Volume Commitment Telecom Agreements

8/8/2019 Volume Commitment Telecom Agreements

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Berlin Pacifc

Vendor

Management

Volume CommitmentVolume Commitment

Telecom AgreementsTelecom Agreements

With a Focus on AT&T’sWith a Focus on AT&T’sMARC Contracts and YouMARC Contracts and You



Volume Commitment Telecom AgreementsVolume Commitment Telecom Agreements

With a Focus on AT&T’s MARC Contracts and YouWith a Focus on AT&T’s MARC Contracts and You

This is an in depth how-to guide for IT, finance, procurement, and legal, and relevant totelecom and IT contracts generally.

We’ve found that many of our clients come to us with signed Volume Commitments, especiallyATT contracts with !A"Cs #!inimum Annual "evenue Commitments.$ %nfortunately manyfirms fail to protect themselves from pro&lems they didn’t see coming, yet in retrospect the pro&lems were inevita&le given how the vendors operate.

'This is not easy. !A"C and similar-type contracts can &e very challenging to negotiateand manage to everyone(s advantage) -*en !. CI+

Without realiing it, firms can easily end up spending su&stantially more, &e it /, 0/ or more, in a&solute dollars than they e1pected, or spend to 0/ or more per service on averagethan e1pected over the life of the contract. 2ither scenario wipes out most firms anticipatedsavings from a new contract. 3or those firms who do realie the pro&lem, it is usually too late todo anything a&out it. !any never do.

4ou can learn &elow some ways to protect yourself from unpleasant and e1pensive surprises. Wehave included an e1tensive list of 5ey items to loo5 out for with volume commitment contractsand then for contracts in general. 4ou may wish to literally chec5 these off through the contract process, or create a chec5list spreadsheet. 3irst we’ll present some &ac5ground. 3eel free to s5ipahead to the actiona&le items in Key MARC Checklist Items.

What are Volume Commitments?

Volume commitments state 6 7you commit to spend 8 dollars per year for 4 years. If you don’tmeet your commitment, you pay the difference. In return you can &uy the services listed &elow atthe rates listed &elow9’

+ne &enefit of volume commitments is that you 5now what you have to spend and you simplyneed to spend that amount on whatever services you li5e. This gives some fle1i&ility to add anddrop services and you are loc5ed in to the pricing you currently li5e.

Primary Problem:

Billing ErrorsWhile this won’t come as news to many people, often the prices for services on your &ills won’t &e what you agreed to. It is worth considering how to shift the &urden of the vendor’s failure onto them.

Berlin Pacific – Vendor Management !"#$"% sales'(erlin)acific*com

sales@berlinpacifc

.com

.berlinpacifc.c

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mailto:[email protected]








Attainment

What does surprise people is that many vendors will not accurately trac5 your spending and letyou 5now your attainment in a timely fashion. They cannot answer if your spend is a&ove or

&elow your committed amount. "emem&er, they have anti:uated and disparate systems. Thisleads either to unpleasant and costly surprise e1penses that could have &een avoided, or tooverspending to avoid penalties. A real lose ; lose. The vendor wins &ecause either you pay themmore per service purchased, or you &uy more services than you needed to. <y analogy, throughno fault of your own you &ecome li5e a pro-sports team with a salary cap that is always spendinga&ove or &elow the cap and never hitting the target.

'I(ve run into the same issues. They have legacy <ell services under a large Clu& account,A<= for >? and newly transitioned !I@ services #>egacy <ell to legacy ATTconversion$ that has somehow &een moved over to A<=. The commitment trac5er functionality with &usiness direct is a mess as it shows revenue commitments that are not

nearly what they need to &e.) !arc W. Consultant

+ne client was cheerfully informed &y their vendor that the client was B, &elow their commitment in their first year, &ut not to worry &ecause o&viously the vendor’s trac5ing of theclient’s spend was wrong so they wouldn’t &e as5ed for B,. The vendor did not tell theclient early on they weren’t spending enough, nor did the vendor determine what the trueattainment was. The client was left in the dar5 hoping the vendor would not present them with a &ill for missing attainment for that year or future years.

%nfortunately if your !A"C is ,, ,, or ,,, and we’ve seen them all,what regularly happens is that after your contract is over or almost over ATT will present a &ill

for missing the !A"C. This also happens with other carriers, &ut we’re impressed &y howconsistent ATT is so we’ll use them as an e1ample.

"eal life e1ample A+ne of our clients, a &uilding supply company with multiple locations had an agreementalready in place to use ATT for their long distance provider. They as5ed us to loo5 for a!A"C attainment shortfall notice they got well in to the last year of their contract.ATT claimed the firm was DD/ &elow their commitment for !A"C attainment. We5new the firm was spending plenty of money with ATT. It too5 ATT months toe1plain the origin of the shortfall.It turned out ATT not only wasn’t counting the firms !I@ spending on data Ts, they

refused to do so as !I@ wasn’t in the contract. We thought the wording covered !I@, &utATT didn’t. The client had no idea they’d signed a contract where there was no waythey’d ever reach their !A"C.

The firm and <erlin Eacific negotiated an agreement where&y the !A"C attainmentshortfall fees were waived. In return the firm signed on for additional years with ATTand ATT agreed to count all spending with ATT.






2ven after it was signed ATT had pro&lems properly processing the paperwor5.3ortunately this time the firm had a signed agreement protecting them.

"eal life e1ample <Another client was informed of a shortfall well after the contract was over and the clienthad continued month to month #despite our recommendation to either re-negotiate pricingor leave.$ The client called us urgently wondering what had happened. Together wedetermined that the pro&lem was that the client had managed their spending to come in ontarget in their last year. Fowever a large credit had &een deducted from their spend.

The client had received a large credit at the &eginning of their last year. ATT had &een &illing for an e1pensive line to literally nowhere, ma5ing it relatively easy to get a credit.This credit for previous years’ errors was counted against the last year’s !A"C creatinga shortfall. In reality ATT shouldn’t have &een overcharging in the first place, and in the

second place the discount was for overcharges on previous years not for the last year.

When faced with a large &ill for a shortfall the client will &e confused &ecause ATT had never said anything, and their total &ills with ATT were a&ove the commitment. The client will thenlearn that ATT was not counting some or all of the following

• Ta1es

• "egulatory Charges #and dodgy surcharges and pass throughs$

• E+T@ lines

• !I@ 6 Internet @ervices

• E"Is and Voices Ts

•<ills which you would assume counted towards the !A"C since they have ATTs nameon them.

• @ervices which you would assume counted towards the !A"C since that type of service

is clearly listed on the contract.

While the last one is ATT’s fault, if you signed the wrong contract ATT will &e 7correct’ innot counting the other items.

After learning these surprising facts, the client then has to spend valua&le time fighting withATT, or use <erlin Eacific to handle a pro&lem which shouldn’t have occurred in the first place. In some cases the contract is such that the client is completely defenseless, even though

they followed the spirit of the agreement, they have to pay in even more money.

3ortunately there are things you can do to protect yourself. <erlin Eacific can help negotiatethese agreements, and we can even &ring in lawyers who are e1perts at creating ironcladdocuments for you. <elow is a list of 5ey items we loo5 for when negotiating an agreement.

Key MARC Checklist Items






4ou have no rights that aren(t in the contract.

2ducate yourself. There are a num&er of things you should understand, do, and loo5 out whenyou &egin the process.

Attainment - Spell it out

!a5e sure ATT ma5es clear what counts towards the !A"C - which part of which &ills. >istthe &ills that count. ATT doesn(t include many things - li5e E+Ts lines. ?evil is in the details.

<e very clear on what is included on the Annual Volume Commitment. Their interpretation will &e in their favor. @pell it out. Wal5 through it.

This is so critical it is worth spelling out further 6

In addition to the contract language listing the services counting towards thecommitment, have the carrier document what e1actly which current or future &ills or parts of &ills you’re paying and services you’re &uying today, or are a&out to &uy, counttowards your volume commitment.

'+n <ill A 6 sections 8, 4,G count towards your commitment, sections %,V do not count &ut must &e paid for. If there are any other sections you don’t have to pay them.’

The more specific the &etter.

4ou still need the part where the vendor lists in principle which services or costs count.

!a5e sure you understand what those services are. @pelling that out also helps. Are theytal5ing a&out pre or post discount costs. #@imply changing that wording ma5e ATT!A"Cs easy to fulfill.$

This allows you to now determine, from your monthly records, what your attainment is.Whenever you purchase new services follow this process.

!a5e sure to document what is &eing spent now and what portion will count to thecommitment. ?ocument e1actly what portions of the &ill count towards the volumecommitment.

!a5e it very clear what is going on.

Attainment Reporting This is also critical.

As one colleague said in a private forum'I don(t thin5 it(s advisa&le to as5 ATT to run their own hen house. 3irst, the eggs will &e hatched &efore ATT gets around to it...)






What 5ind of reporting on your attainment do you wantHFow oftenHWhat formatH

As5 yourself what you want.Tell the carrier we want 8Carriers says - (this is what we can do.( "emem&er they have comple1, anti:uated, and disparatesystems. ATT has !I@, +ne=et, A<=, 2VE=, etc.

Try to figure out what you can live with.

?etermine what how you will &e protected if the vendor does not report your attainment in atimely manner.

'If you don(t send spreadsheet every month then you have to 5noc5 1 off my volumecommitment.)

'If you don’t tell us within 8 days of month’s end that our attainment that month was lessthan ;0th of the annual commitment, then any shortfall that month won’t count.)

et them to put it in writing.

!a5e it clear that you want to pay what you owe, &ut you don’t want to find out later you owemore.

In general most telecom firms must produce a &ill within one year or ris5 not getting paid. Thisstill may &e too long as you may not get a &ill for the last year till one year after the end of thelast year.

=ote that ATT and other vendors often have clauses that credits to their customers for &illingerrors can only go &ac5 si1 months. !a5e sure this is reciprocal for commitment shortfalls. If they don’t notify you within si1 months you’re off the hoo5. This will instantly minimie thedamage. Fowever since you’re the customer and it is their Jo& to tell you in a timely error freemanner what you owe, and you’re always right &eing the customer, this isn’t really reciprocal.ive them perhaps the K of days you have to pay them to notify you of shortfalls. If you ta5elonger to pay, they can ta5e longer to tell you what you’ll owe.

Service evel Agreements - SAs

!a5e sure there is an effective @>A in place. This isn’t a guide to @>As 6 &ut sometimes @>As Just focus on technical issues 6 especially uptime and recurring pro&lems.

?oes the @>A also address

• Customer care

• Customer service response times 6 does it ta5e forever to get helpH






• Customer service issue resolution timeframes 6 once you get help, how long will they

ta5eH

• Attainment 6 especially correct reporting.

•

<ill Accuracy• 2:uipment compati&ility 6 if the service doesn’t wor5, can they point the finger at your

e:uipmentH

• 2scalation 6 if you are not happy, how can you escalate to senior managementH

Setting E!ectations "or Working #ogether

This section is not a&out !A"Cs per se, &ut it is a&out how you the details of how you wor5 together, which is part and parcel of the volume commitment contract.

!a5e sure to get comforta&le with the customer facing team. Are there people there who are

committed to serving youH Are they 5nowledgea&le, attentive, and timelyH #If you’re unsureimagine how they’ll &e after you &uy. ?o you feel comforta&leH$ Can you escalate easilyH #Willthey give you the num&ers and e-mail addresses of senior managementH +r do you only get thenum&er of a call center in IndiaH +r worse yet some other countryH$ 4ou are the customer, andtherefore 7always right.’ <e sure you are happy.

What are the e1pectations for regular account review with the vendorH This should includereviewing current &ills, any !ACs since the last meeting, any production issues. This may &e awee5ly or monthly event. This helps 5eep everyone on the same page and esta&lishes arelationship and trust. Account managers have a tendency to drift off after a deal is closed so it isalso good to set e1pectations early.

What are the e1pectations for !AC trac5ingH

@imilar concerns for attainment trac5ing also apply for @>As. Trac5 downtime yourself, and finda way to timestamp the start and end of it in your own trou&le tic5eting or =+C system. ATTmay fail to 5eep trac5 of and document that two day outage for you.

Fow will the vendor handle the inevita&le &illing errorsH What if you’re not satisfiedH What if the &ill is incomprehensi&leH Techni:ues for handling &illing errors are a whole other can of worms, &ut it is worth &ringing this up during the negotiations. In some cases dealing with errorsis Just a cost of doing &usiness 6 &ut the vendor needs to realie they’re increasing the TC+.

Try to ma5e sure credits from &illing errors are not deducted from the spend counting towardsattainment. It was their fault for the &illing error in the first place.

$ther Key #elecom Contract Items






Watch out for discount only contracts. !a5e sure underlying prices are agreed to and loc5ed infor services you’re li5ely to &uy.

@ome contracts list the prices, and the client later discovers prices are su&Ject to change. +ne of

our clients, a law firm, actually signed a contract where they committed to spend over 0,where the vendor literally wrote

LCarrierM "2@2"V2@ TF2 "IFT T+ I=C"2A@2 +" ?2C"2A@2 !+=TF>4"2C%""I= CFA"2@ #N!"C@N$ += AT >2A@T TFI"T4 D ?A4@( =+TIC2A=? +TF2" "AT2@ AT A=4 TI!2.

The carrier a few months later raised rates almost O/. ?on’t permit this. This same contract alsolisted language that the carrier, at their discretion, could for each partial month of service pro-ratethat month’s charges or charge the full month.

Watch out for regulatory charges and surcharges. If you have to, go ahead and pay them, &ut firstma5e sure they e1plain what they are, how they’re calculated, how much they’ll &e, and if they’ll

count toward the !A"C. If they can’t e1plain them or don’t tell you a&out them in advancema5e it clear you don’t have to pay them. Eut this in the contract. We’ve seen language wherecarriers state they have the right apply any ta1es, surcharges, and assessments they feel li5e. In practice this means they can and often will &ill clients whatever e1tra amount they feel li5e, padding the &ill &y a few percent with completely ar&itrary and unpredicta&le charges.

@ome people simply say that they won(t pay the %CC or %@3 and similar charges. It is a passthrough not an o&ligation on the customer. @imilarly we recommend getting an e1planation of how they’re computed, especially if you’re &uying !E>@ or other data services.

!a5e sure credits are ta5en in to account. +ne carrier even insisted on calculating all ta1es and

surcharge &ased on the charges &efore the promotional credit was applied. This was e:uivalent toa store selling an item on sale for O and charging sales ta1 &ased on the original stic5er price of . #As of writing this we’re investigating with lawyers if this is illegal.$

!a5e sure you(re not responsi&le for charges or !A"C penalties if ATT didn(t install theservice

If the site is down due to disaster or anything else, don(t pay for the service.

Agree to no more than P/ to Q/ of anticipated spend. *eep fle1i&ility. This ma5es it hard tomiss the !A"C. If it loo5s li5e you will miss the !A"C and it is your fault, as5 to e1tend the

contract to ma5e the committed volume up to them.

This may &e a stretch, &ut ma5ing the time and volume parts more fle1i&le may &e &etter. 2.g.oal is to reach D,, in three years, &ut you have five to do it and the spending iscumulative. This still doesn’t let them off the hoo5 for trac5ing the Ks.

!a5e sure there are no penalties for putting items in dispute and not paying the disputed items.<e prepared to not pay for items in dispute. #This goes in to the whole field of e1pense






management, &ut trust us documentation and follow up processes are 5ey.$ ATT and other firmswill waive penalties for late payment if you’re disputing something, &ut ma5e sure it is in theagreement.

Construction fees to &ring in new services or redundant paths, re:uests for cell towers, etc. aresimilarly negotia&le. If the infrastructure can &enefit other potential customers, e.g. cell towers,lines to serve your office can serve others floors or neigh&oring &uildings, that’s a reason to not &e charged construction fees. Any costs, if you have to pay them, should count towards the!A"C.

Are you part of another entityH What agreements do they haveH !ay&e you can use their pricing,or they can use theirs. If they’re part of another !A"C you can often get your spending to counttowards their !A"C and to get their pricing or leverage lower costs. <ut again, ma5e sure this is put in writing when ma5e the move. #@ee Attainment ! Spell it out a&ove.$

>oo5 out for the renewal and end of contract clauses. Vendors li5e automatic renewal clauses. If possi&le ma5e them give you notice of the end of contract and any automatic renewal. As5 for the contract to go month to month instead or either renewing or going to non-discounted tariff rates.

7Change in &usiness’ clause. 4ou must attempt to get a &usiness downturn or some other language in a contract. This means you can cancel services if there is a flood, part of your &usiness is regulated out of e1istence or Just fails, the economy tan5s, etc. In our opinion thereisn’t much reason for telecoms to charge you &ig penalties for leaving. If they gave youe:uipment you should pay for it or give it &ac5, and if they waived install fees it is not

unreasona&le for them to insist on getting that &ac5. To give a story from one of our CI+colleagues

I had a million !A"C with ATT, &ut the company I was with sold off a divisionand also ended up closing hundreds of offices due to a maJor shift in &usiness strategy.We also had to change our networ5 infrastructure architecture from a costly 3rame-to-AT! networ5 to a &road&and with dial &ac5up #among other things$ to 5eep thecompany(s costs down and to remain profita&le and in &usiness. This type of clause wasnot in the initial contract, and &oth sides did eventually negotiate a fair compromise, &utwe a&solutely had language added in at renewal time. Fad we not, we would not have &een as successful in getting out of trou&le the ne1t time it happened. We had a provision

in the contract that allowed us to renegotiate the !A"C without penalty due toe1traneous &usiness conditions. That may &e tougher to do with smaller engagements #itwas in ATT(s &est interests to 5eep the remaining Q million in revenue coming in, andto not force us to move to another carrier$, &ut it is worth pursuing that language for anycompany, provided they are 5eeping the carrier in the loop on what is happening with the &usiness. As an e1ample, I gave ATT the heads up a&out potential changes to the &usiness landscape well in advance, so I was not dropping the &om& on them after the






!A"C was missed. Another way to handle the a&ove, which I implemented withCompa:;FE, was a true-up for each agreed-upon period #in my case, it was each year$.

$utsi%e assistance

It is o5 to get the vendor to e1plain to you how the contract protects your interests, or to revisethe contract to meet your re:uirements. !any of these vendors are perfectly a&le to insert correctlanguage. In some cases you may want your lawyer to write portions. Faving a lawyer reviewany final agreement is a good idea.

If managing the myriad details seems overly comple1, we can help manage these negotiations aswell as refer you to appropriate legal counsel who can verify if the contract you negotiated protects you.

This is what one CI+ had to say on the importance of outside assistance

I would stress the need for help in negotiating such large and comple1 contracts. 4oumention that it is a good idea to involve a lawyer, &ut I thin5 it should &e stronger thanthat when it comes to larger, more challenging contract that include !A"Cs. As a former customer that had entered into a num&er of these agreements, I learned some hard lessonsearly on that could have &een avoided had I sought the help of legal counsel or of ane1ternal resource such as <erlin Eacific that had strong e1perience negotiating suchlanguage...I had to use every last creative negotiating s5ill I had to avoid disaster. ethelp...it is worth the time and e1pense.

Prior Pre!aration "or Contracts in &eneral

4our sense of what is possi&le and what to loo5 for will set the tone for your future 6 in life andwhen negotiating any contract or agreement.

In an ideal world, what would you li5eH It might even save a lot of time to have this documentedso it can &e handed out.

@hop around. et a different perspective &y loo5ing at 0, D, or R providers. "eading, comparingand understanding their agreements is also helpful. While many people a swayed &y ATT’sassertions that no one had their deep infrastructure and &readth of services this is no longer the

case. #We also 5now many of these compara&le providers, many of whom offer su&stantivelysuperior service to the old firms, and we 5now what they’re really willing to charge.$

2verything is negotia&le. While we 5now that is not always true, you should go into everynegotiation &elieving it is true. It never hurts to as5.

As always, you, the customer, should understand that anything in an initial contract provided &y a partner, ATT included, is up for discussion and;or negotiation. All too






often, people feel the need to accept the terms &ecause they don(t understand them, areintimidated into not spea5ing up, or they have the feeling that ATT or other vendors are &ig and e1perienced, 5now what they(re doing and have the customers( &est interests inmind at all times.

The contract should &e a win-win. et answers to your :uestions, ma5e sure the language isaccepta&le and that you have no regrets.

In the end, all contract negotiations !%@T &e a win-win. If either side feels li5e theytruly got one over on the other, or if either side feels li5e they gave up too much and feeluncomforta&le, it is most li5ely not a good deal and will end up in dispute somewheredown the road. If either side has to de&ate the contract wording to deal with a disputeafter the agreement is signed, there is a pretty good chance that relationship is not goingto last very long. It Just shouldn(t happen.

Anticipate the issues down the road. Fow does the contract address such thingsH etting thecontract in place is only the &eginning.

Conclusion

!a5e it a partnership and not a competition. Fave a strong relationship with your provider. Thisis incredi&ly important and helpful in large and comple1 !A"C arrangements. 4ou &oth wantthe same thing to succeed.

<e prepared to get help. These contracts especially are =+T easy and can &e very e1pensive. Alawyer can help, <erlin Eacific can help, prospective vendors can help #if you’re alert and as5 theright :uestions and ma5e the account rep get the right people involved from his organiation$ &utdon(t go it alone with these comple1 and large-value contracts.




Volume Commitment Telecom Agreements

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