One percent higher discount for every ten percent of a company’s legal work assigned to a law firm

A 2007 GCR Outside Counsel Management Survey gathered data from 39 members on hourly rate discounts as a function of the amount of work given to the law firm. Stated simply, for every 10 percent of company work allocated to a law firm, the average size of the discount rose one percent.

For the first one to 10 percent of work assigned to the firm, the average discount was slightly more than 10 percent. For those law departments that shifted between 10 and 20 percent of their work to a single law firm, the discount rose a bit more than one percent, to 11.3 percent. Where a law firm obtained more than 20 percent of a company’s work, the average discount it obtained rose another percent to 12.3 percent.

This finding is odd because it makes more sense to me that a discount concession depends mostly on the volume of work anticipated, not on the percentage of the law department’s work that outside counsel gets. It also may be that with the low number of participants, the overall data is not representative of law departments as a whole. The participants may be departments that are particularly interested in, and have obtained, discounts. The group, after all, was a subset of approximately 170 law departments that completed the survey, so the methodology suffers from some selection bias (See my post of Oct. 16, 2006 on self-selection bias as it afflicts surveys.).