(FORTUNE Magazine) – INFLUENCE PEDDLING has come a long way since the era when railroad barons bought Senators as if they were so much rolling stock. Lobbying, the attempt to sway lawmakers to the side of whatever special interest you happen to represent, has become such established, highly paid, big-league stuff that new players are flocking to the game. In the halcyon days of yore, high-priced lawyers from blue-chip Washington firms dominated the field. No more. Public relations outfits have begun clambering onto the turf. The law firms have responded by broadening their advocacy to include such unjudicial undertakings as, you guessed it, public relations. ''The market is fascinating,'' says Jonathan Jessar, general manager of the Washington office of Burson- Marsteller, a P.R. giant. ''Nowhere else in the country are public relations firms and law firms competing head to head.'' Driving the trend is a competition for clients that has become as hot as a Potomac summer, and a belief that those clients want their lobbyists to offer a variety of services. So-called megafirms will do everything from tracking emerging legislation, say, to pressing Congress and government agencies for protection against foreign competitors; from mustering grass-roots support for a client's initiatives on Capitol Hill to what folks in the trade call coalition building -- stringing together lobbying groups with similar interests. Indeed, the new phenomenon has carried some Washington law firms so far from their traditional lines of work that they now find themselves buying and selling banks and building university dorms. Whether all this cross- pollination will bear healthy fruit remains to be seen. The megafirms have their critics, and the experience of some lobbying supermarkets has been bumpy at best. Consider Hill & Knowlton's Washington operation, a 160-man shop that amounts to the largest of the megafirms. The P.R. arm of the JWT Group, it had a lackluster presence in Washington until last summer, when it acquired Gray & Co. In the preceding five years Robert Keith Gray, a White House official in the Eisenhower Administration, a 20-year veteran of Hill & Knowlton, and a friend of Ronald Reagan, had gone off on his own to build Washington's largest and flashiest one-stop shop. Gray & Co. did it all: public relations, lobbying, grass-roots campaigns, advertising, events planning. Hill & Knowlton paid $21 million for the firm, making Gray some $14 million richer. The acquisition provided H&K with a star-studded Washington staff. Republican Gray curries clients and oversees the show. Frank Mankiewicz, press secretary to Robert Kennedy and former president of National Public Radio, serves as head of the public relations division. Not coincidentally, his Democratic ties also give the firm a foot on both sides of the political fence. Such clout hasn't been enough to head off problems attending the merger of Gray & Co. into Hill & Knowlton's old Washington office. In December, before the move into new quarters along the Potomac, the firm was carrying overhead for two buildings and reportedly lost $500,000. It is still pruning the payroll and selling off redundant assets. Staffers say Mankiewicz issues memos almost daily in an attempt to lift sagging morale. Gray won't confirm reports of financial losses, though he concedes ''some rough days,'' and he insists that the Washington operation is now profitable. He also claims that about 30% of new business is coming in the easy way, through referrals from H&K offices around the country. The second-biggest megafirm, the Washington branch of Burson-Marsteller, has had its spectacular growth marred by recent defections. Jon Jessar, the local manager of the Young & Rubicam subsidiary, worked with Gray for nine years. When he joined Burson-Marsteller three years ago, he promptly took the P.R. firm into lobbying. The operation has since tripled in size to 60 employees, who serve such clients as Clark Equipment, Philip Morris, and Jessar's alma mater, Temple University. In the past year, though, two ace lobbyists left the firm, a major setback in a business where people are practically the only asset. Jessar plans to make up for the losses and further strengthen the firm's lobbying arm, possibly by acquisition. The Washington office of ad agency Ogilvy & Mather was a minor player in the Potomac League until it started to diversify late last year. First it bought Targeted Communications, a hot little outfit that specializes in direct-mail lobbying -- soliciting droves of constituents to write their Congressmen in support of a client's position. To further strengthen its lobbying muscle, Ogilvy acquired a 30% interest in Walker Associates, the house that superlobbyist Charls Walker built around such hefty corporate clients as ATT, Ford, and CBS Records. OGILVY MADE its Washington presence even more visible in January by hiring Jimmy Carter's press secretary, Jody Powell, as head of its Washington outpost. Rivals charge he won't bring much to Ogilvy because he has no experience with big lobbying firms. ''What does he know?'' asks Mankiewicz. ''He's been in the business about 45 minutes.'' Nevertheless, Ogilvy's new array of services and Powell's down-home pizzazz have lured a number of new clients, including American Express and Lufthansa. You don't have to be part of a big national operation to flourish as a Washington megafirm; witness the success of the Kamber Group, a lucrative niche player. Victor Kamber, its smooth-talking founder, describes the seven- year-old firm as ''a one-stop shop for a liberal-progressiv e clientele.'' Kamber's staff of 87 stages press conferences, raises funds, does advertising, and lobbies for about 120 clients, mostly labor unions. Says consummate pitchman Kamber, exaggerating only slightly: ''I can say to a client, 'Want your shirts laundered? We'll have them done and delivered by Monday.' '' Kamber Group is the largest independent P.R. outfit in Washington; its revenues grew 56% last year. Controversy has surrounded Black Manafort Stone & Kelly since the seven- year-old megafirm started to combine lobbying and campaign consulting among the services it offered. Founded by Charles Black, Paul Manafort, and Roger Stone, the firm has 60 employees and boasts such clients as Johnson & Johnson, Bethlehem Steel, and a number of foreign governments. All three founders were key Reagan operatives during the 1984 campaign, and they tout their access to the White House and to GOP presidential hopefuls. Black, the master strategist, is an unpaid consultant to New York Congressman Jack Kemp, a presidential hopeful. Lee Atwater, a partner in the firm's political consulting arm, is one of George Bush's top advisers. The outfit has helped reelect such powerful politicians as Jesse Helms, and everyone knows there's no greater IOU-generator in Washington than helping put -- or keep -- a lawmaker in office. Going back to those same lawmakers to lobby for corporations and foreign clients, critics charge, stretches Washington's already loose ethical standards. It comes as no surprise to find Washington public relations firms pursuing lobbying bucks; what does have some old-time noses out of joint is the flocking of local law firms in the other direction, into P.R. and related fields. The most notable example: Arnold & Porter, a prestigious 230-man law firm that three years ago formed APCO Associates, a grab-bag subsidiary that provides lobbying, public relations, and a host of other services from real estate development to management consulting. Arnold & Porter set up APCO as a separate subsidiary mainly because it wanted to hire nonlawyers. The practice is allowed by the American Bar Association as long as the unchurched are not made partners or misrepresented to clients as lawyers. APCO is the brainchild of Myron ''Mike'' Curzan, a real estate lawyer and longtime Arnold & Porter partner. The idea came to Curzan four years ago as he helped a client, the University of California at Irvine, develop faculty housing. ''We ended up doing it all: hiring contractors, doing the bidding, developing bond financing, and managing the project,'' he says. Curzan brought in nonlawyer Margery Kraus, a vice president of a nonprofit foundation. Now APCO's president, Kraus says the operation has been profitable from the beginning and has grown to a staff of 54. ''We're a one-stop shop in the truest sense,'' says Kraus. A few months back, the Advanced Center for Technology Training, a Michigan company, came seeking lobbying help to get federal funding for its product, a work station that retrains assembly-line workers, among others. ''They hadn't developed a business plan, didn't know their competitors, hadn't thought through their marketing strategy,'' says Kraus, who told them APCO could help them with all that and do the lobbying and P.R. too. Arnold & Porter's diversification hasn't stopped with APCO. The law firm also bought Pollock & Associates, a small public relations outfit, a few months ago, and started a limited partnership with William Isaac, former chairman of the Federal Deposit Insurance Corporation. Called Secura Group, the partnership counsels more than 150 banks and savings and loans on issues like restructuring and financial regulations. Washington eyes are firmly fixed on the goings-on at Arnold & Porter. Many law firms still show disdain for soiling their hands with nonlegal work. But economics, particularly the fact that nonlawyers typically charge less per hour for lobbying work, are driving many to consider diversifying. Even Covington & Burling, the bluest of blue-chip firms, is mulling the notion. Says a rival lobbyist: ''They won't say so publicly, but privately they talk about it constantly.'' MEGAFIRMS HAVE their share of detractors who say that big doesn't mean better service. To the contrary. Lobbyist Anne Wexler, a founder of Wexler Reynolds Harrison & Schule, a firm that specializes in forming lobbying alliances for clients, frequently works with megafirms. ''The quality is often uneven,'' she maintains. Marilyn Zahn, associate director of public affairs for the American Insurance Association, a trade group, says that her organization reviewed the pitches of five megafirms for a P.R. campaign. ''Most of the plans were not tailor-made,'' she concludes. ''They came out of the word processor with our name inserted.'' One-stop shops are supposed to be more cost effective than assembling the efforts of a bunch of boutiques. It isn't necessarily turning out that way. Having on hand all the people you need for a major campaign means a payroll full of lobbyists, direct-mail experts, advertising specialists, and on and on. ''That's a lot of people waiting around until you say, 'Go,' '' notes Bob John Robison, former head of Hill & Knowlton's Washington office, now running his own P.R. firm. Responds Bob Gray: ''True, you have to carry the expertise. But if you don't tap it enough, you get rid of it.'' Another, less frequently mentioned, + solution is to raise fees, which are already hitting the ozone. Most of the larger megafirms charge a flat fee -- with a $6,000-a-month minimum these days -- and slap expenses on top. In addition, they bill by the hour for special projects. Superstars like Gray command as much as $350 an hour. Lesser luminaries like Jessar clock in at about $250. Smaller firms, without the star-studded overhead, can afford to charge much less, sometimes half what the megafirms get. In their defense, the big one-stop shops cite their networks of offices worldwide, an unbeatable asset, they say, when it comes to something like rescuing the image of Union Carbide after the Bhopal disaster. Burson- Marsteller takes credit for that one. ''They're great at fighting world wars,'' says Wayne Valis, head of Valis Associates, a lobbying firm that concentrates on building coalitions. But as one corporate executive asks: ''How many Bhopals are there?'' When it comes to the guerrilla warfare more typical of Washington, many corporate clients say they still prefer the small specialty shops that offer cheaper rates and a more customized approach. Still, for some corporations only the big names will do. ''You get what you pay for,'' says Guy Smith, vice president of corporate affairs at Philip Morris, a Burson-Marsteller client. Another consideration: For a corporate underling concerned about being sniped at, the choice of a Hill & Knowlton or an Arnold & Porter provides megaprotection with which to cover his you-know- what. As one company man puts it, citing the credo of corporate computer buyers: ''You can't be criticized for going with IBM.''