in larger SRA-regulated entities did not appear to be close to making any AI-driven costs specific innovations in their firms”.
The majority of Costs Lawyers surveyed believed AI would have a “moderate to significant impact” on their work in future.
“On balance, the optimists were of the view that AI could strip out a lot of manual data entry and allow Costs Lawyers to focus on areas of real expertise, whilst the pessimists were more likely to be concerned about the ability of clients to recognise and be willing to pay for this expertise. But overall, no one expected change to happen quickly in the costs sector.”
Faster and more efficient preparation of case documentation was the area where many of those expressing positive views about AI felt could deliver the greatest immediate benefit to Costs Lawyers.
“It is surprising that a significant amount of manual data entry is still taking place in the sector, especially considering the availability of specialist costs software,” Hook Tangaza said. “This is an area where AI could make a substantial improvement, automating these tasks to increase efficiency and reduce errors.”
Assistive technology for costs budgeting and for legal research were the other two main areas of potential identified by Costs Lawyers, while for some it had potential in litigation strategy too.
The report went on: “Costs Lawyers’ views of the opportunities that new technologies might offer them were also notable for what they did not include. Only one interviewee mentioned the possibilities that more client-facing software such as chatbots might offer. There was also little or no awareness of the other technologies that might affect the legal sector and the costs sector as a consequence, such as blockchain or quantum computing.”
The research identified a lack of confidence in their understanding of what AI and other innovations could offer now and in the future as “the most significant barrier to adoption”. This was “inextricably linked” to the fact that Costs Lawyers were ‘takers’ rather than ‘makers’ of technology development, given the size of the costs sector and its role in the market as part of the B2B supply chain.
The various barriers were either internal organisational considerations – time and resource constraints, lack of training, and resistance to change – or driven by external factors, such as the absence of costs sector-specific technology products, regulatory concerns and slow-take up of technology by clients or other relevant stakeholders, such as the courts.
Hook Tangaza recognised that there were fears that the rapid development and adoption of AI-driven legal tools could lead to automation of many of the tasks traditionally performed by Costs Lawyers.
“On the other hand, there was a common view expressed through the survey and interviews, that the level of complexity and bespoke nature of many costs cases would make AI applications challenging to use. Indeed, more than one interlocutor expressed the view that relying on AI might pose a bigger systemic risk to the costs profession than not using it at all…
“Overall, Costs Lawyers are more likely to be optimistic than pessimistic about the expert role they play and the likelihood that AI is more likely to present opportunities than risks. However, responses to the survey and the interviews we conducted did suggest that there is a strong sense amongst Costs Lawyers that the value that they add is still not widely understood.
“Their concern is that this could lead some clients to make the mistake of thinking they could replace their Costs Lawyers with software.
“To some extent, this risk, and the risk of the erosion of entry level training opportunities for new Costs Lawyers, are already priced into the sector, as they are perceived to be more driven by the introduction of the fixed costs regime than by AI.”
At the same time, the report concluded, those anticipating a market in which the Costs Lawyer “is more widely appreciated as a strategic expert in a highly complex and specialist niche area of law, rather than a post-litigation completer-finisher, are already beginning to use AI-driven tools to support their costs work”.
The AI embedded in LexisNexis, Westlaw and similar research tools will grow in use, “so it is essential for Costs Lawyer wishing to move up the value curve that they keep pace with such developments”.
The report made eight core recommendations that the CLSB should:
- Encourage Costs Lawyers to become better informed about new technologies, using levers like its competence statement and CPD requirements;
- Produce guidance on the ethical use of AI, a “popular request” of survey respondents;
- Improving the profession’s understanding of cyber security;
- Engage more closely with those Costs Lawyers who take instructions directly from consumers;
- Produce consumer-facing guidance on costs and points for consumers to be cautious of when self-serving using technology;
- Encourage developers to look at the costs sector;
- Engage with the courts to help them understanding how the processes of budgeting and e-billing could be further improved; and
- Publish additional consumer-facing website content.
Hook Tangaza concluded: “Despite the small size of the Costs Lawyers’ profession, there are many useful things that the CLSB could do.
“We do recognise, however, that the CLSB has limited resources so where the above recommendations are likely to require additional resources, external funding could be sought to support its engagement in a consumer facing package of activity.
“Nonetheless, even if the CLSB simply concentrates on the tools that it has most readily at its disposal, it will certainly be able to help the Costs Lawyers profession move along the AI/technology adoption curve.”