The quarterly publication of the International Legal Technology Association
Issue link: http://read.uberflip.com/i/27607
O ver the past several months, we performed a comprehensive review of our data and voice service contracts to ensure the firm is being charged the appropriate costs for the services agreed upon. As part of the process, we looked into the benefits of negotiating and/or renegotiating our agreements with our many vendors, and the key to each discussion always seemed to come back to realizing what we did and did not know. The exercise was humbling and immensely valuable. As we moved from agreement to agreement, we found that our position with the vendors was improving from both relationship and service perspectives. Contracts or service agreements are involved in most, if not all, of the services we engage for our firms. These contracts are usually seen as an advantage to the vendor; they lock in a customer for a defined period at a predetermined rate. There are also advantages for the firm. Having a contract can reduce the confusion when doing service inventories, secure stable pricing in a volatile market and provide leverage when renegotiating the terms. Being well-prepared for contract negotiations was the focal point of a session I moderated at the 2010 annual ILTA Conference in Las Vegas. When dealing with any negotiation, whether for a long-term service contract or a one-time project agreement, it is most important to perform due diligence on the subject. Only by knowing your background on a subject can you get the upper hand. As the adage familiar to attorneys goes, “Never ask a question you don’t already know the answer to.” It’s every bit as true in telecom contract negotiations (and decorating arguments). Know Your Vendor Doing a little background research on a vendor and your representative can save you lots of headaches. You want to know about, for example, any mergers or acquisitions that have occurred since the last agreement was signed, any large contracts that may have been completed, and the current state of their financials. Additionally, find out if your rep has a quota and how he is compensated. Knowing these and other details about your vendor can alter a conversation and provide you with leverage. Know Your Contract Several items should always be present in any telecom contract. Trying to rope in each and every one of them is a large task to attempt. It is best to concentrate on a few points that have the most benefit to your firm. The following list is representative, though not all-inclusive, of the contract fundamentals upon which you should make appropriate and educated decisions: • Package Deals: Vendors will try to include terms for every service they offer. Beware of this practice and have the agreement reflect only those services that are being ordered. If you are planning to purchase other services later, this is not a large problem; however, you may be signing away your ability to negotiate the other services through the package. • Minimum-Term Commitment: Two- or three-year commitments are common, though longer terms are not unusual. Of course, with extended contracts come greater savings, but there may be concern if the length of the contract could end up tying your hands. Renegotiating a contract in mid-term is not unusual; however, check for penalties or fees beforehand. “Clarify what is considered a violation of the contract and the costs involved.” Minimum Volume Commitment: This is usually done in terms of revenue per month. You may want to try getting an annual commitment because you will usually surpass the monthly goal. With an annual commitment, you can apply the revenue and reach your commitment early. This provides you with leverage to possibly redefine terms for the remainder of the contract. • Actual Rates: The rate in your contract is usually described as a discount or percentage off regular published rates; conversely, you will sometimes see rates instead of service guide pricing. Be sure to know your contract specifics. • Waiving Published Rates: Items such as installation and provisioning can often be waived if you specifically request it. Question any one-time fees. • Promotion Credits: If you are moving from one service provider to another, these can be applied at scheduled times to offset costs of converting from another carrier’s service. Make sure that you note specific values and dates for application; ambiguity can cost you these credits. • Penalties: Special care needs to be taken in the review of penalties. These can be significant, so clarify what is considered a violation of the contract and the costs involved. • Business Downturn Clause: While not common, this clause may be a good idea. It allows you the opportunity Peer to Peer the quarterly magazine of ILTA 51