How to Review Communications Technology Contracts from a Business PerspectiveHow to Review Communications Technology Contracts from a Business Perspective

It’s likely that your organization is continually signing agreements with your communications technology service providers. Whether they are traditional companies like Verizon and AT&T, companies like Microsoft and Zoom or mobile service providers, they are critical to your ability to communicate among your employees and with your customers. While a review by both your legal and procurement departments are likely required, a third review from a business perspective is also in order to ensure what you’re agreeing to is in your best interests. It is important for the contract to be looked at by someone who understands the technology, the services being purchased and what may be negotiated to your benefit. 

Here are the contract items to be covered in the business review that may prove to be costly down the road if not properly negotiated:

1. Minimum Annual Spend Commitment: Which services is this estimated spend based upon? Typically not all types of services you buy contribute to the spend amount. Is the committed spend for an annual amount or a total for all years of the contract? Will you need the services for the life of the contract or may the technology you want to buy change (as it does regularly)? All of this needs to be spelled out and the provider needs to regularly track the spend and report on a potential shortfall, which can result in some heavy penalties. Ability to renegotiate the commitment at some point in the contract may be possible. 

2. Length of Agreement and Renewal Terms: It often seems to make sense to agree to a 3 or 5 year term for an agreement, particularly if there has been a lengthy negotiation that you may not want to revisit any time soon. However, communications technology and services are always in a state of flux, so typically a shorter agreement is better with a maximum of two years and ability for early renegotiation. A longer contract can also tie you into pricing that may be trending downward so ability to redo a contract based upon price reductions is recommended. Automatic renewal clauses should also be avoided and they may lock you into an extended period of time you had not intended to agree upon.

3. Early Termination Fees: This is different that the overall spend commitment although there may be some correlation. This fee applies to a specific service which you have committed to keep for a certain period of time. If you no longer need the service before that agreement is up, then you will have to pay for the service for as long as your originally agreed to keep it. This is an area where there may be ability to lower the fee or request Early Termination Fee waivers, particularly on mobile services.

4. Tracking of account numbers and specific services to which the contract applies: While it is tempting to file away a contract once it is signed, it is much better to managed the contract and the services that fall under it which may change regularly. When ordering new services that should benefit from the current contract rates, it is important to reference the contract, particularly if a new account number is being created. An up-to-date list of all account numbers and service items falling under a contract should be maintained. You can negotiate the maintenance of such a list with your service provider, but it is advisable for you to check it periodically to be sure all services are benefiting from the agreed upon contract rates.

5. Taxes and Surcharges to be Added: Communications services providers are historically reluctant to discuss this, often stating that the charges are “applied by a computer” and not negotiable. Since theses charges frequently add 20 to 30 percent to your monthly invoice, it is important to understand which ones apply before you sign an agreement. One particularly significant surcharge called the Federal Universal Service Fund agreement alone can add 30% to your costs and is sometimes misapplied and potentially negotiable.

6. Use of other providers to deliver service:

It is common for one service provider to use the services of another to deliver certain types of services requiring a physical connection into your premises. If a secondary provider is being used to deliver services to you, it is helpful to identify this and have it spelled out in your contract. In some cases, the secondary provider raises rates that your primary provider passes along to you, but this is something that may be negotiated.

7. Length of time you have to report billing errors and receive a refund: Since billed rates do not always reflect the correct contract rates, it is possible that you are being overcharged. As the first line of defense, your contracts should include a quarterly invoice review and validation of all charges, but in the case of an error that is missed, your agreement should enable you to get credit back to the beginning of the agreement. Otherwise the service provider may limit your refund to (for example) six months.

Members of the Society of Communications Technology Consultants can help to ensure that your contracts protect your interests and avoid these pitfalls.