e

wwewweww

Volume Commitment
Telecom Agreements
With a Focus on AT&Ts
MARC Contracts and You

Berlin Pacific
Vendor
Management

sales@berlinpacific
.com
www.berlinpacific.c
om

Volume Commitment Telecom Agreements

With a Focus on AT&Ts MARC Contracts and You
This is an in depth how-to guide for IT, finance, procurement, and legal, and relevant to
telecom and IT contracts generally.
Weve found that many of our clients come to us with signed Volume Commitments, especially
AT&T contracts with MARCs (Minimum Annual Revenue Commitments.) Unfortunately many
firms fail to protect themselves from problems they didnt see coming, yet in retrospect the
problems were inevitable given how the vendors operate.
This is not easy. MARC and similar-type contracts can be very challenging to negotiate
and manage to everyone's advantage -Ken M. CIO
Without realizing it, firms can easily end up spending substantially more, be it 10%, 20% or
more, in absolute dollars than they expected, or spend 10 to 20% or more per service on average
than expected over the life of the contract. Either scenario wipes out most firms anticipated
savings from a new contract. For those firms who do realize the problem, it is usually too late to
do anything about it. Many never do.
You can learn below some ways to protect yourself from unpleasant and expensive surprises. We
have included an extensive list of key items to look out for with volume commitment contracts
and then for contracts in general. You may wish to literally check these off through the contract
process, or create a checklist spreadsheet. First well present some background. Feel free to skip
ahead to the actionable items in Key MARC Checklist Items.
What are Volume Commitments?
Volume commitments state you commit to spend X dollars per year for Y years. If you dont
meet your commitment, you pay the difference. In return you can buy the services listed below at
the rates listed below
One benefit of volume commitments is that you know what you have to spend and you simply
need to spend that amount on whatever services you like. This gives some flexibility to add and
drop services and you are locked in to the pricing you currently like.

Primary Problem:
Billing Errors
While this wont come as news to many people, often the prices for services on your bills wont
be what you agreed to. It is worth considering how to shift the burden of the vendors failure on
to them.

Berlin Pacific Vendor Management

212-247-2502

[email protected]

Attainment
What does surprise people is that many vendors will not accurately track your spending and let
you know your attainment in a timely fashion. They cannot answer if your spend is above or
below your committed amount. Remember, they have antiquated and disparate systems. This
leads either to unpleasant and costly surprise expenses that could have been avoided, or to
overspending to avoid penalties. A real lose / lose. The vendor wins because either you pay them
more per service purchased, or you buy more services than you needed to. By analogy, through
no fault of your own you become like a pro-sports team with a salary cap that is always spending
above or below the cap and never hitting the target.
I've run into the same issues. They have legacy Bell services under a large Club account,
ABN for LD and newly transitioned MIS services (Legacy Bell to legacy ATT
conversion) that has somehow been moved over to ABN. The commitment tracker
functionality with business direct is a mess as it shows revenue commitments that are not
nearly what they need to be. Marc W. Consultant
One client was cheerfully informed by their vendor that the client was $800,000 below their
commitment in their first year, but not to worry because obviously the vendors tracking of the
clients spend was wrong so they wouldnt be asked for $800,000. The vendor did not tell the
client early on they werent spending enough, nor did the vendor determine what the true
attainment was. The client was left in the dark hoping the vendor would not present them with a
bill for missing attainment for that year or future years.
Unfortunately if your MARC is $10,000, $100,000, or $1,000,000, and weve seen them all,
what regularly happens is that after your contract is over or almost over AT&T will present a bill
for missing the MARC. This also happens with other carriers, but were impressed by how
consistent AT&T is so well use them as an example.
Real life example A:
One of our clients, a building supply company with multiple locations had an agreement
already in place to use AT&T for their long distance provider. They asked us to look for a
MARC attainment shortfall notice they got well in to the last year of their contract.
AT&T claimed the firm was 33% below their commitment for MARC attainment. We
knew the firm was spending plenty of money with AT&T. It took AT&T months to
explain the origin of the shortfall.
It turned out AT&T not only wasnt counting the firms MIS spending on data T1s, they
refused to do so as MIS wasnt in the contract. We thought the wording covered MIS, but
AT&T didnt. The client had no idea theyd signed a contract where there was no way
theyd ever reach their MARC.
The firm and Berlin Pacific negotiated an agreement whereby the MARC attainment
shortfall fees were waived. In return the firm signed on for additional years with AT&T
and AT&T agreed to count all spending with AT&T.

Berlin Pacific Vendor Management

212-247-2502

[email protected]

Even after it was signed AT&T had problems properly processing the paperwork.
Fortunately this time the firm had a signed agreement protecting them.
Real life example B:
Another client was informed of a shortfall well after the contract was over and the client
had continued month to month (despite our recommendation to either re-negotiate pricing
or leave.) The client called us urgently wondering what had happened. Together we
determined that the problem was that the client had managed their spending to come in on
target in their last year. However a large credit had been deducted from their spend.
The client had received a large credit at the beginning of their last year. AT&T had been
billing for an expensive line to literally nowhere, making it relatively easy to get a credit.
This credit for previous years errors was counted against the last years MARC creating
a shortfall. In reality AT&T shouldnt have been overcharging in the first place, and in the
second place the discount was for overcharges on previous years not for the last year.
When faced with a large bill for a shortfall the client will be confused because AT&T had never
said anything, and their total bills with AT&T were above the commitment. The client will then
learn that AT&T was not counting some or all of the following:
Taxes
Regulatory Charges (and dodgy surcharges and pass throughs)
POTS lines
MIS Internet Services
PRIs and Voices T1s
Bills which you would assume counted towards the MARC since they have AT&Ts name
on them.
Services which you would assume counted towards the MARC since that type of service
is clearly listed on the contract.
While the last one is AT&Ts fault, if you signed the wrong contract AT&T will be correct in
not counting the other items.
After learning these surprising facts, the client then has to spend valuable time fighting with
AT&T, or use Berlin Pacific to handle a problem which shouldnt have occurred in the first
place. In some cases the contract is such that the client is completely defenseless, even though
they followed the spirit of the agreement, they have to pay in even more money.
Fortunately there are things you can do to protect yourself. Berlin Pacific can help negotiate
these agreements, and we can even bring in lawyers who are experts at creating ironclad
documents for you. Below is a list of key items we look for when negotiating an agreement.
Key MARC Checklist Items

Berlin Pacific Vendor Management

212-247-2502

[email protected]

You have no rights that aren't in the contract.

Educate yourself. There are a number of things you should understand, do, and look out when
you begin the process.
Attainment - Spell it out
Make sure AT&T makes clear what counts towards the MARC - which part of which bills. List
the bills that count. AT&T doesn't include many things - like POTs lines. Devil is in the details.
Be very clear on what is included on the Annual Volume Commitment. Their interpretation will
be in their favor. Spell it out. Walk through it.
This is so critical it is worth spelling out further
In addition to the contract language listing the services counting towards the
commitment, have the carrier document what exactly which current or future bills or
parts of bills youre paying and services youre buying today, or are about to buy, count
towards your volume commitment.
On Bill A sections X, Y,Z count towards your commitment, sections U,V do not count
but must be paid for. If there are any other sections you dont have to pay them.
The more specific the better.
You still need the part where the vendor lists in principle which services or costs count.
Make sure you understand what those services are. Spelling that out also helps. Are they
talking about pre or post discount costs. (Simply changing that wording make AT&T
MARCs easy to fulfill.)
This allows you to now determine, from your monthly records, what your attainment is.
Whenever you purchase new services follow this process.
Make sure to document what is being spent now and what portion will count to the
commitment. Document exactly what portions of the bill count towards the volume
commitment.
Make it very clear what is going on.
Attainment Reporting
This is also critical.
As one colleague said in a private forum:
I don't think it's advisable to ask AT&T to run their own hen house. First, the eggs will
be hatched before AT&T gets around to it...

Berlin Pacific Vendor Management

212-247-2502

[email protected]

What kind of reporting on your attainment do you want?

How often?
What format?
Ask yourself what you want.
Tell the carrier we want X
Carriers says - 'this is what we can do.' Remember they have complex, antiquated, and disparate
systems. AT&T has MIS, OneNet, ABN, EVPN, etc.
Try to figure out what you can live with.
Determine what how you will be protected if the vendor does not report your attainment in a
timely manner.
If you don't send spreadsheet every month then you have to knock x off my volume
commitment.
If you dont tell us within X days of months end that our attainment that month was less
than 1/12th of the annual commitment, then any shortfall that month wont count.
Get them to put it in writing.
Make it clear that you want to pay what you owe, but you dont want to find out later you owe
more.
In general most telecom firms must produce a bill within one year or risk not getting paid. This
still may be too long as you may not get a bill for the last year till one year after the end of the
last year.
Note that AT&T and other vendors often have clauses that credits to their customers for billing
errors can only go back six months. Make sure this is reciprocal for commitment shortfalls. If
they dont notify you within six months youre off the hook. This will instantly minimize the
damage. However since youre the customer and it is their job to tell you in a timely error free
manner what you owe, and youre always right being the customer, this isnt really reciprocal.
Give them perhaps the # of days you have to pay them to notify you of shortfalls. If you take
longer to pay, they can take longer to tell you what youll owe.
Service Level Agreements - SLAs
Make sure there is an effective SLA in place. This isnt a guide to SLAs but sometimes SLAs
just focus on technical issues especially uptime and recurring problems.
Does the SLA also address:
Customer care
Customer service response times does it take forever to get help?

Berlin Pacific Vendor Management

212-247-2502

[email protected]

Customer service issue resolution timeframes once you get help, how long will they
take?
Attainment especially correct reporting.
Bill Accuracy
Equipment compatibility if the service doesnt work, can they point the finger at your
equipment?
Escalation if you are not happy, how can you escalate to senior management?

Setting Expectations for Working Together

This section is not about MARCs per se, but it is about how you the details of how you work
together, which is part and parcel of the volume commitment contract.
Make sure to get comfortable with the customer facing team. Are there people there who are
committed to serving you? Are they knowledgeable, attentive, and timely? (If youre unsure
imagine how theyll be after you buy. Do you feel comfortable?) Can you escalate easily? (Will
they give you the numbers and e-mail addresses of senior management? Or do you only get the
number of a call center in India? Or worse yet some other country?) You are the customer, and
therefore always right. Be sure you are happy.
What are the expectations for regular account review with the vendor? This should include
reviewing current bills, any MACs since the last meeting, any production issues. This may be a
weekly or monthly event. This helps keep everyone on the same page and establishes a
relationship and trust. Account managers have a tendency to drift off after a deal is closed so it is
also good to set expectations early.
What are the expectations for MAC tracking?
Similar concerns for attainment tracking also apply for SLAs. Track downtime yourself, and find
a way to timestamp the start and end of it in your own trouble ticketing or NOC system. AT&T
may fail to keep track of and document that two day outage for you.
How will the vendor handle the inevitable billing errors? What if youre not satisfied? What if
the bill is incomprehensible? Techniques for handling billing errors are a whole other can of
worms, but it is worth bringing this up during the negotiations. In some cases dealing with errors
is just a cost of doing business but the vendor needs to realize theyre increasing the TCO.
Try to make sure credits from billing errors are not deducted from the spend counting towards
attainment. It was their fault for the billing error in the first place.
Other Key Telecom Contract Items

Berlin Pacific Vendor Management

212-247-2502

[email protected]

Watch out for discount only contracts. Make sure underlying prices are agreed to and locked in
for services youre likely to buy.
Some contracts list the prices, and the client later discovers prices are subject to change. One of
our clients, a law firm, actually signed a contract where they committed to spend over $200,000
where the vendor literally wrote:
[Carrier] RESERVES THE RIGHT TO INCREASE OR DECREASE MONTHLY
RECURRING CHARGES ("MRCS") ON AT LEAST THIRTY 30 DAYS' NOTICE
AND OTHER RATES AT ANY TIME.
The carrier a few months later raised rates almost 5%. Dont permit this. This same contract also
listed language that the carrier, at their discretion, could for each partial month of service pro-rate
that months charges or charge the full month.
Watch out for regulatory charges and surcharges. If you have to, go ahead and pay them, but first
make sure they explain what they are, how theyre calculated, how much theyll be, and if theyll
count toward the MARC. If they cant explain them or dont tell you about them in advance
make it clear you dont have to pay them. Put this in the contract. Weve seen language where
carriers state they have the right apply any taxes, surcharges, and assessments they feel like. In
practice this means they can and often will bill clients whatever extra amount they feel like,
padding the bill by a few percent with completely arbitrary and unpredictable charges.
Some people simply say that they won't pay the UCC or USF and similar charges. It is a pass
through not an obligation on the customer. Similarly we recommend getting an explanation of
how theyre computed, especially if youre buying MPLS or other data services.
Make sure credits are taken in to account. One carrier even insisted on calculating all taxes and
surcharge based on the charges before the promotional credit was applied. This was equivalent to
a store selling an item on sale for $50 and charging sales tax based on the original sticker price of
$100. (As of writing this were investigating with lawyers if this is illegal.)
Make sure you're not responsible for charges or MARC penalties if AT&T didn't install the
service
If the site is down due to disaster or anything else, don't pay for the service.
Agree to no more than 60% to 70% of anticipated spend. Keep flexibility. This makes it hard to
miss the MARC. If it looks like you will miss the MARC and it is your fault, ask to extend the
contract to make the committed volume up to them.
This may be a stretch, but making the time and volume parts more flexible may be better. E.g.
Goal is to reach $3,000,000 in three years, but you have five to do it and the spending is
cumulative. This still doesnt let them off the hook for tracking the #s.
Make sure there are no penalties for putting items in dispute and not paying the disputed items.
Be prepared to not pay for items in dispute. (This goes in to the whole field of expense

Berlin Pacific Vendor Management

212-247-2502

[email protected]

management, but trust us documentation and follow up processes are key.) AT&T and other firms
will waive penalties for late payment if youre disputing something, but make sure it is in the
agreement.
Construction fees to bring in new services or redundant paths, requests for cell towers, etc. are
similarly negotiable. If the infrastructure can benefit other potential customers, e.g. cell towers,
lines to serve your office can serve others floors or neighboring buildings, thats a reason to not
be charged construction fees. Any costs, if you have to pay them, should count towards the
MARC.
Are you part of another entity? What agreements do they have? Maybe you can use their pricing,
or they can use theirs. If theyre part of another MARC you can often get your spending to count
towards their MARC and to get their pricing or leverage lower costs. But again, make sure this is
put in writing when make the move. (See Attainment Spell it out above.)
Look out for the renewal and end of contract clauses. Vendors like automatic renewal clauses. If
possible make them give you notice of the end of contract and any automatic renewal. Ask for
the contract to go month to month instead or either renewing or going to non-discounted tariff
rates.
Change in business clause. You must attempt to get a business downturn or some other
language in a contract. This means you can cancel services if there is a flood, part of your
business is regulated out of existence or just fails, the economy tanks, etc. In our opinion there
isnt much reason for telecoms to charge you big penalties for leaving. If they gave you
equipment you should pay for it or give it back, and if they waived install fees it is not
unreasonable for them to insist on getting that back. To give a story from one of our CIO
colleagues:
I had a $10million MARC with AT&T, but the company I was with sold off a division
and also ended up closing hundreds of offices due to a major shift in business strategy.
We also had to change our network infrastructure architecture from a costly Frame-toATM network to a broadband with dial backup (among other things) to keep the
company's costs down and to remain profitable and in business. This type of clause was
not in the initial contract, and both sides did eventually negotiate a fair compromise, but
we absolutely had language added in at renewal time. Had we not, we would not have
been as successful in getting out of trouble the next time it happened. We had a provision
in the contract that allowed us to renegotiate the MARC without penalty due to
extraneous business conditions. That may be tougher to do with smaller engagements (it
was in AT&T's best interests to keep the remaining $7 million in revenue coming in, and
to not force us to move to another carrier), but it is worth pursuing that language for any
company, provided they are keeping the carrier in the loop on what is happening with the
business. As an example, I gave AT&T the heads up about potential changes to the
business landscape well in advance, so I was not dropping the bomb on them after the

Berlin Pacific Vendor Management

212-247-2502

[email protected]

MARC was missed. Another way to handle the above, which I implemented with
Compaq/HP, was a true-up for each agreed-upon period (in my case, it was each year).

Outside assistance
It is ok to get the vendor to explain to you how the contract protects your interests, or to revise
the contract to meet your requirements. Many of these vendors are perfectly able to insert correct
language. In some cases you may want your lawyer to write portions. Having a lawyer review
any final agreement is a good idea.
If managing the myriad details seems overly complex, we can help manage these negotiations as
well as refer you to appropriate legal counsel who can verify if the contract you negotiated
protects you.
This is what one CIO had to say on the importance of outside assistance:
I would stress the need for help in negotiating such large and complex contracts. You
mention that it is a good idea to involve a lawyer, but I think it should be stronger than
that when it comes to larger, more challenging contract that include MARCs. As a former
customer that had entered into a number of these agreements, I learned some hard lessons
early on that could have been avoided had I sought the help of legal counsel or of an
external resource such as Berlin Pacific that had strong experience negotiating such
language...I had to use every last creative negotiating skill I had to avoid disaster. Get
help...it is worth the time and expense.
Prior Preparation for Contracts in General
Your sense of what is possible and what to look for will set the tone for your future in life and
when negotiating any contract or agreement.
In an ideal world, what would you like? It might even save a lot of time to have this documented
so it can be handed out.
Shop around. Get a different perspective by looking at 2, 3, or 4 providers. Reading, comparing
and understanding their agreements is also helpful. While many people a swayed by AT&Ts
assertions that no one had their deep infrastructure and breadth of services this is no longer the
case. (We also know many of these comparable providers, many of whom offer substantively
superior service to the old firms, and we know what theyre really willing to charge.)
Everything is negotiable. While we know that is not always true, you should go into every
negotiation believing it is true. It never hurts to ask.
As always, you, the customer, should understand that anything in an initial contract
provided by a partner, AT&T included, is up for discussion and/or negotiation. All too

Berlin Pacific Vendor Management

212-247-2502

[email protected]

often, people feel the need to accept the terms because they don't understand them, are
intimidated into not speaking up, or they have the feeling that AT&T or other vendors are
big and experienced, know what they're doing and have the customers' best interests in
mind at all times.
The contract should be a win-win. Get answers to your questions, make sure the language is
acceptable and that you have no regrets.
In the end, all contract negotiations MUST be a win-win. If either side feels like they
truly got one over on the other, or if either side feels like they gave up too much and feel
uncomfortable, it is most likely not a good deal and will end up in dispute somewhere
down the road. If either side has to debate the contract wording to deal with a dispute
after the agreement is signed, there is a pretty good chance that relationship is not going
to last very long. It just shouldn't happen.
Anticipate the issues down the road. How does the contract address such things? Getting the
contract in place is only the beginning.

Conclusion
Make it a partnership and not a competition. Have a strong relationship with your provider. This
is incredibly important and helpful in large and complex MARC arrangements. You both want
the same thing: to succeed.
Be prepared to get help. These contracts especially are NOT easy and can be very expensive. A
lawyer can help, Berlin Pacific can help, prospective vendors can help (if youre alert and ask the
right questions and make the account rep get the right people involved from his organization) but
don't go it alone with these complex and large-value contracts.

Berlin Pacific Vendor Management

212-247-2502

[email protected]