By Erin Geiger Smith 

Nov 5 (Reuters) - The number one way in-house legal departments are bringing down costs is negotiating price reduction with outside counsel, according to a new survey.

Over the last 12 months, 71 percent of companies negotiated price reductions with their law firms, and 41 percent shifted work to firms that charged less, according to a survey of 200 chief legal officers conducted by law firm consultancy Altman Weil, said.

For the first time in three years, more in-house departments decreased their spending on law firms than increased it.

"Chief Legal Officers are not waiting for law firms to change their business models," Altman Weil's Daniel DiLucchio said, and are instead taking the initiative to create savings on their own.

A significant number of departments reported spending less on outside counsel budgets. Thirty-nine percent of chief legal officers said they decreased their outside counsel budget between 2011 to 2012, compared to 25 percent of companies that reported cutting costs that way between 2010 to 2011.

The most important factors influencing how in-house groups choose their law firms, however, were not financial. Instead, chief legal officers pointed to elements such as how well firms understand a company's business and industry, as well as referrals from colleagues.

One topic that is important for law firms but appears less central to in-house teams is succession planning. Almost twenty percent of companies surveyed said they have talked to their outside counsel about succession plans for key partners, but 40 percent said they haven't thought about it and 32 percent said succession planning "is not an issue."

The chief legal officers responding to the survey run legal departments of various sizes -- 46 percent are in a department of between two and 15 attorneys, while thirteen percent oversee more than 100 attorneys. Half of all departments had at least one attorney that resides outside the U.S.

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