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Signing a Communications Contract? Pay Attention!

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In January, we identified the “3 Pillars of Effective Communications Technology Management: Billing, Contracts and IT Inventories.” In May, the focal point was billing, the confusion it brings, and the potential for error that follows.
Below we focus on contracts and identify five areas that need your attention before signing one for communications services (fixed, mobile, or cloud). Clarity with each issue will make it significantly easier to manage the contract.
  1. When are the contract rates effective? Try to get an effective date for the contract rates written into the language. Many agreements state that the rates are effective upon signing. Each contract should have a place for you and the service provider to sign and date. Since you and the provider typically sign on different dates, be clear which one is the actual effective date. Doing so also determines when the contract is expiring. And since it often takes several months for contract rates to become effective (unless brand new services]), this will ensure that you get retroactive credit back to the correct date. Make sure you keep a signed and countersigned contract somewhere you can reference it.
  2. What separate documents are part of the contract? Depending upon what services you’re buying, there may be multiple documents associated with a contract. Communications service providers may have you sign a master service agreement (MSA). This agreement typically describes overall terms and conditions. However, it leaves out details of the specific services, which may be t referenced in a separate terms and conditions document, pricing schedule, or exhibit. In some cases, separate documents mention different conditions than the MSA, so it’s important to clarify which one takes precedence. When the initial contract renews or you buy additional services, the provider may have you sign an amendment. As time passes, it’s not unusual to have an out-of-date MSA in effect with many subsequent amendments (may be 20+ is). Some service providers treat individual work orders like amendments and have each one signed by you and countersigned. Again, if there are terms and conditions on the work order, make sure it’s clear which document takes precedence. One last caveat, if the service provider gives you a spreadsheet with all of the component pricing, make sure that this is incorporated as part of the contract.
  3. Are you making a minimum annual revenue commitment to the service provider? For years this has been a staple in contracts for communications services. For the contract rates to remain effective, you are guaranteeing the service provider that you will spend a certain amount of money with them each year. While you may not be able to eliminate this, be aware of potential pitfalls that may result in your missing the MARC (acronym often used for Minimum Annual Revenue Commitment.) For example, what if market rates drop and you want to renegotiate for lower rates? Or what if your organization’s service needs drop as we are seeing recently with many former office workers operating from home? Or what if technology changes and the result is a different type of service?While many contracts include “Technology Change” and “Business Downturn” clauses, they are often vague and benefit the service provider more than they protect you. Ask which services apply toward the annual commitment, as usually some do not. One final observation relates to mobile communications services. We have seen that the MARC sometimes includes usage by employee’s personal mobile phones that the employees pay for themselves (sometimes called IRU or Individual Responsible Users). If the employee decides to change to another provider, your organization may not even be aware of it, but there is potential that the annual revenue will drop over time.
  4. How will contract expiration or renewal be handled? If you’re happy with your services and still need what you’re buying, you will likely want to keep them. But don’t give up the leverage you have to renegotiate in advance of the contract renewing. Include an early renegotiation date in your agreement, possibly at the halfway point. If prices for the services have dropped (which happens often), then you won’t be committed to paying higher rates for the life of your agreement. Keep track of your contract expiration dates. Depending upon the complexity of the services, give yourself enough time to make a physical change if you can buy the same types of services at a lower rate with another provider. This adjustment may take over a year for global networks (although newer services appear to be shortening that timeframe). Rather than having an “auto-renewal’ clause where the contract rolls over and commits you to another period of time, ask that the current contract rates remain effective for six months or a year after the current contract expires, where the service continues on a month-to-month basis. Most service providers will accommodate this, which buys you time and flexibility. Lastly, pay close attention to the “termination liabilities” part of your contract. Determine if you’re still liable to pay for some or all services if you must cancel before the contract expires. Typically, you are, but this may be negotiable.
  5. Who keeps track of account numbers and services associated with the contract? While it seems like the service providers should have this covered, often they don’t, so you will need a system in place to help you track it. When a new contract is signed or an existing contract renews, a list of account numbers and specific services covered by the contract should be prepared. Include details such as service address and service identifier number (or circuit number). Often, after a contract is in place, a new service is ordered. However, if the appropriate contract isn’t referenced when this order is placed, the new service won’t receive the correct rates. Try to make the service provider responsible for applying the correct contract rates. In some cases, account numbers include services covered by several different contracts, so this needs to be tracked and managed as well.
If you have these five areas covered, it will go a long way towards more efficient communications contract management, which is directly related to controlling expenses.

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"SCTC Perspective" is written by members of the Society of Communications Technology Consultants, an international organization of independent information and communications technology professionals serving clients in all business sectors and government worldwide.

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