Pa. Boutiques, Spinoffs See Gains as GCs Seek Cost Flexibility
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Even as Big Law celebrates its greatest demand growth since the recession, smaller firms are still reaping the benefits of greater cost-consciousness in legal departments.
According to a new survey, about a third of chief legal officers have reported moving work to firms with lower billing rates. Altman Weil's 2018 Chief Legal Officer Survey said these legal department leaders are "successfully using smaller law firms that offer quality work and service at considerable reductions in cost."
A lot of legal departments feel they "can’t hammer down rates on the big firms. And they don’t like contract lawyers, and they’re not going to alternative service providers. So what do they do? Shift to lower-cost firms,” Altman Weil principal Rees Morrison, who co-authored the report, told Legal affiliate Corporate Counsel earlier this week.
Local boutique firms said they've noticed the same, and it has caused their client rosters to grow.
Steven Cholden, a founding partner of 17-lawyer Bardsley, Benedict + Cholden, said his firm has seen an uptick in inquiries from companies it wouldn't have expected to hear from.
"We’re certainly not a big firm, but we’re seeing a lot of entities look to us for alternative fee arrangements or to more efficiently handle their matters," Cholden said. "On the corporate side, it’s all about metrics. It’s all about the bottom line and looking at numbers."
Cholden and his fellow founding partners launched their firm earlier this year with a modernized law firm business model in mind. They pointed to updated technology and lower overhead costs as ways to deliver more efficient legal services, under various fee arrangements. Pitching those features, he said, can sometimes outweigh the brand-name recognition of a larger firm.
"Savvy clients, such as well-funded mid-caps and even Fortune 500s, have come to realize that there are more efficient boutique law alternatives out there where they can place substantial portions of their legal spend without sacrificing attorney pedigree or experience, and maybe even increase it over what they get with Big Law," said Jason Sieminski, founder and CEO of Spruce Law in Philadelphia. "It’s not so much directly on price, but it’s the whole blended package."
Spruce Law, which he founded in 2010, has 11 attorneys, and none of them are junior lawyers, he noted. The firm does not have a traditional partnership structure, so profit-sharing doesn't play into the business model the same way it does at other firms, and the firm doesn't hold lawyers to billable hour requirements either. Because of its lower overhead and business model, Sieminski said, the billing rate for attorneys at Spruce Law is often comparable to a second- or third-year associate in Big Law.
David Gitlin, a partner at Royer Cooper Cohen Braunfeld, also looks to his Big Law past and sees a change in what he can offer clients. At his new firm, which has 40 lawyers, his clients are paying "significantly less" than they were at his previous firm, he said.
Much of his transactional work is handled on a fixed-fee, partial contingent basis, he said, and he also has clients who keep him on retainer for day-to-day corporate work. Those arrangements allow him and his clients to spend less time worrying about the legal bills, and "gives us more peace of mind," he said.
"One of the motivating factors of moving was primarily that I didn’t want to have to work on an hourly basis," Gitlin said. "I want to minimize the time I spend chasing after collections."
Neil Cooper, an executive partner and co-founder of Royer Cooper, said requests for alternative fee arrangements are on the ups. The firm offers capped fees, fixed fees and discounts on volume, Cooper said. And corporate legal departments are particularly responsive to discounts on volume.
Still, apart from Gitlin's practice, a majority of clients are still opting for the hourly model, he said. But even those clients want their lawyers to give better cost estimates and record their hours closely.
"They’re happy to pay rates if they’re getting the right staffing," Cooper said. "One of the challenges they face when they're taking matters to the larger firms … is in order to get the right prices for the work, they’re getting people who are too junior."
Similarly, Hangley Aronchick Segal Pudlin & Schiller managing partner David Pudlin said corporate movement to smaller firms is not only about the dollars.
Pudlin said his 46-lawyer firm has a more competitive and flexible rate structure than Big Law competitors. But clients also encounter fewer potential conflicts than they would with larger firms, and they can work more closely with smaller, dedicated teams on their matters, he said.
"Each team member is fully invested in and knowledgeable about the cases rather than being familiar with just small pieces or distinct issues," Pudlin said. He said competitive rate structures are just "an added bonus."
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