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Very large firms compared to smaller firms: pros and cons for alternative billing

Some people argue that smaller law firms are more receptive to alternative fee arrangements than are very large firms. Let’s look at both sides in that debate.

Very large law firms are more likely to have extensive experience, even in a highly specialized area of law, so they know more about likely costs and timeframes. They also have a plenitude of lawyers, a.k.a. bench strength, which can absorb ebbs and flows of work. Larger firms also have more capacity to absorb financial risks or wait for cash flow to come through a bonus arrangement. More than small firms, they usually have invested in document management systems, knowledge retrieval and other forms of professional support that increase efficiency.

Some pressures work against large firms when they consider alternative fees, including corporation-like controls over alternative billing (See my post of July 19, 2007 on administrative approvals.), a tangle of potential conflicts of interest (See my post of Nov. 13,k 2005 and four references cited.), and a higher cost structure than similarly-located smaller firms (See my post of Oct. 23, 2005 about size of law firm correlating with overhead costs.).

Smaller law firms may be more amenable to alternative billing arrangements because they are hungrier for work, they are less encrusted by tradition and bureaucracy, and a single partner may have the clout internally to unilaterally take some risks. It also may be true that mavericks, lawyers with entrepreneurial innovativeness, tend to leave large law firms and settle in smaller firms that are more accepting of novelty.