REACTING TO SHORT-TERM FINANCIAL CHALLENGES CAUSED BY COVID-19:
COST-CUTTING STRATEGIES FOR TECHNOLOGY & TELECOM SERVICES UNDER CONTRACT
In our last article, we communicated the immediate and tremendous savings opportunities presented by technology and telecom services not under contract. We will now explore how companies can negotiate fee reductions for technology and telecom services currently under contract.
What contracts are ripe for re-negotiation? We would suggest first attacking those technology and telecom contracts that are auto-renewing or expiring within the next 90-180 days. As mentioned in a prior article, it is critical that you know the accurate dates on which your contracts either auto-renew or expire. Since most contracts have auto-renewal clauses, the auto-renewal date is the key date you want to get ahead of from a negotiation standpoint. In order to limit the scope of contracts to be reviewed and negotiated, you will probably want to set a materiality threshold based on annual spend.
When should negotiations begin with your vendors? This answer will typically depend, in part, upon how long it would take to implement a new system if you were to switch vendors for the particular service in question. You will be able to exert the most leverage against your vendor if you give the impression that you are willing to leave them but, in order to do so, you need enough time to complete negotiations and, if need be, implement a new system. Nonetheless, there are certain situations (such as layoffs and office closures or changes in telecom-related services) when it is appropriate to request price reductions during the contract term, even though the contract may not allow for it.
How can you effectively negotiate savings with your vendors? When negotiating contract renewals for our clients, we have found that the following three data points are the quickest and most effective ways to achieve short-term savings:
Review pricing terms. You should compare your pricing terms to “market rate” for the services being rendered. If you don’t know “market rate”, we recommend obtaining bids from your current vendor and at least two competitive vendors. Each vendor should be given the same requirements list so you can do an apples-to-apples comparison. Be sure to ask for multi-year pricing from all vendors as pricing should improve as the contract term gets longer. Also, multi-year contracts remove the risk of annual price increases. At a minimum, you will be able to use this market information to get better pricing and contract terms from your existing vendor.
Review payment terms. If the contract provides for monthly or quarterly payments, you should be able to get price concessions by paying annually in advance or prepaying for the entire multiyear term. If vendors are requiring annual payments in advance, you should request that these advance payments be converted to monthly or quarterly payments (without a vendor upcharge) in order to improve cash flow.
Review utilization reports. You should review utilization reports to determine what technology (e.g., licenses, devices and circuits) is actually being used and which features within the technology (e.g., modules) are actually being used. If you discover unused or underutilized technology and features, this information should be leveraged to reduce vendor pricing. The goal is to buy only what you need now and for the foreseeable future based on historical consumption and planned future usage.
If you would like our assistance in reviewing and negotiate your technology and telecom contracts for the purpose of maximizing savings, please contact us. Stay tuned for more cost-cutting tips from Telergy!
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.