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# Corporate law firms have traditionally billed their clients on an hour

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Tuck School Moderator
Joined: 31 Aug 2016
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GMAT 1: 700 Q49 V37
Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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21 Oct 2018, 08:38
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Corporate law firms have traditionally billed their clients on an hourly basis. However, in the current economy, it is increasingly common for law firms worldwide to offer clients alternative billing structures. Seeking a competitive advantage, many law firms now earn much of their compensation in the form of an unguaranteed bonus which is paid upon completion of the firm's work and the amount of which depends on the success of that work. The terms of these alternative compensation schemes are documented in engagement agreements that specify the bonus the client will pay the firm given various outcomes of the case. Particularly with first-time clients, a compensation structured on such a bonus can be a highly effective marketing tool, especially if the client is very cautious in selecting legal service providers, a high hourly billing rate is a barrier to client engagement, the firm often loses potential clients to firms with lower hourly rates, or the consequences to the client of a negative outcome are severe.

On the other hand, these bonus-based compensation structures can sometimes hinder law firms' marketing efforts. Sophisticated clients may be wary of firms offering such structures, understanding that the firm may have less incentive to provide independent, objective advice and instead advise the client to take undue risks in the hope of winning a larger bonus payout. Such structures may mislead less sophisticated clients by suggesting that the outcomes of certain cases will necessarily be favorable. A firm's willingness to work for a bonus may even signal to potential clients that a firm is desperate for business. Indeed, law firms with exceptional reputations and a track record of success have little to gain by offering an alternative to the long standing norm of hourly billing.

1. All of the following hypothetical situations exemplify a potential problem noted in the second paragraph EXCEPT which of the following?
a. A law firm's offer of a bonus-based compensation structure leads a client to believe that the success of his or her case is a foregone conclusion.
b. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm has few existing clients.
c. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm may give riskier advice than it would if it were working on an hourly basis.
d. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm is trying to charge more than it would if it were working on an hourly basis.
e. A law firm's offer of a bonus-based compensation structure makes a client suspect that a firm's objectivity may be compromised.

2. The primary purpose of this passage is to
a. justify the popularity of a behavior
b. evaluate the usefulness of a practice
c. demonstrate how to implement a program
d. discuss the ethics of a business activity
e. explain the reasons for pursuing a strategy

3. The passage's description of the issue raised by a bonus-based fee structure for law firms most clearly implies that which of the following is true?
a. Success-based bonuses violate the legal profession's standard of practice.
b. Lawyers working on behalf of a client cannot always determine the outcome of a lawsuit in advance.
c. The dignity of the legal profession is undermined by new legal services that differ from those typically offered in the past.
d. Clients whose cases are not successful cannot be adequately compensated by financial settlements alone.
e. Predicting the cost of legal services is more difficult than predicting the costs of other professional services.

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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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21 Oct 2018, 20:43

+1 kudos to the posts containing answer explanations of all questions

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Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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21 Oct 2018, 21:27
2
PeepalTree wrote:
Corporate law firms have traditionally billed their clients on an hourly basis. However, in the current economy, it is increasingly common for law firms worldwide to offer clients alternative billing structures. Seeking a competitive advantage, many law firms now earn much of their compensation in the form of an unguaranteed bonus which is paid upon completion of the firm's work and the amount of which depends on the success of that work. The terms of these alternative compensation schemes are documented in engagement agreements that specify the bonus the client will pay the firm given various outcomes of the case. Particularly with first-time clients, a compensation structured on such a bonus can be a highly effective marketing tool, especially if the client is very cautious in selecting legal service providers, a high hourly billing rate is a barrier to client engagement, the firm often loses potential clients to firms with lower hourly rates, or the consequences to the client of a negative outcome are severe.

On the other hand, these bonus-based compensation structures can sometimes hinder law firms' marketing efforts. Sophisticated clients may be wary of firms offering such structures, understanding that the firm may have less incentive to provide independent, objective advice and instead advise the client to take undue risks in the hope of winning a larger bonus payout. Such structures may mislead less sophisticated clients by suggesting that the outcomes of certain cases will necessarily be favorable. A firm's willingness to work for a bonus may even signal to potential clients that a firm is desperate for business. Indeed, law firms with exceptional reputations and a track record of success have little to gain by offering an alternative to the long standing norm of hourly billing.
1. All of the following hypothetical situations exemplify a potential problem noted in the second paragraph EXCEPT which of the following?
a. A law firm's offer of a bonus-based compensation structure leads a client to believe that the success of his or her case is a foregone conclusion.
b. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm has few existing clients.
c. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm may give riskier advice than it would if it were working on an hourly basis.
d. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm is trying to charge more than it would if it were working on an hourly basis.
e. A law firm's offer of a bonus-based compensation structure makes a client suspect that a firm's objectivity may be compromised.

2. The primary purpose of this passage is to
a. justify the popularity of a behavior
b. evaluate the usefulness of a practice
c. demonstrate how to implement a program
d. discuss the ethics of a business activity
e. explain the reasons for pursuing a strategy

3. The passage's description of the issue raised by a bonus-based fee structure for law firms most clearly implies that which of the following is true?
a. Success-based bonuses violate the legal profession's standard of practice.
b. Lawyers working on behalf of a client cannot always determine the outcome of a lawsuit in advance.
c. The dignity of the legal profession is undermined by new legal services that differ from those typically offered in the past.
d. Clients whose cases are not successful cannot be adequately compensated by financial settlements alone.
e. Predicting the cost of legal services is more difficult than predicting the costs of other professional services.

5:57 Minutes, All correct!
Nice passage!

[/box_in][box_in]1. All of the following hypothetical situations exemplify a potential problem noted in the second paragraph EXCEPT which of the following?
a. A law firm's offer of a bonus-based compensation structure leads a client to believe that the success of his or her case is a foregone conclusion.-Mentioned in second passage.
b. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm has few existing clients-Mentioned in second passage.
c. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm may give riskier advice than it would if it were working on an hourly basis.-Mentioned in second passage.
d. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm is trying to charge more than it would if it were working on an hourly basis-Correct, not mentioned in second passage but is Mentioned in FIRST passage.
e. A law firm's offer of a bonus-based compensation structure makes a client suspect that a firm's objectivity may be compromised.
-Mentioned in second passage.
2. The primary purpose of this passage is to
a. justify the popularity of a behavior-Popularity is incorrect. Author's tone is evaluative.
b. evaluate the usefulness of a practice-Correct,, usefulness of Hourly billing rate is evaluated by author.
c. demonstrate how to implement a program-How to is incorrect!
d. discuss the ethics of a business activity-Ethics is out of scope over here.
e. explain the reasons for pursuing a strategy-Author didn't explain reasons in favor of one.

3. The passage's description of the issue raised by a bonus-based fee structure for law firms most clearly implies that which of the following is true?
a. Success-based bonuses violate the legal profession's standard of practice.-Nowhere mentioned.
b. Lawyers working on behalf of a client cannot always determine the outcome of a lawsuit in advance.-Mentioned, refer " Such structures may mislead less sophisticated clients by suggesting that the outcomes of certain cases will necessarily be favorable. .."
c. The dignity of the legal profession is undermined by new legal services that differ from those typically offered in the past.Nowhere mentioned.
d. Clients whose cases are not successful cannot be adequately compensated by financial settlements alone.Nowhere mentioned.
e. Predicting the cost of legal services is more difficult than predicting the costs of other professional services.Nowhere mentioned.
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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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22 Oct 2018, 09:02
3. The passage's description of the issue raised by a bonus-based fee structure for law firms most clearly implies that which of the following is true?
a. Success-based bonuses violate the legal profession's standard of practice.
b. Lawyers working on behalf of a client cannot always determine the outcome of a lawsuit in advance.
c. The dignity of the legal profession is undermined by new legal services that differ from those typically offered in the past.
d. Clients whose cases are not successful cannot be adequately compensated by financial settlements alone.
e. Predicting the cost of legal services is more difficult than predicting the costs of other professional services.

Tuck School Moderator
Joined: 31 Aug 2016
Posts: 288
GMAT 1: 700 Q49 V37
Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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22 Oct 2018, 16:51
1
nik021 wrote:
3. The passage's description of the issue raised by a bonus-based fee structure for law firms most clearly implies that which of the following is true?
a. Success-based bonuses violate the legal profession's standard of practice.
b. Lawyers working on behalf of a client cannot always determine the outcome of a lawsuit in advance.
c. The dignity of the legal profession is undermined by new legal services that differ from those typically offered in the past.
d. Clients whose cases are not successful cannot be adequately compensated by financial settlements alone.
e. Predicting the cost of legal services is more difficult than predicting the costs of other professional services.

for inference and details questions we need supporting evidence from the passage. Option B is supported by following

Quote:
especially if the client is very cautious in selecting legal service providers, a high hourly billing rate is a barrier to client engagement, the firm often loses potential clients to firms with lower hourly rates,

None of the other options have any supporting information.

I hope it helps.
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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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22 Oct 2018, 18:20
2
I always consider myself very bad in RC.
In This one I got all correct in ~8 min, perhaps the passage was easy or not, may be lucky guesses. in need to do it in 6 min.
1st - 2.44
2nd - 30 sec
3rd - ~2.44

1. All of the following hypothetical situations exemplify a potential problem noted in the second paragraph EXCEPT which of the following?
P2 is more around the problems. Only D stand out.
d. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm is trying to charge more than it would if it were working on an hourly basis.

----------------------------------

2. The primary purpose of this passage is to
a. justify the popularity of a behavior - no justify; no behavior
b. evaluate the usefulness of a practice - yes; two types; good and bad is defined for both; practice of law firms.
c. demonstrate how to implement a program - no demonstrate; no implement
d. discuss the ethics of a business activity - no ethics
e. explain the reasons for pursuing a strategy - no strategy was chosen by author.

----------------------------------------------

3. The passage's description of the issue raised by a bonus-based fee structure for law firms most clearly implies that which of the following is true?
a. Success-based bonuses violate the legal profession's standard of practice. - may be ethics but not true in real sense.
b. Lawyers working on behalf of a client cannot always determine the outcome of a lawsuit in advance. --- yes.
c. The dignity of the legal profession is undermined by new legal services that differ from those typically offered in the past. -- not really talking about bonus-based fee structure
d. Clients whose cases are not successful cannot be adequately compensated by financial settlements alone. - no
e. Predicting the cost of legal services is more difficult than predicting the costs of other professional services. - no such comparison.
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Simple strategy:
“Once you’ve eliminated the impossible, whatever remains, however improbable, must be the truth.”

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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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15 Nov 2018, 10:40
aragonn wrote:
I always consider myself very bad in RC.
In This one I got all correct in ~8 min, perhaps the passage was easy or not, may be lucky guesses. in need to do it in 6 min.
1st - 2.44
2nd - 30 sec
3rd - ~2.44

1. All of the following hypothetical situations exemplify a potential problem noted in the second paragraph EXCEPT which of the following?
P2 is more around the problems. Only D stand out.
d. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm is trying to charge more than it would if it were working on an hourly basis.

----------------------------------

2. The primary purpose of this passage is to
a. justify the popularity of a behavior - no justify; no behavior
b. evaluate the usefulness of a practice - yes; two types; good and bad is defined for both; practice of law firms.
c. demonstrate how to implement a program - no demonstrate; no implement
d. discuss the ethics of a business activity - no ethics
e. explain the reasons for pursuing a strategy - no strategy was chosen by author.

----------------------------------------------

3. The passage's description of the issue raised by a bonus-based fee structure for law firms most clearly implies that which of the following is true?
a. Success-based bonuses violate the legal profession's standard of practice. - may be ethics but not true in real sense.
b. Lawyers working on behalf of a client cannot always determine the outcome of a lawsuit in advance. --- yes.
c. The dignity of the legal profession is undermined by new legal services that differ from those typically offered in the past. -- not really talking about bonus-based fee structure
d. Clients whose cases are not successful cannot be adequately compensated by financial settlements alone. - no
e. Predicting the cost of legal services is more difficult than predicting the costs of other professional services. - no such comparison.

Hi aragonn Dont you think in 1 D means ----> The company is charging more than ordinary, from the point that Sophisticated clients feel thatlaw firms will fight wish riskier approaches ? I mean I somehow linked it like risk ----> win more ----> SC shell out more money.

Please point out the flaw in my reasoning.

TIA
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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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16 Nov 2018, 05:59
ShankSouljaBoi

So what you need to do to solve 1st. 2nd para has described problems in bonus based approach. 1st list down all those problems. All of the options are one of those problems (example of) but one . We need to find that one.

Problems:
1. Sophisticated clients may be wary of firms offering such structures, understanding that the firm may have less incentive to provide independent, objective advice and instead advise the client to take undue risks in the hope of winning a larger bonus payout.

2. Such structures may mislead less sophisticated clients by suggesting that the outcomes of certain cases will necessarily be favorable.

3. A firm's willingness to work for a bonus may even signal to potential clients that a firm is desperate for business.

a. A law firm's offer of a bonus-based compensation structure leads a client to believe that the success of his or her case is a foregone conclusion. --- problem 2
b. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm has few existing clients. --- problem 3
c. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm may give riskier advice than it would if it were working on an hourly basis. ---- problem 1
e. A law firm's offer of a bonus-based compensation structure makes a client suspect that a firm's objectivity may be compromised. --- problem 1

d. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm is trying to charge more than it would if it were working on an hourly basis.

Quote:
1 D means ----> The company is charging more than ordinary, from the point that Sophisticated clients feel thatlaw firms will fight wish riskier approaches ? I mean I somehow linked it like risk ----> win more ----> SC shell out more money.

Well none of the problem is saying that customers have any problem with the money , they are paying. it about what they are thinking. their perception. D is what stand out.
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Thanks!
Do give some kudos.

Simple strategy:
“Once you’ve eliminated the impossible, whatever remains, however improbable, must be the truth.”

GMAT Ninja YouTube! Series 1| GMAT Ninja YouTube! Series 2 | How to Improve GMAT Quant from Q49 to a Perfect Q51 | Time management

My Notes:
Reading comprehension | Critical Reasoning | Absolute Phrases | Subjunctive Mood
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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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10 May 2019, 08:14

Confused between A and D.
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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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12 May 2019, 19:22

What can be infereed by the term "foregone conclusion"??
This term is mentioned in option A of 1st question.
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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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13 May 2019, 01:01
1
warrior1991 wrote:

What can be infereed by the term "foregone conclusion"??
This term is mentioned in option A of 1st question.

"success is a foregone conclusion" means "success is certain".

When something is a "foregone conclusion", it means it is a given, it is certain.
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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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13 May 2019, 21:18
LordStark wrote:
Corporate law firms have traditionally billed their clients on an hourly basis. However, in the current economy, it is increasingly common for law firms worldwide to offer clients alternative billing structures. Seeking a competitive advantage, many law firms now earn much of their compensation in the form of an unguaranteed bonus which is paid upon completion of the firm's work and the amount of which depends on the success of that work. The terms of these alternative compensation schemes are documented in engagement agreements that specify the bonus the client will pay the firm given various outcomes of the case. Particularly with first-time clients, a compensation structured on such a bonus can be a highly effective marketing tool, especially if the client is very cautious in selecting legal service providers, a high hourly billing rate is a barrier to client engagement, the firm often loses potential clients to firms with lower hourly rates, or the consequences to the client of a negative outcome are severe.

On the other hand, these bonus-based compensation structures can sometimes hinder law firms' marketing efforts. Sophisticated clients may be wary of firms offering such structures, understanding that the firm may have less incentive to provide independent, objective advice and instead advise the client to take undue risks in the hope of winning a larger bonus payout. Such structures may mislead less sophisticated clients by suggesting that the outcomes of certain cases will necessarily be favorable. A firm's willingness to work for a bonus may even signal to potential clients that a firm is desperate for business. Indeed, law firms with exceptional reputations and a track record of success have little to gain by offering an alternative to the long standing norm of hourly billing.
1. All of the following hypothetical situations exemplify a potential problem noted in the second paragraph EXCEPT which of the following?
a. A law firm's offer of a bonus-based compensation structure leads a client to believe that the success of his or her case is a foregone conclusion.
b. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm has few existing clients.
c. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm may give riskier advice than it would if it were working on an hourly basis.
d. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm is trying to charge more than it would if it were working on an hourly basis.
e. A law firm's offer of a bonus-based compensation structure makes a client suspect that a firm's objectivity may be compromised.

2. The primary purpose of this passage is to
a. justify the popularity of a behavior
b. evaluate the usefulness of a practice
c. demonstrate how to implement a program
d. discuss the ethics of a business activity
e. explain the reasons for pursuing a strategy

3. The passage's description of the issue raised by a bonus-based fee structure for law firms most clearly implies that which of the following is true?
a. Success-based bonuses violate the legal profession's standard of practice.
b. Lawyers working on behalf of a client cannot always determine the outcome of a lawsuit in advance.
c. The dignity of the legal profession is undermined by new legal services that differ from those typically offered in the past.
d. Clients whose cases are not successful cannot be adequately compensated by financial settlements alone.
e. Predicting the cost of legal services is more difficult than predicting the costs of other professional services.

Can anybody explain why option B is wrong in Q-1? I am not able to understand as where it is mentioned in para-2.
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Re: Corporate law firms have traditionally billed their clients on an hour  [#permalink]

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13 May 2019, 22:23
Ritwick91 wrote:
LordStark wrote:
Corporate law firms have traditionally billed their clients on an hourly basis. However, in the current economy, it is increasingly common for law firms worldwide to offer clients alternative billing structures. Seeking a competitive advantage, many law firms now earn much of their compensation in the form of an unguaranteed bonus which is paid upon completion of the firm's work and the amount of which depends on the success of that work. The terms of these alternative compensation schemes are documented in engagement agreements that specify the bonus the client will pay the firm given various outcomes of the case. Particularly with first-time clients, a compensation structured on such a bonus can be a highly effective marketing tool, especially if the client is very cautious in selecting legal service providers, a high hourly billing rate is a barrier to client engagement, the firm often loses potential clients to firms with lower hourly rates, or the consequences to the client of a negative outcome are severe.

On the other hand, these bonus-based compensation structures can sometimes hinder law firms' marketing efforts. Sophisticated clients may be wary of firms offering such structures, understanding that the firm may have less incentive to provide independent, objective advice and instead advise the client to take undue risks in the hope of winning a larger bonus payout. Such structures may mislead less sophisticated clients by suggesting that the outcomes of certain cases will necessarily be favorable. A firm's willingness to work for a bonus may even signal to potential clients that a firm is desperate for business. Indeed, law firms with exceptional reputations and a track record of success have little to gain by offering an alternative to the long standing norm of hourly billing.
1. All of the following hypothetical situations exemplify a potential problem noted in the second paragraph EXCEPT which of the following?
a. A law firm's offer of a bonus-based compensation structure leads a client to believe that the success of his or her case is a foregone conclusion.
b. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm has few existing clients.
c. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm may give riskier advice than it would if it were working on an hourly basis.
d. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm is trying to charge more than it would if it were working on an hourly basis.
e. A law firm's offer of a bonus-based compensation structure makes a client suspect that a firm's objectivity may be compromised.

2. The primary purpose of this passage is to
a. justify the popularity of a behavior
b. evaluate the usefulness of a practice
c. demonstrate how to implement a program
d. discuss the ethics of a business activity
e. explain the reasons for pursuing a strategy

3. The passage's description of the issue raised by a bonus-based fee structure for law firms most clearly implies that which of the following is true?
a. Success-based bonuses violate the legal profession's standard of practice.
b. Lawyers working on behalf of a client cannot always determine the outcome of a lawsuit in advance.
c. The dignity of the legal profession is undermined by new legal services that differ from those typically offered in the past.
d. Clients whose cases are not successful cannot be adequately compensated by financial settlements alone.
e. Predicting the cost of legal services is more difficult than predicting the costs of other professional services.

Can anybody explain why option B is wrong in Q-1? I am not able to understand as where it is mentioned in para-2.

Look at the second last line of second paragraph:
A firm's willingness to work for a bonus may even signal to potential clients that a firm is desperate for business.

b. A law firm's offer of a bonus-based compensation structure makes a client suspect that the firm has few existing clients.
Hence, this can be deduced. A firm desperate for business means it doesn't have enough business.

Option (D), on the other hand, is not implied anywhere.
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Re: Corporate law firms have traditionally billed their clients on an hour   [#permalink] 13 May 2019, 22:23
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