Consulting Firms Enter Price War

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The days of $350 per hour consultancy fees are just another hazy memory among Chicago's consultancy professionals.

A tight economy and corporate cutbacks on spending for IT consulting are resulting in a price war, the likes of which few have seen. The price cuts, occurring in the Chicago area, are a sign of a trend that is eroding earnings at most consulting firms, including the Big Five.

"I don't think we've ever experienced this kind of downturn," said Richard Reck, the dean of Chicago's information technology consultants and partner in the software, Internet and information services practice at KPMG LLP. "We have a glut of IT services businesses. There's just too many of them."

Widespread discounting began last January and is showing no sign of slowing. Consulting firms are slashing partner fees by 50 percent, offering two consultants for the price of one, and taking on smaller projects for free with the hope of landing larger engagements in the future.

The services most likely to be affected by the price cuts include large custom applications, system integration, and system outsourcing.

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