• Telecommunications, IP & E-Commerce Services Procurement Life Cycle
  • August 14, 2003 | Authors: C. Douglas Jarrett; Eric C. Nastasi; Timothy J. Feldhausen
  • Law Firm: Keller and Heckman LLP - Washington Office
  • Prepared by Keller and Heckman LLP's Telecommunications Practice Group2 A successful procurement for telecommunications, IP and e-commerce services must be systematic and disciplined. A systematic and disciplined procurement is one in which an enterprise's priorities and service provider selection criteria are clearly defined within the enterprise, and qualified vendors are confident that the process will be conducted in a straightforward and timely manner. The benefit of this approach is that interested, qualified vendors will believe that a responsive bid will be duly considered, and that an aggressive bid may land substantial business. The process, however, can be undermined all too easily and often irreparably by the appearance that either the incumbent provider has "already won" the business or that the procurement process is a mere formality. For large enterprises, including corporations, state and local governments and other institutions, the life cycle for telecommunications, IP and e-commerce services procurements has three distinct phases even though the mix of services may vary considerably: Planning, Implementation, and Performance Review. This paper highlights the various tasks, objectives, and outputs of these phases. PLANNING PHASE Define Enterprise's Priorities. The principal objective of the Planning Phase is to define the enterprise's priorities for the procurement(s). In countless trade press articles, familiar tactics and contract provisions are suggested. While relevant and helpful, few articles discuss or even mention an enterprise's priorities. Because of diverse transport technologies, the changing business needs of many enterprises, and the multiple functions that can be performed by enterprise staff or by the services provider, the procurement team and enterprise management should be in agreement on priorities and provider selection criteria. In our experience, enterprise priorities fall within five (5) broad categories some or all of which may underlie a particular procurement: Technology Change: Migration from basic frame relay and ATM services to IP-enabled frame relay or ATM services or to an IP-VPN services offering; shifting outbound voice traffic to VoIP. Improved Pricing: This objective may be satisfied by a change in technology, or a change in services providers in addition to rate reductions. Migration to New Services Provider(s): Enterprises subject to incumbent carrier or account team indifference often feel compelled to seek out new partners. Multi-Provider Strategy. Any number of business and operational reasons support this approach, including the ability to "reward" the better performing services provider(s) with additional business. Mix of Services. This consideration invariably determines the scope of the procurement, e.g., whether the procurement includes local, domestic and global services or whether managed services are under serious consideration. Procurement Team Participants. The procurement team invariably includes members of the IT or Telecom Departments and, often, the enterprise procurement staff. Other participants may include counsel (either in-house counsel or outside counsel specializing in telecommunications, IP and e-commerce services procurements, such as Keller and Heckman, LLP, or both), and consultants. We have had the opportunity to work with and develop relationships with a number of consultants that specialize in pricing and related business aspects of procurements. Experienced consultants typically add value and generally work effectively with the procurement team. Outputs. The outputs of the Planning Phase include two principal documents, an internal Strategy Document and the Request for Proposal ("RFP"). The former can be a brief, two-page memo that stresses the importance of a disciplined procurement, sets out the enterprise"s priorities, and describes the principles that will govern services provider selection decisions. The procurement team should share the Strategy Document with enterprise management. This is particularly helpful if a disgruntled bidder, often the embarrassed incumbent services provider, attempts to go "over the heads" of the procurement team to overturn the vendor selection decision. The RFP serves a number of purposes, principally to elicit responses that facilitate an "apples to apples" comparison of qualified bidders. Most enterprises have access to multiple RFP templates. Many are excellent - some are not. In an effort to be comprehensive, priorities can often be obscured in the RFP. The document should elicit answers that are responsive to core objectives. If there is strong interest in migrating to an IP-VPN for data services, make sure that intent is clearly reflected. The same is true for the mix of services. If an enterprise is interested in managed services, the RFP should unambiguous by say so. In addition, current services, customer locations and bandwidth requirements must be compiled to develop an accurate picture of current demand. Reasonably certain projections in enterprise growth or contraction should be noted, as well. Proposals based on inaccurate demand sets can undermine credibility, extend time lines for negotiations, and discourage aggressive bids. IMPLEMENTATION PHASE Select Services Provider(s) and Negotiate Agreement(s): The transition from Planning to Implementation occurs during the review of the responses to the RFPs. Supplemental questions and, in many instances, requests to "sharpen their pencils" can be directed to responsive bidders on particular aspects of their proposals; in most instances, these requests relate to pricing and other pricing components, such as minimum revenue commitments. Requests for additional information on services and services management capabilities are also appropriate. Responses to these supplemental requests fully support a disciplined procurement. Pricing, commitment levels and particular services capabilities are important deal points that influence vendor selection decisions. Because these post-RFP discussions often do elicit critical information, we recommend that enterprises not demand vendors to respond to RFPs with their "best and final offers." This approach can work against the interests of the enterprise. As the carrier selection decision(s) are made based on an evaluation of the vendors' responses to the RFP and to supplemental inquiries, the next step is to finalize the agreement(s) with the selected services provider(s). Keller and Heckman LLP draws on its substantial experience and data base of terms and conditions to expedite negotiations. In connection with services agreements, we focus on two objectives: Achieving competitive business terms and conditions. This encompasses the familiar pricing related provisions such as minimum revenue commitments and competitive pricing reviews (keyed to the basic elements of the business deal), billing reviews and audits, standard verses additional Service Level Agreements ("SLAs"), consequences of SLA non-compliance, transition rights and obligations and, for substantial, multi-service agreements, consequences of service-specific defaults on the balance of the agreement. Achieving balanced legal terms and conditions. Services provider standard agreements for enterprise customers tend to be grossly one-sided. Comprehensive alternatives to the various provisions are often warranted from the perspective of equitable risk sharing and the nature of the transaction. Standard provisions, such as "Dispute Resolution" and "Assignment," must be considered against the backdrop of the services being acquired, areas that are often subject to disputes and the ever changing nature of the industry. Keller and Heckman LLP understands that timeliness has multiple facets in negotiating telecommunications, IP and e-commerce services agreements. The process must be initiated early enough so that (1) the qualified bidders can reasonably conclude that there is sufficient time for the enterprise to transition to successor provider(s), (2) negotiations are not compromised by the risks (economic and operational) of having to continue to obtain substantial levels of service from the incumbent provider(s) beyond the transition period, and (3) the benefits of the new deal(s) can be realized as soon as commitments under the expiring agreement(s) are satisfied. Participants. During this phase of the procurement, the enterprise's IT/Telecom/Procurement staff often are supported most heavily by consultants and counsel. The judicious use of this external expertise often yields a better, more comprehensive and balanced agreement suited for the nature of the transaction. Outputs. A new or a revised agreement or multiple agreements are the product of the Implementation Phase. We also believe that the implementation plan(s) or the core parameters of the implementation plan(s) should be finalized or at least referenced in the new agreements. PERFORMANCE REVIEW PHASE Assess Services Provider(s) Performance. Beginning with the initial deployment of the new provider's services and throughout the life of the agreement, the service provider's performance is continually assessed. Sometimes the assessment is highly structured, but in many instances it is an ongoing, non-documented set of conclusions. This assessment should cover a number of topics: Services: Were SLAs missed, met or exceeded? Were security objectives satisfied? For managed services, did the provider identify and respond to outages and other service problems or were enterprise staff calling in troubles and continuously having to intervene in problem resolution? Billing: Was the billing accurate and timely? Were billing disputes handled quickly and fairly? Provisioning: Performance on initial deployment and for moves, adds, changes and deletes. Was new or replacement CPE installed and operational in a timely manner? Account Team Support: How did the individuals respond in regard to escalated problems, orders for new services, and in keeping the enterprise up-to-date on new provider services and in staying abreast of developments in the enterprise's business? Critical Service Provider Commitments: Did the carrier satisfy its obligation to maintain market rates throughout the term and were agreed upon technology uplifts deployed by the services provider? Participants. The enterprise staff is most deeply involved in this phase of the procurement. An internal audit team may replace the procurement staff at this juncture. Consultants and counsel are called upon for more limited functions such as competitive pricing reviews for consultants and dispute resolution for counsel. Outputs. Internal assessments play an important role in the shaping the enterprise's priorities as the current agreement approaches expiration and the procurement cycle renews. Among the matters that should be assessed are the projected versus the actual economic benefits; the contributions to the business made by the vendors' services both in terms of SLA measures and a more subjective assessment of the services' contributions to the enterprise's businesses; and, finally, the support and responsiveness of the account team, help desk, product managers and the balance of the provider's organization. 1 For Telecommunications, IP & E-Commerce Services Procurement Life Cycle At-A-Glance Click Here 2 For additional information, please contact C. Douglas Jarrett at 202-434-4180 or [email protected], Eric Nastasi, at 202-434-4218 or [email protected], or Timothy Feldhausen at 202-434-4290 or [email protected]