The request for proposal process

What is a request for proposal?
A request for proposal (RFP) is a document sent to telecom carriers from businesses seeking proposals from those carriers. Each RFP is unique, because each customer’s telecom environment is unique. The RFP document spells out specific details about the information the business wants the carrier to provide, especially the technical data. Sending out an RFP is usually the first step in procuring high-level telecom services, such as datanetwork installations. The RFP is sent out to multiple carriers and is essentially an invitation to a bidding war.

What is the purpose of an RFP?
The main purpose of an RFP is to solicit proposals from phone companies. The average business signs 2-year telecom contracts, and at the end of that time, the business may have lost touch with telecom market trends, products, services, and, most importantly, pricing. It has no idea what a good deal in today’s market is until it reads carriers’ responses to the RFP.

After evaluating two or three RFP responses, the business will have a clear understanding of the carrier service offerings and what pricing is available. Gathering market data is, therefore, one of the key advantages of using an RFP.

Some customers require the telecom supplier to include the RFP as part of the final agreement. Without the RFP, the carrier’s contract is the agreement. Carrier contracts are written by telephone company attorneys; they protect the interests of the carrier, not the customer. A well-written RFP, however, protects the interests of the customer, and, at the same time, sends strong signals to the carrier that the customer is in control of the relationship.

The main disadvantage of using an RFP is that the customer invests considerable time writing the RFP, evaluating RFP responses, and meeting with prospective carriers. This can be a time-consuming process. On the other hand, businesses can avoid the RFP process altogether if they are satisfied with their current carrier and are willing to allow the current carrier to provide the needed services.

What is the RFP process?
The RFP process consists of five phases:

The RFP is released to phone companies.

Phone companies question and clarify the RFP.

Phone companies submit proposals.

Customer evaluates proposals.

Customer selects the winning proposal.

What is specified in the RFP?
The core data in an RFP are descriptions of telecom services that the business has up for bid. These may be current services or future services that the business plans to add. RFPs can be used to procure local, long-distance, data and wireless services, network design, network installation, or any other imaginable telecom project.

An RFP explains the customer’s expectations for customer service, service ordering, trouble reporting, billing, resolution of service outages, and SLAs. Numerous other issues can be included in the RFP. The whole idea behind an RFP is that the customer manages the procurement process, not the carrier.

A key feature of the RFP is its scalability. The scope of services covered by the RFP can be increased or decreased. A business may use an RFP to procure 25 cell phones, while another business may use an RFP to procure all of its telecom services, including local, long distance, data, and wireless.

For high-tech services, such as frame relay and ATM, the RFP should give the customer’s specific technical requirements for these services. The RFP can be customized to include a large or small amount of technical data.

Who should use an RFP?
RFPs are normally only used by very large companies with complex, expensive telecom services. Smaller companies tend to solicit proposals informally, and they often do not have the time or manpower to devote to the RFP process. Larger companies have telecom departments, so they have the manpower to facilitate the RFP process. Bigger companies have more internal accountability and organizational layers, so the RFP also tends to appease these people inside the company. Many government agencies, for example, are required to secure multiple bids before entering into a new contract for services. Organizations that use RFPs tend to protect their interests more than businesses that shop informally for telecom services.

How does a phone company respond to an RFP?
After a phone company receives an RFP, a team of salespeople begins writing the response. The sales team consists of pricing experts, technology experts and possibly, on large accounts, regulatory experts. Their written response will follow the general outline of the RFP.

Carriers may try to gain a competitive edge by asking the customer questions to clarify vague parts of the RFP. Customers usually level the playing field by requiring that all questions be put in writing. Then, the customer sends each carrier a copy of the question and the customer’s answer.

The RFP process is designed to be an objective avenue for buying telecom services. None of the carriers should gain an advantage over another bidder. No carrier knows which way the customer is leaning. The objectivity of the RFP process should keep carriers honest. Because carriers know they only have one chance to win the business, they will be more likely to give their best and final offer in the very beginning.

Basic contract negotiation strategy

Contract negotiation normally begins with the customer handing over his telephone bills to a telephone company sales representative who later returns with a proposal that compares the customer’s current costs to the telephone company’s latest offering. The new proposal shows monthly and annual savings. The customer and sales representative then enter into a period of negotiation, when the telephone company’s offer will be fine-tuned to meet the customer’s requirements. Once the two parties agree on the offer, the sales representative will present a contract to the customer. The customer signs the contract, the phone company provides the services, the customer receives a bill each month, and everybody is happy. In the real world, however, telecom contract negotiation is never this smooth.

At best, contract negotiation is an annoying distraction from the core business; at worst, it is a nightmare. Account executives just want to close the sale, cash the commission check, and move on to the next target. Both parties have their own agendas, and they often wind up confused and frustrated by the process. There are some practical steps a customer can take to ensure that the negotiations are efficient and produce a favorable outcome.

Know what you want
First, the customer should know his own telecom environment. He should understand what telecom services his company uses and the monthly bill volume of those services. He should also know of any pending changes to the overall telecom environment.

Before talking with the carrier, customers should decide exactly what they want in their next telecom contract. What term commitment is the business comfortable with? Is the company’s volume expected to increase, decrease, or remain level over this time period? What volume commitment should be made to the carrier? Will new services be added? After the customer figures out what he would like to see in the new contract, he can make a specific request of the carrier. A customer who is not specific is at the mercy of the carrier and will rarely receive the most favorable offer.

Know your carrier
Telephone companies handle their contracts two ways. Most contracts are standard templates, but some can be customized for a specific customer. Carriers employ two types of representatives: customer service represen-tatives and account executives. Customers should know which type of representative they will be working with. Most importantly, the customer should know what elements of the contract are negotiable and nonnegotiable.

Customer service representatives are typically low-level employees, working in a call center. They normally can only offer standard contracts. Their hands are tied, and they have little room to negotiate. Account executives are usually highly paid outside sales representatives that are empowered to customize what is offered to the customer.

When negotiating with either type of representative, the customer’s objective is always to get the needed telecom services at the lowest possible price. Carriers have the opposite objective; they want the customer to pay high rates, which increases their revenues and, ultimately, keeps shareholders happy.

Analyze the proposal
The highlight of any proposal is always the bottom line that shows monthly savings and annual savings. It is a good idea to double-check the calculations. “Accidental” spreadsheet errors may skew the numbers. Besides the savings, the other important aspects of the proposal are volume commitments, term commitments, pricing, and special clauses. If the offer is unacceptable, the carrier should write a new proposal documenting each change.

Pricing is often the most difficult issue for the customer and carrier to agree on, partly because customers do not know if they are being offered the carrier’s best pricing. The most effective way to know if the pricing is fair is to compare the proposal to similar offers. Other carriers will be happy to present proposals, even if they know their chances of winning the business are slim. The customer will then know if the original carrier’s offer is competitive. If the original carrier gets word that competitive carriers are submitting proposals, they usually sweeten their first offer.

A consultant can also be a valuable source of pricing information. If a consultant is hired to negotiate your contract, he will expect to be paid a percentage of the savings. You can save money by hiring the consultant on an hourly basis.

The contract
Once the final proposal is accepted, the carrier will offer a contract. Telecom sales representatives are trained to hand deliver the contract, verbally walk you through it, and ask for a signature. “This is the same info that we already discussed in the proposal. All the fine print is just a bunch of legal mumbo-jumbo. Go ahead and sign right here”

Before signing, the customer should read the contract carefully. The contract must list everything the customer has negotiated, especially promotions, credits, and special clauses. This exercise may be a real eye-opener for the customer, because carriers may have thrown in additional conditions that were not previously discussed. Special clauses that are harmful to the customer often show up out of the blue, such as escalating MACs, traffic requirements, exclusivity, and discount caps.

Whether it is done intentionally or not, telecom carriers are notorious for performing “accidental” bait-and-switch maneuvers. Too many customers have negotiated promotions and aggressive pricing during the initial proposal phase only to find out later that these conditions were left out of the actual agreement. When the customer feels the sting and realizes what has happened, the original parties in the negotiations may be long gone. The original account executive has spent his commission check and probably moved into another profession. The new account team will have little sympathy for the customer, and the letter of the contract will rule.

The first phone bill
The final quality check in the process is to make sure that what was negotiated is actually showing up in the phone bills. If possible, schedule a meeting with your account executive to review the first month’s bill. The bill might be easy to read, but this is a great opportunity to make the carrier prove that it has delivered exactly what it promised.

The first few bills of a new contract term are often inaccurate. Look for erroneous installation charges, missing discounts, and excessive fees. The first bill usually covers a partial month, so make sure charges are prorated accurately. With long-distance service, double-check the cost per minute. If the contract is with a new carrier, make your carrier aware of lines that are still billing with the other carrier. A savvy customer will require the carrier to issue invoice credits to make up for these costly glitches.

Local service
LECs only have three types of contracts: line charge, usage, and data services. LECs use contracts for line charges associated with non-POTS services such as Centrex, trunks, direct inward dialing (DID) lines, and intralata data circuits. LEC contracts for usage will cover local calling, intralata toll calling, or both. LEC data contracts will be included later with other data contracts.

Long distance
Long-distance carriers usually divide their customers into three categories: small and medium-sized businesses, large businesses, and national accounts. AT&T calls these three classes middle markets, commercial markets, and national accounts. AT&T has most often offered these markets Customnet, Uniplan, and One Net. The smaller market customers normally have simple oneor two-page contracts, while contracts used with larger businesses are 10 pages or longer. Other carriers categorize their customer base in a similar manner to AT&T. In general, however, the larger the carrier, the less flexible it will be with its contracts. Long-distance carriers providing other services, such as data circuits, will lump all of these commitments into a single contract.

Data
The data-network marketplace has been far less competitive than the longdistance marketplace. Consequently, contracts have remained simple and straightforward. Although the services are often higher dollar and are certainly higher tech, data-service contracts remain rather simple.

Wireless
Local, long-distance, and data services are all offered by large national carriers such as WorldCom, AT&T, and SBC Communications. The wireless industry has fewer giants and is comprised of smaller regional companies. Consequently, there is little consistency with wireless contracts. Each carrier has its own contracts, and the terms and conditions of the contract vary greatly from market to market and between individual service providers. The good news is that wireless-service pricing and contracts are simple and straightforward and contain few hidden surprises.

Contract : Termination and penalties

A customer can terminate a telecom contract in one of two ways: without liability or with liability. Most contracts are terminated without liability.

Termination without liability

There are three ways to terminate a contract without liability.

Fulfilling the volume commitment early
At times, customers can switch carriers before their term commitment is up if they have fulfilled their volume commitment. Some customers in this situation have left a token phone line with the old carrier so they can still fulfill the term commitment. A customer who signs a 12-month, $120,000 contract with AT&T may be able to switch to Sprint in the eighth month if it has already paid more than $120,000 to AT&T.

The carrier’s failure
Sometimes carriers fail to provide the contracted services. For example, a business whose dedicated private lines experience repeated down time may be able to cancel a carrier contract, especially if the contract contains a quality assurance clause. Customers who experience repeated billing errors may also be able to get out of a contract. Contracts never specify that the carrier is required to provide an accurate phone bill, but if a customer experiences many months of fouled-up phone bills, the carrier might let the customer out of the contract.

Out with the old
The simplest way to get out of a telecom contract is to replace it with a new contract. Of course, this can only be done with the same carrier and is normally only done toward the end of the existing term. But telecom contracts can be renegotiated at any time as long as the customer has leverage. A customer who is ordering additional services and is therefore increasing his volume is a prime candidate for renegotiating his contract. The following contract excerpt illustrates how an old contract can be replaced by a newer one:

Customers may discontinue their Simply Better Pricing Option Term Plan prior to the expiration of its term without liability if they concurrently replace service under the plan with a newly subscribed AT&T plan that has a specified revenue commitment equal to or greater than the remaining revenue commitment under the plan being discontinued (AT&T Business Service Simply Better Pricing Option Term Plan Agreement).

AT&T is essentially telling the customer, “We’ll give you a new contract, as long as we get more money or time out of you.” If the customer gets better rates, it is a win-win situation. Before renegotiating, the carrier will consider the contract value of the customer. Contract value is a way carriers look at a customer’s current contract and determine the financial value of that customer.

Termination with liability

The AT&T Simply Better Pricing Option Term Plan contract explains how a termination with liability is handled:

Customers who terminate their Simply Better Pricing Option Term Plan prior to the expiration of the selected term period will be billed a termination charge equal to the monthly revenue commitment multiplied by the number of months remaining in the term period (AT&T Business Service Simply Better Pricing Option Term Plan Agreement).

Here, AT&T tells customers they can cancel the contract, but it’s going to cost them. The customer must pay AT&T the remaining amount of the volume commitment, which happens to be the same amount of money AT&T would have earned from this customer anyway. If, however, the volume commitment is expressed in gross dollars, the customer pays more in a shortfall situation, because the shortfall amount is usually not discounted