Top Tips to Negotiating Better Telecom Contracts
Telecom contracts, like any contract, can be intimidating. Your goal is, of course, to secure the best deal for your company, and you may feel more comfortable with the part relating to provision of service. Keep in mind, however, that the contract will always be written to favor and protect the Service Provider. After over 30 years of negotiating telecom contracts, I’ve learned a few things I want to share with you today. To start, it is worth remembering the following points:
- Almost everything is negotiable – Except for taxes and mandated tariff pricing, everything is up for discussion and must be agreed upon.
- If you don’t ask, you won’t get – In most cases you may have to ask more than once. Providers tend to say they can’t or it’s not their policy, but don’t be discouraged.
- Don’t be afraid to redline – It is not uncommon to send redlined versions of the contract back and forth, several times, before arriving at a final version both parties can agree to and sign. You may have many edits that add, change or delete certain items and language, and you should not hesitate to make them.
- You can renegotiate at any time – Just like a mortgage contract, telecom contracts can be renegotiated if it’s no longer working for you. But bear in mind you will have to be ready and able to put the time and resources into doing it.
Now let’s take a look at some fundamentals that sometimes get overlooked, and that you will want to make sure are included. This is not an exhaustive list.
- Contract duration – In most cases, I would recommend that a contract term not exceed 36 months, and 24 months is better. Ensures you regularly review your terms to access the best terms and conditions as well as give you the flexibility to upgrade your technology with no penalties. You should also know what happens at the end of the term.
- Renewal – Some contracts include an “evergreen” clause, enabling it to automatically renew and tie you to that Provider for a further term. Remove it.
- Agreed terms – The contract should clearly state the services provided with the price for each service. Check they are the same as you agreed with the Provider. Also look for other agreements you made such as waived installation fees, or provision of managed services. Many times, what was promised by the Provider’s sales team, what is on the contract, and what you get invoiced might not match up.
- Miscellaneous and ancillary fees –A contract may stipulate the exact costs for services or products, but may not clearly identify other costs such as installation, training, or management. Make sure these charges are documented in writing. Also keep in mind that Providers are entitled to pass on many fees and surcharges on your telecom invoice, but that you, as the end user, are not necessarily required by law to pay them. They are therefore negotiable, though it is not always easy.
- Price modifications – Pricing should be either fixed or the circumstances and methods for pricing changes should be specified, for example, pricing might change when tariffs change.
- Pricing protection or Market Review clause – Such a clause essentially states that: Midway through your contract term, you may go out to bid for the same services. If you are quoted better pricing, your incumbent Provider has first right to match pricing. If they are unwilling to do so, you can move service without penalty. The details should be clearly spelled out so that both sides know what the process is if an agreement on rates or terms is not possible.
- Minimum Annual Revenue Commitment (MARC) – Look for this statement in the contract. Service Providers often try to lock you in to the highest number they can, and stipulate a financial penalty if you don’t hit your MARC. I have seen MARCs as high as 90% of projected spend! Always, always try to eliminate this altogether. If that is not possible, start at 10% and go from there. Stay tough on this one. The Provider needs to remember they are trying to earn your business.
- Force majeure – This clause should not contain any unreasonable excuses for the Provider’s failure to perform. If they do not meet their obligations, you want to be sure you’re covered.
- Limit of liability – This provision should apply to your organization as well as the Provider’s.
- Confidentiality – This clause should also protect your own organization’s intellectual property as well as the Provider’s.
- Indemnity – This is a third provision that should protect your own organization, not just the Provider’s. Service Providers often try to enforce some type of Early Termination Fee (ETF) in the event you disconnect service before the contract term is up. Negotiate hard on this to come to the best possible compromise.
- Time frames and consequences – Whether for payment or delivery, time frames should be specified in days, and it should be clear when the count begins, so there is no issue regarding payment terms or penalties such as Late Fees. If these stipulations do not fit into your business model, change them!
- Changes in your business – Make sure a clause covering the event of a downturn in your business is added if it is not already included. Also, what happens in the case of a merger or acquisition, or a divestiture. You want to be protected if your business model changes.
- Technology upgrades – You should also ensure you have a clause that states that, if it is beneficial or more economical to upgrade to a new technology during your contract term, there will be no ETF penalty for disconnecting existing services, as long as new services are with the same Provider. (This is also where being locked into a high MARC could hurt you.)
- Service Level Agreements (SLA) – These should be clearly spelled out and measurable. When properly managed and enforced, SLAs are the key to ensuring the Provider is meeting their performance obligations.
- Billing and Dispute Management – Make sure you have language in the contract that protects you and gives you the ability to receive credits and refunds as far back as the law allows. Providers often stipulate only a short window of time to dispute a charge, beyond which it is no longer considered a billing dispute or error. Sometimes this is printed on the invoice, but these time limits are controlled by Telecom law.
Finally, let’s take a look at some best practices when it comes time to renew your contract.
- Start renewal 9-12 months in advance – This will give you plenty of leverage for negotiating with your current Provider. You may even have enough time to run a full RFP (Request for Proposal). Get input from all your key stakeholders about specific items that are important to them, and that should be included in the contract.
- Review your current SLAs – By assessing how they are working out, you can incorporate into the negotiation any changes you wish to make to improve your operations.
- Look ahead – Ask yourself whether the services you currently have will continue to be sufficient, and what other options are out there that fit into your overall telecom strategy. Most carriers want their customers to upgrade to newer technology, so they no longer have to manage legacy services. It is in their interest therefore, and you should bear this in mind when negotiating pricing.
- Conduct an RFP where applicable – The best way to gain leverage with your Provider is to know what other vendors are offering for the same services. You can then compare and better understand current market pricing.
Remember: at the end of the day, you want your Service Provider to be a strategic business partner, not just a vendor. Better written, enforced and managed contracts lead to better business relationships, where both parties win.
The switch to a remote workforce probably did a number on your IT and Telecom costs. What are you doing to get ready for the new normal? In the first of this four-part webinar series, we’ll help you prepare your remote environment and discover potential savings so you can better balance your budget.