RFP pointers

By BRETT MACHTIG
Network World, 04/05/99

There are four steps to soliciting and choosing a telecom contract proposal: data collection; request for proposal (RFP) development and issuance; proposal evaluations; and contract negotiations and implementation. The whole procurement cycle typically takes anywhere from 90 days to nine months to complete, but the following tips will make the task go more smoothly.

Data collection

This is the stage in which you determine your company's telecom volume and service mix.

Ask your carrier for high-level consolidated usage reports and statements on CD-ROM. These reports help a consultant recommend the most cost-effective configuration to bid out to potential providers.
Don't assume your carrier billing information is accurate - check it first and correct it if necessary.
Familiarize yourself with changes in telecom technology that can bring you savings. For example, many new digital cellular phone contracts don't include long-distance or roaming charges.
Collect information from all levels of your company. Steve Shea of Deloitte Consulting relates how one client thought it was spending approximately $6 million with a particular carrier, but further research found the company actually spent more than $10 million. This 40% difference can greatly affect your leverage.

RFP development and issuance. The RFP is a document that spells out your service requirements and gives potential carriers the information they need to prepare a bid.
Be sure to consider all potential providers, including second- and third-tier carriers.
Remember that the purpose of an RFP is to initiate negotiations. Wait until you lock in good prices before you bring in key terms and conditions. Pushing for heavy service levels early on will just result in high prices.
Don't request proposals from carriers you don't intend to do business with - this wastes your time and theirs.

Proposal evaluations

Here is the point at which you'll analyze, rank and evaluate carriers' responses for cost and capability, narrowing the selection until you choose a provider.

Mandate that carriers submit responses in a way that allows an apples-to-apples comparison.
Be aware of the four biggest carrier lies, warns Hank Levine of Levine, Blaszak, Block & Boothby, a Washington, D.C. law firm. These are: 'I can't change that; it's in the tariff;' 'Oh, no! I won't go over your head;' 'Our RFP response is our best and final offer;' and 'The Federal Communications Commission made us pass along the Gore tax: If we didn't, we'd lose billions.' The truth is, almost any part of your deal can be changed.
Make sure you get a rate-stabilization clause in the contract, or the competitive prices you're getting could quickly disappear a few months after you sign.
Don't trust carriers' savings projections. In one instance, a carrier overestimated the savings of a $10 million deal by $1 million because it used inaccurate traffic growth projections, according to Shea. Test each assumption for accuracy and verify the pricing algorithms used.
Evaluate the volume commitment the carrier outlines and the risk associated with failing to meet it.

Contract negotiations and implementation

At this point, you create a contract and implementation plan with your chosen carrier.

Understand all the ramifications and nuances of the contract, or ask a professional to review it. Many of the "gotchas" are transparent because carries have omitted a key clause, while some are explicit, as in escalator clauses. One type of escalator clause resets your minimum annual commitment based on a percentage of your prior-year's usage or a set dollar amount, whichever is greater. The result is that your firm loses one of its biggest future leverage points.
Ensure the carrier outlines all terms and conditions noted in the contract as part of the tariff it files to the FCC.

Next: Negotiation tips

RFP pointers

Data collection

Proposal evaluations

Contract negotiations and implementation

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