REACTING TO SHORT-TERM FINANCIAL CHALLENGES CAUSED BY COVID-19:
TECH & TELECOM SERVICES NOT UNDER CONTRACT
In our last edition, we communicated the need for companies to determine which technology and telecom services are under contract and when contracted services are set to auto-renew or expire. Knowing this information, along with the magnitude of spend for each service, will allow you to plot the strategy for entering into price negotiations with your vendors.
The first priority is to attack those services not under contract. These services are low-hanging fruit because, just by going under contract with the incumbent vendor, you should be above to receive reduced rates. But, before signing a contract, we recommend you take the following steps in order to negotiate the most advantageous contract for the company:
1. Prepare List of Service Requirements and Obtain Bids
Before approaching your vendor, you should prepare a comprehensive list of service requirements to be covered under the new contract. We suggest consulting with the various stakeholders when preparing this list so you can be sure these requirements will address their needs. Once completed, the company should send the list to, and request proposals from, the incumbent vendor and at least two other qualified vendors. The quickest way to savings is to stay with the existing vendor so, assuming the vendor is providing satisfactory service, we recommend using these other vendor proposals as ammunition to get the best deal from the existing vendors. If that doesn’t work, you have the option to switch service providers.
2. Determined Desired Service Levels by Reviewing Historical Usage
In order to assess future needs, you should understand the current level of service being provided to the company. Therefore, you should analyze utilization reports over the trailing 12-month period and consider how usage of the service may change over the next 3-5 years. In order to optimize costs, the goal is to purchase as little excess capacity as possible. Assume that it is easier to add services than to reduce or cancel services. In that vein, be sure to find out under what circumstances, if any, the vendor will allow the company to reduce or cancel service during the contract term. Ideally, you want the ability to decrease your service level in the event of layoffs, office closures, dissolution and other unforeseen situations (e.g., COVID-19).
3. Explore Multi-Year Contract Terms with Vendors
When obtaining bids, you should ask vendors to provide you with pricing for annual and multi-year contract terms and have them explain the benefits of entering into a multi-year contract. Typically, the longer the contract term, the lower the fees. Also, locking into pricing under a multi-year contracts allows you to avoid unpredictable annual fee increases. No matter the length of the contract, try to add language limiting the vendor’s ability to increase fees upon renewal (e.g., not more than 3% over prior year’s fees).
4. Review Vendor Payment Options
Additional discounting may be available if you pay early or in advance (e.g., annually in advance vs. monthly). However, if cash flow is a concern, ask the vendor to convert upfront payments or advance annual payments into installment payments over time (e.g., quarterly). In some cases, vendors will do this at no upcharge (a/k/a free financing).
Since these services are the ripest for savings, act quickly and definitively because every day that goes by is lost savings. Our next edition will focus on how to negotiate price reductions for those technology and telecom services that are currently under contract. In the meantime, please stay healthy and productive
Telergy LLC is a cost management consulting company helping middle-market companies, including professional service firms, reduce and control their Technology, Telecom and Energy costs. To contact Telergy, please send an email to Mark Friedman, Chief Optimization Officer, at firstname.lastname@example.org or call 312-736-8900x100.