[Blogmeister’s Note: In January Fletcher, Heald & Hildreth welcomed Robert Butler into the fold. Bob – whose extensive bio can be checked out here – has decades of experience in telecom contracting, the fine art of identifying a client’s telecom needs and negotiating to secure the capacity and services to meet those needs without (a) over-buying (i.e., ending up with more services or capacity than you want), (b) under-buying (i.e., getting less than what you really need), (c) over-paying, or (d) exposing yourself to unnecessary potential liabilities. Bob has graciously put together a set of tips that any party looking to deal with a telecom provider should keep in mind. The following — which presents the first two of Bob’s Top Ten Tips — is the first of five installments.]
Buying telecommunications and related services presents a different kind of contracting challenge. Such services are, of course, absolutely essential in the modern marketplace. But successfully arranging for just the right services is a far cry from buying paper clips at Office Depot.
Start with the expanding universe of constantly developing high tech products available, all swimming in a dense alphabet soup of acronyms – VANs/WANs, VPNs, VOIP, ISDN, DSL, ATM, MPLS, DS1s, 2s, and 3s, OC-1/10s, etc. Recognize that those products include a mix of regulated and unregulated offerings. Throw in the reality that many routine transactional documents often still include (at least in the initial go-round) contractual artifacts from a long gone monopoly era. Appreciate the fact that one’s particular situation often demands unique contractual provisions addressing specialized needs or concerns. And don’t forget the importance of minimizing exposure to liability that could arise from myriad potential worst case scenarios.
The bottom line is that a steady and experienced hand is indispensable to securing a customer-friendly deal. The following are prime examples of areas in which an experienced hand can and should assist anyone looking to arrange for telecom services.
Tip No. 1 – Plan Early
Try to stay at least a year ahead of the game. Whether you’re planning to renew an existing arrangement or strike an entirely new deal, a year or more in advance is NOT too early to begin planning to meet your future telecommunications requirements.
Before jumping into any deal, you’re going to need to:
- identify your current service demands (by, e.g., obtaining detailed information from your existing provider);
- identify projected service demands; and
- evaluate new and upcoming technologies in this fast moving field.
Above all, don’t wait until your current agreement is about to expire. The closer you are to losing your existing telecom services, the less leverage you have to negotiate. Sharply increased rates and/or other less than desirable terms can be avoided if you start the process early and don’t end up trying (usually unsuccessfully) to negotiate with your back against the wall.
Once you have a well-founded idea of what you currently need and what you’re likely to need down the line, use that knowledge to prepare a request for proposal (RFP) to solicit competitive bids from potential telecom vendors. The RFP should require potential vendors to provide detailed and specific responses to all items, including not only service and pricing proposals, but also key contract terms. If you have particular contract language covering important terms in mind, that language should be set out in the RFP so that there’s no question about what you want. And you should insist that, if a responding vendor has any problems with your proposed language, the vendor propose alternative language that would be acceptable to the vendor. This will save substantial time in the inevitable follow up negotiations.
Tip No. 2 – Understand the Structure of the Deal Documents
The typical telecommunications agreement consists of a range of separate and distinct components, each of which serves one or more functions once the arrangement is signed and put into operation. You start with a general “terms and conditions” document (often dubbed a master agreement or MSA), to which service-specific attachments (possibly titled “supplements” or “addenda”) are appended. The MSA usually also provides for service orders to be placed at times during the life of the agreement. It may also include reference to separate tariff schedules, service guides, price guides and other such items.
This structure presents significant risks for the uninitiated. Understanding how these documents fit together is crucial to ensuring that you ultimately get out of the deal exactly what you think you have bargained for.
For example, the various additional documents – attachments, guides, addenda, etc. – may include hundreds of provisions totaling a thousand pages or more, all slanted in favor of the carrier/provider. These are often simply posted on a website and subject to unilateral changes by the carrier. Tariffs are similarly changeable and, what’s worse, they control by operation of law even if your vendor’s rep has explicitly told you otherwise.
In other words, even if you think that you’ve nailed all the important details down in the MSA, other elements of the deal incorporated by reference in the MSA (e.g., tariffs) can still be changed by the vendor without notice to you.
To avoid major disappointment, it is therefore of paramount importance that all critical business terms be expressly set out in the core contract documents. Also, you should preserve, at a minimum, the right to terminate the agreement in the event any provision is altered in a manner unfavorable to your interests. This can often be accomplished through inclusion of a material adverse change (MAC) clause.
Another source of potential surprise: service attachments and orders generally control over conflicting terms in an MSA. This means that a lowly clerk submitting an order for something as simple as a new phone line could make a material change in an agreement that was painstakingly negotiated by your executives and lawyers. It follows that establishment and diligent implementation of a reliable contract administration process are necessary to protect your deal.