A recession-era guide to network service agreements

Not many enterprises have been lucky enough to escape the effects of the current economic downturn.

If your company is going through a downsizing, merger, acquisition, or even bankruptcy, there are steps you can take to retool your network service agreements and save your company money. These tips are offered by Levine, Blaszak & Boothby, LLP, a law firm specializing in network service and IT procurements. (See a related story on how you can benefit from bankruptcy law.)

Step 1: Assess your rights and obligations

The first thing to do is review existing contracts. If you were not able to begin that during the due diligence phase of a merger, acquisition or restructuring, it should be an early priority after closing. The key is that before sitting down to negotiate with service providers you need to know what services you have to work with, what commitments have been made, and the terms that prevent or inhibit contract termination or renegotiation.

Many enterprises do not look before leaping to cut deals post-transaction or in the face of economic troubles. The excitement, disruption, confusion and anxiety that often accompany a merger, acquisition or restructuring make it easy to succumb to the temptation to rubber stamp or roll over service arrangements quickly and move on to the details of consolidation.

That temptation is heightened as vendors offer one-time credits or other short-term benefits to maintain or expand their role in the new environment, operations personnel press for reductions in the number of contracts and service providers they have to deal with, and management makes realization of expected savings right now a strategic priority.

Here are some issues to consider and terms to look for in reviewing service arrangements.

• Identify which services are provided by which service providers under which agreements. Distinguish between custom arrangements and commoditized services. You have more options for basic/undifferentiated services – transport and equipment maintenance, for example – and it may be easier to identify and terminate redundant service arrangements in those areas. Conversely, you may have little choice but to maintain customized environments in the short/medium run.

• Once you know what you are getting and who you are getting it from, zero in on redundancies in contracts and service providers. In a merger, if you have inherited two Cisco maintenance arrangements, you should be able to consolidate them. If you have inherited a Verizon MPLS network and an AT&T MPLS network you are half way to an enterprise-wide dual network, or you need to migrate to a single backbone (which can be awkward, disruptive, and very expensive if not done carefully).

• Identify unsatisfied financial commitments and associated termination charges. Some of these are agreement-wide, but in recent years carriers have made a concerted effort to lock in their customers by making commitments, and the concomitant early termination charges, site-by-site, circuit-by-circuit, or device-by-device. These terms, if applicable, will define the costs and limitations of unilateral action under your existing arrangements.