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GenAI could generate tension between GCs and external law firms

GenAI could generate tension between GCs and external law firms, Lex Mundi report claims | Law Gazette

Generative AI will generate greater cost efficiencies but also tension between in-house legal teams and external law firms, according to a report on the implications for corporate legal management.

Professional services network Lex Mundi hosted a summit where GCs discussed the implications of generative AI for legal advice and guidance that will be required. Generative AI is based on so-called ‘large language models’ which can generate content such as images, audio and video. According to a report on the discussions, GCs believe generative AI will intensify the current trend of retaining work in-house.

The report says: ‘Cases such as preparing first drafts of memos, litigation filings and contracts already deliver efficiencies. Equally, progressive legal departments had been using contract management and other tools to enable internal clients ie business units and management teams, to take on more basic tasks in a controlled, audited, and approved way. GenAI capabilities can substantially enhance these business and cost efficiencies.

‘Discussions [at the summit] suggested that the trend in work being retained in-house is likely to intensify based on the enhanced capabilities that GenAI provides to in-house legal teams.’

However, GenAI could also create tension between in-house legal teams and their external law firms.

The report says: ‘The dynamic of use of technology and cost pressures poses a natural tension between clients and external counsel. Given that GenAI makes mistakes (or hallucinates) significant time is still needed for lawyers to verify accuracy of output. [Summit] participants anticipated that law firms will continue to be valuable for strategic advice, including their institutional memory about the context and reason why transactions were structured in a specific manner or specific decisions and approaches were taken.

‘However, defining the monetary “value” of advice will be a more complex conversation for general counsel and outside counsel, with the former pressured to reduce spend and the latter carrying the costs and risks related to GenAI. GenAI makes access to quality legal solutions faster, allowing more effective use of the corpus of a firm’s knowledge. Quantifying the “value” of solutions will be difficult for both client and provider.’