Artificial intelligence is revolutionizing how corporate legal departments operate, enabling in-house lawyers to dramatically reduce their reliance on expensive outside law firms. Doug Mandell, general counsel of chatbot-maker Inflection AI, exemplifies this shift by using GC AI, a legal AI startup tool, to draft data security policies from his notes and background materials. Instead of starting from scratch with outside counsel at premium hourly rates, Mandell now presents law firms with AI-generated drafts, telling them to “start with this” rather than beginning with a blank slate.
The adoption pattern reveals a stark divide in the legal industry: while traditional law firms that bill by the hour face disincentives to embrace efficiency-boosting AI, in-house legal teams are aggressively implementing these tools as efficiency becomes a mandate rather than a threat. In-house lawyers are increasingly judged on how quickly they enable business operations rather than how many hours they log, creating strong motivation to adopt AI solutions.
Leading legal AI startups are capitalizing on this demand. Harvey, which initially targeted major law firms, has pivoted to serve large enterprises including Walmart, General Mills, and Bayer. According to John Haddock, Harvey’s chief business officer, general counsels prioritize speeding up contracting and deflecting routine questions from business colleagues. GC AI reported explosive growth, scaling from $1 million to $13 million in annual revenue last year. A survey of 100 in-house lawyer users found that 14% reported savings in outside legal spending after adopting AI tools.
Companies like Gusto have embedded AI deeply into daily operations, with Chief Legal Officer Dina Segal overseeing a 70-person team using AI to monitor thousands of employment law, benefits, and compliance rules. The system delivers rule-change summaries through Slack and email, routing them to appropriate lawyers and freeing legal experts to focus on strategic advising rather than regulatory tracking.
The shift is reshaping law firm relationships. General counsels are now surveying outside firms about their AI usage and factoring responses into hiring decisions. This comes as legal budgets face pressure—a Thomson Reuters Q3 survey showed only 35% of general counsels at companies with over $1 billion in revenue planned to increase legal spending, down from 40% earlier in 2025. The report notes clients are making “increasingly brutal choices” about which firms receive their limited dollars, with AI adoption becoming a competitive differentiator.
Key Quotes
To be clear, we’re not replacing outside counsel. We’re refining the process in a way that benefits the company.
Doug Mandell, general counsel of Inflection AI, emphasizes that AI tools aren’t eliminating law firms but rather optimizing how companies work with them, reducing billable hours by starting with AI-generated drafts instead of blank pages.
In-house lawyers know a finger is being pointed at them, and nobody wants to be in that situation.
Venture capitalist Bogomil Balkansky from Sequoia Capital explains why corporate legal teams are eager AI adopters—they face pressure to avoid slowing business operations, creating strong incentives to embrace efficiency-boosting technology.
You can come in with an early perspective instead of a blank piece of paper, then build from there together.
Dina Segal, chief legal officer at Gusto, describes how AI enables her team to engage outside counsel with informed perspectives on regulatory changes rather than starting discussions from scratch, making collaborations more productive and cost-effective.
When my back is up against the wall, and I have to make a decision, I want to talk about it with a human being.
Doug Mandell clarifies the boundary between AI and human lawyers—while he won’t pay $900/hour for document review that AI can handle instantly, he still values human judgment for critical strategic decisions.
Our Take
This story reveals a critical inflection point where AI’s value proposition aligns perfectly with client incentives but conflicts with service provider business models. The 14% cost savings reported by GC AI users likely understates the full impact, as faster legal processes also reduce opportunity costs from delayed deals and lost candidates. What’s particularly significant is how AI is becoming a vendor selection criterion—general counsels surveying law firms about AI usage signals that technology adoption is transitioning from competitive advantage to table stakes. The resistance from billable-hour law firms mirrors challenges across professional services: AI threatens not just efficiency but the fundamental economics of expertise-based pricing. The winners will be platforms like Harvey and GC AI that solve real pain points for decision-makers with budget authority, while traditional firms face an uncomfortable choice between preserving margins and retaining clients. This pattern will likely repeat across consulting, accounting, and other knowledge-work industries.
Why This Matters
This development represents a fundamental power shift in the legal services industry, with corporate clients leveraging AI to reclaim control over costs and timelines that have long been dictated by outside law firms’ billable hour model. The transformation matters because it demonstrates AI’s capacity to disrupt professional services beyond just automation—it’s restructuring entire business relationships and economic models.
For the broader AI industry, this validates the technology’s ability to deliver measurable ROI in knowledge work, with GC AI’s 14% cost savings figure providing concrete evidence of value. The rapid revenue growth of legal AI startups signals a massive market opportunity as corporate legal spending represents billions annually. The divergence between in-house adoption and law firm hesitation also illustrates how AI adoption correlates directly with incentive structures—organizations rewarded for efficiency embrace it, while those profiting from inefficiency resist. This pattern likely applies across industries where AI threatens existing revenue models. As general counsels begin requiring AI competency from outside counsel, it may force traditional firms to adapt or lose clients, potentially accelerating AI transformation across the entire legal profession.
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Source: https://www.businessinsider.com/in-house-legal-tech-ai-cost-cutting-2026-1