Contract
September 2, 2015 0

Tips for Navigating Contract Negotiations

Posted by:Chase Linscomb onSeptember 2, 2015

Disclaimer, we aren’t attorneys, we don’t want to be attorneys, but we have access to some very good attorneys should you need it.

Now, here’s the thing, we are telecom solution providers, which means we provide well-vetted, best-in-class carrier solutions.  Since we have been doing this for over 50 years collectively, we have consequently looked at literally hundreds of agreements and thus helped our clients as their advocate negotiate best-in-class terms. 

What does this mean exactly? 

Well, if you have ever looked at a telecom agreement, they tend to be more of a book than a contract.  They have terms that even people in the industry have to look up on occasion, which tends to mean very little for those who don’t deal with them daily.  Those that have been in the industry long enough have been bit by these telecom books (agreements) that are meant to be very one-sided and, you guessed it, not your side. 

The good news is that these telecom providers want to earn your business and they understand it’s a competitive landscape and you can take your business elsewhere.  So, when asked, they will provide you with better business and legal terms.  Based on my disclaimer earlier, I am going to focus on the business terms that you can and should negotiate; or (shameless plug) have Wired Networks negotiate on your behalf. 

Commitments

The carrier’s goal is to commit you to as much possible business every month as they can.  In return, they are going to provide you with favorable rates and favorable terms in general.  In most cases, the carrier is going to request as high as 100% of your original order as a commitment.  We have seen carriers waive the commitment or provide a zero commitment, but there are other areas where they have you committed as well, which will cover shortly. So if you see a zero commit, this is not your time to breathe a sigh of relief but to keep reading because they are going to get it somewhere else.  The goal as the customer is to get this to zero, but at least to 50%.  The carrier will play ball here, you just have to ask.

Term

This tends to go hand-in-hand with the commitment, and once again the carrier is trying to get the longest term they can from the customer.  Generally speaking, they would like to get at least three years, but would love to have up to five years.  In some circumstances, longer terms work well for both parties, but this tends to be when construction is involved and this is a way to avoid build-out costs.  In most cases, telecom services, as you know, tend to get less expensive.  They have been described to be in a race to zero, and perhaps someday will be metered like a utility.  We’re not there yet, and may never be.  They do continue to go down, so locking in long term contracts may feel like a mistake in a few years when cost have dropped by 10-25% or the connection itself is obsolete.  In my humble opinion, contracts with a duration of 2-3 years are most beneficial to customers and carriers alike.  This is absolutely another area where you can negotiate; remember, they want to earn your business and this is a competitive industry.

Loop and Port Commitments

I alluded earlier that there are plenty of other areas where carriers may lock you into commitments, the loop, or last mile, and the port is another one of those areas.  Whether it’s an internet, MPLS, or some other traditional telecom port, it may very well carry its own commitment that gets buried in the fine print of the loop section of the agreement.  As an example, we have seen agreements that require the customer to keep the service operational for the full-term (whatever that may be) or they will incur 100% penalty for early termination.  We have actually seen language like this for both the loop and the port.  It’s not 100% of the time, but it’s often enough that you need to be cautious of it.  This is also very negotiable!  The key is that the carrier does have some risk, but it’s not for the entire term.  So why should they impose a full term penalty on the customer?  In our opinion, they shouldn’t, and they don’t because we get this either removed or down to 1 year. 

Early Termination

No carrier wants to make it easy to terminate early, but they are willing to make exceptions.  Business downturn, unforeseen event and technology refreshes are common examples of why a carrier would make an exception.  All of these are reasonable ways to get a carrier to work with you and when you ask for them they will provide.  In addition, the fees or percentages that are imposed in the early termination clauses are negotiable as well, so ask for them.  Don’t forget, they want to earn your business!

Auto-renewals

This practice, in my opinion, is just down-right ugly.  Here’s the scenario. You’ve got a three-year term with your carrier of choice. The auto-renewal states that if the carrier isn’t informed that you don’t want to renew using the appropriate format in the specified timeframe both according to the agreement, then they will assume that you want to renew for the same agreement as the original term.  Yes, you are now on the hook with them for the same terms and price for the next three years.  In my opinion, this is a despicable practice and it’s not one that you should ever allow in your agreement.  The simple way to overcome this is to ask for an auto-renewal term on a month-to-month basis.  This means with 30 days’ notice after the initial term you have the ability to move your business, and I wouldn’t take no for an answer here.

Without writing a book here, these are some of the more prevalent gotchas when it comes to telecom carrier agreements, and some of the additional terms that can be negotiated.  I didn’t cover price because it is the most obvious thing negotiated in any telecom agreement, and most customers/vendors do a good job with this.  The above points are a deeper dive into the fine print of your telecom agreements, and suggestions on how to stop them from becoming a headache ahead of time.

Sure, we are biased, but we would recommend that you not only get an attorney involved for the legalese, but have a trusted telecom consultant at your side to make sure you are getting the best terms and pricing available.  If it’s not Wired Networks, it’s ok, but we do feel like we cover your assets as good or better than anyone in the industry!

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