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Contracting with Your Vendors

The majority of organizations negotiate contracts every 2, 3, 4 or 5 years and usually follow the same process. Vendor reps and staff from IT, procurement, or finance negotiate new rates and terms, contracts are reviewed by legal, contracts are signed, and the file is then put aside until the next renewal date rolls around. Here are a few suggestions to consider that may assist your negotiations:

  • Start the negotiation process at least 12 months in advance of the renewal date.

Waiting 60-90 days before renewal will leave you very few options on pricing and often results in a token 10% discount from your vendor. Early negotiations often result in early renewal at reduced rates.

  • Consider you may be at a disadvantage and retain an experienced firm to help you negotiate pricing and terms. Vendor reps negotiate on a daily basis, your staff negotiates telecom contracts once every few years.

Many organizations counter this disadvantage by requesting competitive quotes through an RFQ or RFP, however this does not guarantee you will receive the lowest rates. Vendors always leave room for negotiations, especially your current vendor. Lower pricing levels exist and are often referred to as retention pricing or when required win back pricing. These pricing levels can be obtained by an experienced negotiator.

  • Keep in mind non-contracted pricing is often 50% higher than contracted pricing and increases on average 10% per year.

With regards to contract terms, consider the following:

  • Auto renewal clauses are always a concern and are one reason organizations overpay for telecom services.

If you miss the auto renewal notices, you are stuck paying the same rates for another term. Telecom vendors are reluctant to remove this clause, so we recommend you email your vendor shortly after signing the new agreement indicating you do not want the contract to auto renew, ensure you receive acknowledgement from the vendor, print the emails, and place them in the file with the recently signed contract(s). Keep in mind your monthly rates will revert to non-contracted pricing at the end of your term if not renewed, however this can be avoided by starting the renewal negotiations at least 12 months in advance of the expiry date.

  • Ensure all lines, circuits, etc. you want contracted are listed on an addendum to the agreement, otherwise services not listed will be billed at non-contracted rates.
  • Ensure all account numbers are listed under LD and Toll free contracts. Account numbers not included will be subject to higher LD rates.
  • Negotiate a co-terminus clause into agreements.

This allows you to add additional similar services during the term of the agreement at the contracted rates, under the existing terms and same expiry date. This will avoid multiple expiry dates, and make it much easier to manage renewal negotiations.

  • Once contracts have been signed ensure all applicable staff responsible for approving invoices, are aware of the new pricing, terms, and conditions.

Vendor billing errors are common and new pricing is not always applied correctly. If applicable staff are not in the loop, overbilling could occur unnoticed for years.

  • The last and most important item related to contracting, is ensuring you have an accurate inventory of services before contracting.

All contracts include termination penalties if services are removed in advance of the expiry date. Depending on the type of service you can expect to pay 50-100% of the remaining charges if services are terminated early.

Coming up in my March posting below, I will discuss why most organizations do not have a good handle on their inventories.

Article # 2
Reliance on TEM (Telecom Expense Management) systems can create a false sense of accuracy, and is one of the top 6 reasons telecom expenses are not optimized.

ERORS Inc., based in Ottawa, Canada has completed 257 billing reviews since 1994, resulting in tens of millions of dollars in refunds and annual savings for our clients. Don Wright – President can be reached via email at dwright@erors.com

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This entry was posted on Wednesday, February 10th, 2016 at 10:16 pm and is filed under Contracting. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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