Some law departments have concluded that certain work they pass to outside counsel can be done for a fixed fee. Many varieties of relatively common work have been subject to fixed or capped fees (with a cap fee arrangement, the firm might bill less than the cap amount; with a fixed fee, the firm is entitled to the full amount regardless of the actual work’s cost).
As a second method to limit costs, the law department announces that it will not pay more than a certain hourly rate for certain work. The work does not have greater value to that company, regardless of what the billing structure is of the law firm that does it or would like to do the work.
A third method is to set a maximum rate for associates. Perhaps that rate is that of a fifth-year associate. Anyone more senior to that is not permitted to charge more than the fifth-year rate. At the other end of the spectrum, some law departments refuse to pay full rates or any rates for very junior associates (See my post of May 11, 2007 on such policies.).