Rate Review Case Study

 

A consortium of nine companies, half of which were Fortune 500, had a mid-term contract review for one of their services contracts with an $11 million annual spend, engaged Telmac to assist with the mid-term rate review negotiations due to the following circumstances:

  • Telmac had conducted a previous Benchmarking project which indicated this services contract was at a minimum 16% above market.
  • Despite previously engaging other excellent, well known, outside resources for industry insights and legal advice regarding telecom contracts, the client’s negotiating team was frustrated in converting this advice into practical and meaningful contract negotiation results.  In the last engagement of one of these other firms, the client was told there was no opportunity to get further contract improvements
  • Carrier had previously changed contract language to require a three (3) year extension of term if any price revisions were made at mid-term review.
  • Previous attempts to re-negotiate this services contract resulted in minimal 3% – 5% cost savings.
  • Carrier offered a proposal with similar modest savings, offering a two-tiered commitment schedule, requiring a much higher spend commitment for 90% of companies to get best rates.
  • Proposed savings were based on savings offered for only a few select services, and only applicable to 50% of the member companies.

 

Engagement Type:  Fixed fee

Savings Guarantee:  First-year savings to exceed 200% of fee.

 Results

  • Telmac’s expertise was able to break an existing negotiation stalemate and produce immediate results in meeting the client’s strategic goals and objectives.
  • Telmac’s lead consultant negotiated a 13% reduction in contractual commitment relative to the previous proposal.
  • Negotiated rate reductions resulting in $2.1 Million in projected annual cost savings (19.2%) over the contract term at the lower commitment percentage for all members.
  • Negotiated $300K signing bonus.
  • Reduced term extension from three (3) years to two (2) while keeping mid-term rate review intact.  (Carrier had initially required that mid-term review language be deleted)
  • The negotiated first-year savings above the initially proposed carrier offer represented more than a 1000% ROI (over 3,000% over new contract term) relative to Telmac fee.