Firms in lower-rate markets, such as those in central Pennsylvania, have long touted the cost savings they can offer clients. But with the growing demand for alternative fee arrangements, they’ve found another attraction to draw clients away from the big city—and they’re preparing to do more.
Leaders of several firms based in or with a major presence in central Pennsylvania said they’re already working on an alternative fee basis in various practice areas. But they want to do more.
“I don’t think you can see the landscape changing yet, but you’re going to,” Barley Snyder managing partner Jeffrey Lobach said.
Lobach said his central-Pennsylvania-based firm has a task force examining alternative fee arrangements, in anticipation of that change. In the end it will be good for clients and for the legal community, he said.
Currently, Lobach said, a lot of clients ultimately choose the billable hour model. But in their requests for proposals, they ask firms to provide a “menu” of alternative fee arrangements, he said. AFAs are more common in tax appeals, guardianship appointments and the real estate practice, he said, and immigration cases are almost all flat-fee.
David Kleppinger, chairman of McNees, Wallace & Nurick, said his Harrisburg-based firm is taking steps to provide more alternative fee arrangements by hiring a legal project manager coordinator. Between 20 to 25 percent of the firm’s work is done on that basis, he said, including nearly all public finance work and more than half of the patent practice.
Burns White managing partner David B. White said his firm does 25 to 35 percent of its work on an alternative fee basis, and he expects that to grow over the next year. Burns White has offices in Harrisburg and Wilkes-Barre, as well as Pittsburgh; Philadelphia; Cleveland; Wilmington, Delaware; Wheeling, West Virginia; and Cherry Hill, New Jersey. White said there appears to be more opportunity to offer fee flexibility in the smaller markets.
“We promote it, actually,” he said. “I’m a strong believer in the fact that the days of sending out a bill with whatever time it took to do it, and expecting clients to pay it, those days are eroding and probably eroding quickly.”
Two other firms were recently founded in the Harrisburg area, with an eye on being more nimble when it comes to pricing. Pillar + Aught and Penwell Bowman + Curran both launched this year, founded by former members of Harrisburg-based Rhoads & Sinon.
“I started to watch my clients be subjected to my old firm’s rate pressure … it’s not just my old firm, it’s every firm,” said Todd Shill, one of Pillar + Aught’s founders. “I thought my clients deserved better here.”
Still, Rhoads & Sinon managing partner Drake Nicholas said his firm offers alternative fee arrangements “all the time,” particularly in municipal finance and certain transactional work. He said Shill and the others who left had “every opportunity” to do so at Rhoads & Sinon.
“In this day and age if a law firm doesn’t explore alternative billing arrangements, they’re behind the times,” Nicholas sai
Smaller Town, Bigger Savings
In terms of being able to provide clients with economical options, being in a smaller market doesn’t hurt, Lobach, of Barley Snyder, said. And having just 81 lawyers makes them nimbler than the large firms in large cities, he said.
“The clients [in small markets] might tend to be more interested, because they cannot absorb rates of $300 or $400 an hour,” White, of Burns White, said. “But a flat fee can be built into their budget.”
For that reason, clients are putting more pressure on firms in any market to provide flexible payment options, Shill said. Fee flexibility and cost efficiency were major factors in their vision for the new firm, he said.
Shill said about 70 percent of his work is on an alternative fee basis, including work for local clients and clients from bigger cities. Shill started using AFAs at his former firm, he said, but opening the new shop allowed him to do more of it. The payment options draw clients into the Harrisburg legal market, he said.
“One of the big selling points for smaller firms and smaller markets is just that. We don’t have the layers of 50 executive partners who are going to have to vet everything we do,” Shill said.
Like Shill and his partners, Scott Penwell recently launched his own firm with an eye on flexible fee options. He also came from Rhoads & Sinon.
“Clients hate the billable hour,” Penwell said in an interview earlier this month. “One of the things we’re going to do is a fair amount of fixed-fee or not-to-exceed business, to give people the ability to plan and not be surprised.”
Firms have to get more flexible if they’re going to be working with sophisticated clients, Kleppinger said. That creates a market opening for mid-market firms in smaller cities, he said, where overhead costs are lower, allowing not just for lower hourly rates, but more room for negotiated arrangements.
“Innovation is necessary in those markets perhaps even more so in order to look more attractive to clients who are fed up with the more traditional model in the metropolitan areas,” Kleppinger said. “Clients are saying, ‘How can anyone be worth $1,000 an hour.’”