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Hosted VoIP
Contracts
With a Focus on How to
Protect Yourself

Berlin Pacific
Vendor Management

+1 212-247-2502
sales@berlinpacific.com
www.berlinpacific.com

Hosted VoIP Contracts

With a Focus on How to Protect Yourself
This is an in depth how-to guide for IT, finance, procurement, and legal, and it contains
ideas relevant to telecom and IT contracts generally.
Weve found that many of our clients come to us with signed agreements. 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 guide is designed to help you
protect yourself and your organization from one sided contracts.
How bad can it be?
Well you could cost the company tens of thousands of dollars, unknown amounts in lost sales,
and maybe end up working somewhere else like one of the people in this story.
Even now, circa 2015, there are still issues with VoIP. In 2014 one of our smaller clients decided
to upgrade their NYC sales office to Hosted VoIP. The IT manager purchased a solution from a
major company with over $500 million in revenue. He also paid up front for all the phones and
conference room units and a switch. (He did not use our advice.)
Once the solution was installed the client had constant problems with voice quality at the
location. The vendor was never able to deliver acceptable voice quality the entire time. Daily
recurring problems included, repeated dropped calls, dead patches, echoing, dead phones, no dial
tone, phones that needed constant rebooting. Direct requests for a solution from the account
representative went mostly unanswered, and no solution was ever delivered. Attempts were made
to install new bandwidth per the vendors suggestion, but that didnt help. Users in the NYC
office had to resort to using cell phones. The client even suffered two complete outages where
the entire hosted VoIP system in the vendors data center went down for over 24 hours each
time. To add insult to injury, they only received a small credit from the vendor for days of
downtime.
The outcome was that:
The service was so bad the client ripped it out and replaced it.
The IT manager left the company and was replaced.
The vendor insisted on continuing to send them a monthly bill, despite service being
canceled. Combined with now useless equipment, this created a direct loss to the client of
well over $25,000. (To reduce this loss, they brought us in to help.)
The client had no idea how many sales had been lost due to missed calls or the brand
being tarnished by an inability to even have working phone service.

Berlin Pacific Vendor Management

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Fortunately the client had not agreed to sign a contract for any of their other offices. Besides this
fact, it isnt clear how the contract and the solution they bought could have been any worse for
the client.
The vendor didnt take responsibility for making sure the service worked. It was just too bad it
wasnt acceptable. The three year contract had no real SLA. There was no obvious recourse for
the vendors failure to deliver service. There was no clear option for early termination. The client
had already paid for the equipment. The vendor acted as if the client was on the hook for the bad
service. Except for the reputation loss, the vendor had taken on no risk whatsoever, and the client
was on the hook for over $25,000.
This is not to say happy endings dont happen all the time. However it is impossible to know
ahead of time how things will work out, and steps can be taken to minimize the potential impact.

Key Ideas from Lawyers:

We got the following ideas from Mark Grossman, who knows a thing or two about SaaS and
other technology deals.
1. The point of contracts is to prevent lawsuits, not lay the groundwork for them.
2. It takes leadership to create a clear understanding with your vendors.
3. Contracts can be an overlooked component required for a successful technology
implementation process.
4. The vendor will give you a contract protecting their interests. It will not protect yours.
5. The vendor's contract is their standard, and will not replicate the specific agreement you
had or thought you had with you sales rep.
6. You must be the one who makes sure that the agreements you have with your vendors are
clearly and accurately put in to a written contract.
7. Good contracts and vendor relationships can really help IT leadership's job security and
career growth.
As one attorney we know said:
The main issue with these contracts seems to be vagueness. Terms related to service and costs
are not spelled out clearly enough and this leads to dissatisfaction. Clients are often lured to the
potential savings and look at the positives without giving as much thought as to potential issues
that could arise. As attorneys we need to help them prepare for the worst case scenarios. Well
written agreements have SMART terms (Specific, Measurable, Appropriate, Realistic, and
Timely). This approach helps layout responsibilities and rights for both parties and improves
overall satisfaction.

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 hosted VoIP contracts and for
contracts in general. You may wish to literally check these off during the contract process, or
create a checklist spreadsheet.

Key Checklist Items

Berlin Pacific Vendor Management

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Costs and Quantities

While obvious enough, you will want to make sure that you are buying all the services needed to
meet your current business needs, and that your contract matches the quotes and desired
deliverables. A typical contract can contain any of the following types of charges.
Seats or extensions (including Fax over VoIP.)
Call paths (how many simultaneous calls can you receive.)
Toll free numbers
DIDs (phone numbers for the main number or peoples extensions.)
Data Circuits (to transport the calls.)
Backup / Disaster Recovery services. (e.g. a second network connection.)
Equipment payments (e.g. phone rentals, leases or purchases, or gear for the voice
network.)
Usage per minute for Long Distance may be minimal, but look out for
international long distance. Confirm the commitment in the contract matches
current usage and planned expansion. You may get bundles of minutes or
unlimited long distance service. (Check the fine print on unlimited plans, there is
usually an exception for abuse.)
Make sure the services under contract really match quoted services and business needs. Will you
have to add on? Will you have unused services?

Contract Term
Unfortunately most vendors want you to sign a contract to get any service. Sometimes theyll
allow month to month, but you will save a lot of money if you commit to a term of years. The
downside is that if your vendor delivers poor service, or you want to change your mix of
services, your vendor may not permit you to change your services.
We suggest looking out for the following.
There are two primary types of contracts. One is a time commitment to purchase specific
services for a period of time, usually measured in years. The other one is a volume commitment
or revenue commitment to spend a certain amount of money per year. (See our paper on Volume
Commitment Telecom Agreements http://bit.ly/1CXkNYL or write info@berlinpacific.com to
learn more about what to look out for in these complex volume commitment agreements.)
If youre agreeing to buy each service for a certain period of time, look out for the following.
Early termination what happens if you need to terminate the service? Usually you have
to pay a penalty, sometimes you have to pay for the service for the entire term even if you
cancel the service.
What happens at the expiration of the term is the price locked in? Does it go up? Does
the contract automatically renew for another year?

Berlin Pacific Vendor Management

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What happens with the equipment when you leave? One benefit of renting phones is you
can give them back when you change vendors. Most phones arent compatible with all
hosted VoIP vendors. (We also dont recommend buying phones before youve selected
your vendors. If youve selected a new VoIP provider, buying phones for this new VoIP
provider means you run the risk being stuck with the phones if they dont work out.)
Auto-renewal If the contract does automatically renew we suggest changing it to a
contract that goes month to month. If that isnt possible, make sure the responsibility is
on the vendor to confirm any contract renewal.
Flexibility to add and drop services ideally theyll let you drop any service you dont
need. Realistically they dont want to see revenue decrease just because you dont feel
like buying a working service any more. Usually a fair compromise is for the vendor to
let you replace the dropped services with new and equally expensive services. Make sure
prices for adding more service are locked in too.
Vendor responsibility to warn you Does the vendor commit to inform you of the
consequences of dropping services? If they fail to do so, are you off the hook?

Taxes and surcharges.

There are specific taxes which customers must pay. However many taxes and surcharges are
costs that the vendor incurs while dealing with federal, state, and local regulations. These costs
are often passed on to the customer. The Vendors dont have to pass them all on, and some
vendor services are information services that are specifically not telecom services (IP / internet
access is a primary one.)
Look at the following list of potential taxes and surcharges. Some of these are costs you are
mandated to pay, some are not. At least one of these might even be a duplicate. Can you tell
which is which?
Carrier Cost Recovery Charge
Federal Excise Tax
Federal Regulatory Recovery Fee
Federal USF Surcharge - VOIP
MTA Surcharge - Telecom Excise
City and State Sales Tax
State Telecommunications Excise Surcharge
NYC Telecom Excise Tax Surcharge (Borough)
Property Tax Surcharge
State and Local Regulatory Fee
If possible get your vendor to specify the taxes and surcharges that will appear on your bill.
Unfortunately vendors hate this question. Very few people understand these charges and how
theyre generated, and some vary by geographical location and vendors discretion. Sadly weve
seen vendor contracts where the carrier has the discretion to include any additional charges they

Berlin Pacific Vendor Management

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make up, including charging you for the burden of collecting the valid taxes and surcharges.
Weve even seen vendors who are unable to properly make the calculations.
As nice as your sales rep is, they may not be able to help. In order to work around a vendors
refusal to cooperate, we suggest the following ideas.
Ask to see a sample bill. Compare it to your current taxes and surcharges. Are any of the items
new? Do the dollar amounts as a percentage of spending seem off to you? If so point out the
discrepancies in percentages and ask for an explanation. (Some vendors are notorious for loading
in surcharges to boost their profit margins, leading to bills with an effective tax and surcharge
rate of 45%.)
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. (E.g. if youre
being charged USF for services providing internet access, make sure theyre not assessing it on
the whole bill as only part of the charge is for telecom services.)
You can create an addendum to your contract listing what youre willing to pay, and what you
expect the vendor to pay for, including anything they didnt disclose in advance. (Maybe allow
an exception if they can prove the line item was created by new rules forced on the vendor after
the contract was signed.)

Service Fees
Clarify possible service fees for any of the following.
Programming Will certain changes or other things you want done entail programming?
MAC Are Moves, Adds, Changes charged for?
Support Will some types of support be charged for?
Make sure those are as clear as possible. It is reasonable to charge for labor for work done by
their people above and beyond the routine, but make sure you know what is included.
Hopefully if all of these are documented, you wont discover any surprise charges that are not on
the contract.

The SLA - Service Level Agreement

This has to be well defined in your contract.
What happens if the service doesnt work?
How do they define works?
While this is important in all areas, it is especially important that the SLA terms are SMART
(Specific, Measurable, Appropriate, Realistic, and Timely). Otherwise you can have all the
problems in the world and no recourse.

Berlin Pacific Vendor Management

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sales@berlinpacific.com

For a rough overview, the vendor should be able to define in writing:

If you do X, Y, and Z, everything will work.
If it doesnt work the vendor will take responsibility for discovering issues and fixing
them according to a time table, and with appropriate monetary penalties.
If the solution doesn't work according to your satisfaction, or in conjunction with these
measurable stats, you can leave and your money will be refunded according to the
following schedule...
The SLA should also include answers to these questions:
What happens if there are problems?
How does the vendor monitor services and discover problems?
How quickly will they be resolved?
What discounts on your bill or other monetary penalties will be incurred for both failure
to fix and prevent problems? How will the discounts or penalties increase the longer it
takes the vendor to fix the problem?
If I have enough problems or constant problems with voice quality do I get out of my
contract?
How will the vendor measure acceptable voice quality? Or will the vendor take my firms
word that it is not acceptable?
In conjunction with the above, how does the SLA address customer care?
Customer service response times does it take forever to get help?
Customer service issue resolution timeframes once you get help, how long will they
take?
How will the following voice related issues be handled by the SLA?
Phone calls not going through
Repeated dropped calls
Dead patches
Echoing
Dead phones
No dial tone
Phones that need rebooting.
Complete outages affecting some or all users.
Any intermittent problems. (This is particularly difficult because you don't have any
evidence by the time they show up to help.)
How will the vendor deal with these issues? How is the burden shifted to them?
Unresolved trouble tickets.
Escalation to management.
User revolts e.g. refusing to use the system in favor of cell phones
Statistics which aren't measured.
Inability to detect problems which users can detect.
Trouble tickets which aren't logged.

Berlin Pacific Vendor Management

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sales@berlinpacific.com

Bill accuracy.
Incorrect calculation of discounts or penalties and associated disputes.

SLA Reporting
This is also critical.
What kind of reporting on do you want?
How often?
What format?
Ask yourself what you want.
Tell the carrier we want X.
Carrier says - 'this is what we can do.'
Then try to figure out what you can live with.
Determine how you will be protected if the vendor does not report in a timely manner.
If you don't make statistics available online and dont send a report on violations via email every month then you have to knock x off my bill. Make sure to review the report
with me in case there are violations you missed or didnt include.
Get them to put it in writing.
Taking Responsibility
Does vendor take end to end responsibility for making sure the service works?
Demos and proof of concepts are helpful, but the vendor should go beyond this. (We also suggest
asking for references and asking those references questions like: We know there are always
occasional problems. Can you give an example of one and how the vendor dealt with it?)
What will the vendor expect from the client in terms of the bandwidth they need to purchase? If
the vendor blames the bandwidth for the issues, and you dont see any reasonable way to replace
the bandwidth, will you be released from the contract?
What on premise equipment must the client provide, especially for the voice network? Similarly
if the vendor blames equipment, will they fix it and if not will you be released from the contract?
(Be specific about each component, and make sure all are accounted for as covered or not
covered.)
Ideally the vendor should take responsibility for telling you what to purchase, and certify that
new or existing infrastructure will work, and fix the problem if theyre wrong or release you
from the contract.
Leaving
If you the client decide to leave, will the vendor do the following?

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Take back equipment and refund money and cancel future payments. (A benefit of
renting equipment is not being stuck with it when your switch providers.)
Cancel the bill or bill line items with no argument.
Release you from all termination fees.
Reasonableness of SLAs
If all of this seems like a lot, please keep the following in mind.
Voice services are vital. It is hard to measure how many sales are lost due to missed or failed
calls, or how the brand is tarnished by an inability to even have working phone service.
Traditional voice circuits and PBXs, no matter what their issues, are designed to reliably enable
inbound and outbound phone calls. Cell phones work slightly less well. It is not unreasonable to
expect your new hosted VoIP solution to work well enough that your employees will use it, and
not prefer cell phones.
You take a risk in time and setting up the equipment, and in some case paying up front. What
risk does the vendor take on, besides a risk to their reputation?
In cases where a vendor has a good solution, both of you can expect that the quality will be
acceptable to you. Since the vendor knows they wont deliver unacceptable quality, why would
they refuse to sign a reasonable agreement allowing you to leave if service is bad? Isnt this an
eventuality which will never happen? Why would they want to charge people for a service that
isnt delivered, or keep a miserable customer? Would your firm do that?
Importance of this list
When firms dont follow this checklist, and something does go wrong, the client then has to
spend valuable time fighting with the vendor, 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, and they have to
pay even more money.
Fortunately, as weve seen, there are things you can do to protect yourself. In addition to
following through on the ideas in this document, Berlin Pacific can help negotiate these
agreements, and we can even bring in lawyers who are experts at creating ironclad documents for
you.
Make it clear that you want to pay what you owe, but you dont want to pay for bad or nonexistent service or erroneous charges.
Setting Expectations for Working Together
This section is not about contracts per se, but it is about the details of how you and the vendor
work together, which is part and parcel of the commitment enshrined in a contract.

Berlin Pacific Vendor Management

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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 a priority if not always right? Be sure you are happy.
We also highly suggest making sure that whatever the vendors sales team is proposing has also
been run by the people doing the actual work. The vendors implementation team should be
comfortable delivering everything agreed to.
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 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. Your vendor 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.

Other Key Contract Items

Watch out for discount only contracts. Make sure underlying prices are agreed to and locked in
for services youre likely to buy. One of our clients, a law firm, actually signed a contract where
the vendor had discretion to raise prices, and did so.
Make sure you're not responsible for charges or penalties if the vendor didn't install the service
If your site is down due to disaster or anything else, don't pay for the service.
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
management, but trust us documentation and follow up processes are key.) Firms will waive
penalties for late payment if youre disputing something, but make sure it is in the agreement.
Fees to bring in new services or redundancy are similarly negotiable.

Berlin Pacific Vendor Management

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Are you part of another entity? What agreements do they have? Maybe you can use their pricing,
or they can use theirs. Make sure this is put in writing.
Change in business clause. You must attempt to include a business downturn clause, or some
other similar language in the 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 return it or pay for it, and if they waived install fees it is not unreasonable
for them to insist on getting that back.
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 for complex contracts:
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.
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.

Berlin Pacific Vendor Management

212-247-2502

sales@berlinpacific.com

As always, you, the customer, should understand that anything in an initial contract
provided by a partner is up for discussion and/or negotiation. All too often, people feel
the need to accept the terms because they don't understand them, are intimidated and do
not speak up, or they have the feeling that 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 feels
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 with something as vital as your phone system, a key link to
the outside world. You both want the same thing: to succeed.
Be prepared to get help. After a certain size, 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 when dealing with complex and large-value contracts.

Berlin Pacific Vendor Management

212-247-2502

sales@berlinpacific.com