Five Habits For SLA Effectiveness

Number one: Never blindly sign the carrier's standard agreement.

March 1, 2005

3 Min Read
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Most telecom and IT agreements between carriers and enterprise customers proceed without incident, but some contracts flounder, often with costly consequences for the customer. Fortunately, many disputes can be prevented if the customer follows these five simple rules.

1) Never blindly sign the carrier's standard agreement. A source at a major carrier revealed that 80 percent of customers sign the vendor's standard agreement. Knowing this, carriers lard their form agreements with unreasonable provisions. These include inflated shortfall or termination penalties, such as 100 percent or more of the outstanding commitment; tricky subcommitments, such as conditions that tie discounts to arcane requirements like the location of the company's headquarters; and truncated periods for disputing erroneous charges, such as requiring invoices to be disputed within 120 days or be deemed correct and binding.

In addition to these tactics, form agreements often address only the carrier's exposure to certain issues, such as indemnity, force majeure, or assignment. For example, the carrier--but not the customer--is excused from performing its contractual obligations when a natural disaster or other calamity strikes, or the carrier can assign the agreement to another company, but the customer can't. Form agreements can also include limitation of liability clauses that cap the carrier's liability at three months' worth of charges while keeping the customer's liability open-ended. Finally, these agreements often address seismic events such as business downturns, divestiture of key business units, and refreshing contract rates with elaborately worded clauses that amount to nothing more than a "We'll talk."

2) Never ignore the service guide. Many of the one-sided provisions listed above appear not in the agreement, but in the carrier's service guide, which is referenced by a URL. Customers who ignore the service guide place themselves in jeopardy. Service guides can run thousands of pages long and contain default pricing, terms, and conditions that apply to the customer's agreement. Worse still, carriers try to win the right to change the service guide at will and without notice. Negotiate contract language that overrides objectionable service guide provisions and invalidates adverse changes to the guide.

3) Know your traffic patterns. Many customers agree to excessive commitments because they don't understand their own traffic. Instead, they rely on the carrier for such information, but the carrier's information is often inaccurate. Furthermore, relying on past usage patterns is like driving by looking through the rearview mirror: It fails to anticipate business and technology changes (such as VoIP) that will affect future spending patterns.4) Think long-term. Short-term budgetary concerns can tempt enterprise customers to make deals with long-term risks. This is also known as the "We need to save $1 million in the next quarter no matter how much it costs" syndrome. Not only do carriers understand this syndrome, but they capitalize on it. They deliver the requested up-front savings or credits along with a higher commitment or, worse yet, escalating commitments designed to erode the customer's "cushion"--that is, the difference between the commitment and the actual amount spent.

5) Be wary of strategic partnerships. Some customers can't say no to vendors, which is especially common in so-called strategic partnerships where the carrier and customer agree to buy services from each other. Don't assume your strategic partner is giving you the best deal. If your partner is giving you an uncompetitive bid, be sure that the extra cost of the services is worth the premium you're paying.

Justin Castillo is a partner at Levine, Blaszak, Block & Boothby, a law firm that specializes in negotiating telecom and technology agreements for enterprise customers.

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