How to Pursue and Win Service Contracts

The tips you will find here are designed to show you how to pursue and win service contracts, whether you are a business owner,  CFO, an accounts payable manager, or a consumer.

• What is a Service Provider Contract?
• Termination Liabilities
• Volume or Pricing Commitments
• Rate Increases and Decreases
• Negotiate, Negotiate, Negotiate!
• Promotions and Discounts
• The “Evergreen Clause”
• Already Stuck in a Lousy Contract?
• Who has time to do all this research and negotiating?

So what the heck is a Service Provider Contract?

Unless you’ve been living on Mars for the past few years, you know how competitive the telecommunications industry has become.  Without going into a bunch of dry history, suffice it to say that the Telecommunications Act of 1996 affected consumers by really opening the doors to competition.

Because the telecommunications industry is so competitive, service providers will do everything they can to keep your business as long as possible.  This means getting you to sign up for long-term contracts.

I need to mention here that I don’t think service provider contracts are bad.  In fact, a well-negotiated contract can mean thousands of dollars in savings to you.  The key term here is well-negotiated.  Well-negotiated contracts are the key for you to know how to pursue and win service contracts.

Without going through every detail of every type of contract you might possibly encounter, we’ll hit the high points.

Termination Liabilities

Most contracts include termination liabilities, where you are obligated to pay a certain amount if you disconnect your service early.  Read this section carefully, as it could cost you hundreds or even thousands of dollars if there are no clauses to protect you (i.e. if you have to disconnect some services before the end of the contract, or if you move).  The worst kind of termination liability clause you can have is paying out the full monthly charge for all your services times the number of months left in your contract. 

To illustrate this point, let’s suppose you are a business owner who has signed a 36 month agreement with your local telephone service provider.  18 months into your contract, you have to move out of state.  Your monthly service bills at $500 a month.  You would be obligated to pay out the remaining 18 months of your contract, which means you would owe $9000.00 (18 X $500).  Sound extreme?  These types of contracts are very common.  If you don't know how to pursue and win service contracts, you could end up wasting thousands of dollars.

Because most service providers offer a discount for signing long-term contracts, you should expect to pay something if you terminate your contract early, but it doesn’t really seem fair to have to pay the entire amount of each month left in your contract.  Especially since the service provider can turn around and use those same facilities you disconnected to make revenue from someone else.

A key in knowing how to pursue and win service contracts is to negotiate the contract on the front end.   Once you have signed a contract, it is VERY difficult to change these terms.  That’s not to say that you CAN’T negotiate on the backend, but ideally you should do this prior to signing any contracts or agreements.   

If you are switching to a new provider, make sure there is a guarantee in case something goes amiss.  Many competitive providers will guarantee their service for 30, 60 or even 90 days in some cases where you can disconnect your service with no penalty. 

Volume or Pricing Commitments

One way service providers offer special discounted rates and services to customers are through volume or pricing commitments.  The general idea is that you get a better rate for service by agreeing to XX amount of usage or $XX dollars of service each month.  If you don’t meet the commitment levels, providers will usually make you pay the difference between what you actually used and what you committed to using, or include a “minimum” usage fee (a.k.a. penalty) on your bill. 

Before agreeing to any type of volume or pricing commitments, you should understand your past and anticipated future usage.  This will help you know how to pursue and win service contracts, and determine the best pricing levels and commitments for you or your business.  A price may look great on paper, but if you end up paying penalties each month, it can add up quickly, and sometimes cost more than the special discounts you thought you would be getting.

Rate Increases and Decreases

Understanding the way service providers manage ongoing increases and decreases will help you know how to pursue and win service contracts.  Many service providers will include a stipulation in the contract allowing them to increase your rates from time to time, as they see fit.  Obviously, if laws are passed concerning certain tax or surcharge increases, there is nothing you can do to prevent these types of increases.  You should, however, try to get wording in the contract to prevent increases in the actual services themselves (also known as “tariffed” services). 

For example, let’s say you agree to pay $12 a month per line for your local dialtone service (exclusive of taxes).  Halfway through your contract, you don’t want to see the price jump from $12 to $15 per line.  If you can’t get the provider to agree to maintain the set prices throughout the life of the contract, the next best option is an “out” in case there is an increase.  Usually the provider will let you have 30 or 60 days to opt out of your contract (with no penalties) in case of tariff increases. 

Negotiate, Negotiate, Negotiate!!!

You hear time and again that everything is negotiable.  And so it is true with your service provider contracts.  Use industry competition to your advantage to know how to pursue and win service contracts.  Find out what the competition is charging for the same type of service.  If you can find a better deal elsewhere, you can usually negotiate with your current provider to get equivalent or better pricing.  If they “can’t” or won’t give you better pricing, find out if they can offer any other incentives, such as a couple of months of free service.  In the next section, we’ll be discussing promotions and discounts, which may help during negotiation.

Promotions and Discounts

Once again, this is where competition plays to your advantage.  It has been my experience that many telecom sales reps either don’t know, or don’t want you to know, all the promotions and discounts that you may be eligible for.  If you go to all the well-known service provider websites, you will notice right away the latest promotions and offers to get you to buy their service.  This is just the tip of the iceberg.  Most companies, especially the larger, incumbent companies, usually have hundreds of promotions going on at a time.  Since most of these promotions are filed with the state regulatory agencies, they are often posted online, or at the very least, filed at the office of the state regulatory agency (many states call these agencies Public Utility Commissions).

The “Evergreen Clause”

You know how an evergreen tree never loses its leaves, and stays green year after year?  This part of the contract is designed to keep you as a customer, year after year.  If you want to know how to pursue and win service contracts, keep track of when your renewal date approaches.  Most contracts list this section as the “Renewal.”  Read it carefully.  There is usually verbiage included where if you don’t notify the provider within 30, 60, or even 90 days prior to the end of your contract, it automatically renews. 

At this point, you may be thinking that all of what I have said is fine and dandy, but you’re already stuck in a lousy contract.  If you have 12 months or less on your contract, most service providers will let you re-negotiate your contract.  Use the information I have provided in this article to research and find a better deal going forward.  If you have more than 12 months in your contract, you still may be able to re-negotiate, it never hurts to ask!

Who has time to do all this research and negotiating?

Most businesses don’t have the time, resources or expertise to devote to knowing how to pursue and win service contracts.  You may want to consider hiring a consultant to help you determine the best solution for your business.  There’s a growing cottage industry of companies who will work with you to determine the best solution for your business, and will also negotiate contracts with your service providers.  You can find anything from small, independent consulting firms, to large telecom expense management companies, who can actually consolidate all your invoices each month.  Some firms will even provide a free consultation and analysis, in exchange for a percentage of the savings they find for you.  This is truly a win-win situation for the business and the consultant, as the business sees more profit to the bottom line, and is assured that their telecommunications services are optimized.

Return from How to Pursue and Win Service Contracts to Reduce Telecom Expenses

Return to Telecom Cost Reduction Programs Main