Law departments overlook a fundamental inequity when they compare proposals from law firms on their discounts from standard rates. The unfairness is that lower cost firms cut disproportionately more, or have smaller margins, when they grant the same percentage discount as does a big city firm that starts out with much higher rates. It’s akin to a regressive tax. This phenomenon partly explains why large law firms win disproportionately more competitive proposals.
If a law department wants to be aggressive in its cost saving, it should say that certain services are worth $275 an hour, no more. Then percentage discounts off standard hourly rates will fade out and the absolute value of work will come more to the fore.