Navigating contract negotiations in the modern and complex telecom ecosystem

Ecosystem complexity requires a fresh solutioning approach that’s holistic and precise

According to the World Commerce & Contracting organization, traditional contract pitfalls are resulting in an average value loss of 9.2 percent for both the seller and buyer. In the fast-transforming information and communications technology (ICT) industry, the sophistication, potential and complexities of 5G are adding new challenges, which may further increase the risk of additional loss of value in the long run and make it increasingly difficult for communication service providers (CSPs) to protect their investment.

While traditional contracts had inherent clarity (due to clear boundaries provided by the industry standards framework  such as 3GPP and the vendor’s proprietary technology), these  boundaries are starting to blur, with cloud native solutions and multiple vendors regularly providing parts of the complex solutions. Getting the E2E visibility of a solution at all life cycle stages is becoming increasingly challenging but is absolutely critical. This invisibility can create gray areas during various phases of the lifecycle of the complex solution, resulting in a loss of business value for the stakeholders.

To keep the contracts relevant in order to achieve long-term business success for all parties and limit the loss of value for all stakeholders, the new approach requires a collaboration and partnership between the negotiating parties that looks beyond the obvious to mitigate the risk of ‘unknown unknowns’. This paradigm shift can be managed by paying special attention to key areas, such as taking a holistic view of the technical solutioning as well as the partnership ecosystem and the scoping of work, and updating traditional master agreements in line with the new business landscape. The contract needs to an easy-to-understand document that keeps business users in mind, for example in the delivery and technical teams.

Although solutioning is becoming more complex day by day, defining a flawless technical solution is the starting point for successfully securing long-term business value for all parties. It’s now imperative for all parties to refresh the traditional solutioning approach to better suit today’s complex ecosystem.

Today’s vendors now face the challenge of ‘unknown unknowns,’ as they have limited visibility of the ecosystem and the interfaces in the network unless clearly articulated and discovered jointly with the customers.

Figure 1: Challenges of Virtual Network Architectures

While the traditional telecom contracts relied on the external boundaries, as illustrated in Figure 1, a virtualized or cloud native solution needs the boundaries to be explicitly defined, for every part of the solution provided by different vendors. The system integration becomes extremely important and continuous function throughout the lifecycle of the contracted solution.

Increased accountability on prime system integration (SI)

Sometimes, it is incorrectly assumed that a vendor selling most component of a solution including some third-party components will perform the system integration (SI) responsibilities. This must be a carefully assigned role and needs to be accountable for ensuring that all pieces of puzzle come together as intended. The designated system integrator prime (lead) must meticulously and collaboratively develop a standard solution template that should be used by all the players contributing to the solution. This template should clearly identify all the key solutioning aspects, such as interfaces, integration points and infrastructure dimensioning, that each individual provider of the various components of the solution must consider. Provisions should be made in the contract to adapt to the changes during its lifecycle. In addition, developing and implementing solutions throughout the lifecycle is of paramount importance to the CSPs’ business, so contracts should include a provision for a continued discovery phase at a regular frequency.

The complexity of the ecosystem increases, not only because of   the virtualization/cloud native architecture, but also the solution architecture, opensource platforms and software etc. The number of vendors has increased multifold from the traditional solutions. This will create a higher degree of interdependency of various components that can have impact of the rest of the ecosystem. Any isolated and uncoordinated lifecycle management (LCM) activities, such as software updates, upgrades, changes in functionality or policies by one player, can degrade the entire solution performance.

With more and more vendors adopting continuous integration and continuous delivery (CI/CD), this also increases the possibility of ‘unknowns’ impacting on the overall performance of the solution. In this scenario, no vendor can commit to futuristic compatibilities and interoperability warranties unless it’s already secured as part of the standard product description. The technological advancement has encouraged many new players in the market, resulting in more start-ups or highly established hyperscalers becoming part of the ecosystem. The long-term objectives of these players may vary widely, which can influence their willingness to take higher or lower risks for short-term gains.

Ideally, all negotiators should:

• Understand the E2E long-term evolution path,
• The role and the ambitions of all the players in the ecosystem, and
• Develop contracts more collaboratively and with full transparency.

For example, some new vendors with a short-term objective may be willing to be more lenient in agreeing to unrealistic expectations, whereas the more established players may be more cautious because of their overall objective and long-term vision. Differing approaches from vendors could create an imbalance in the negotiated contracts, which may result in scenarios where some vendors over-promise and under-deliver – ultimately deteriorating the overall solution performance during the life cycle of the project. CSPs will face the increasing challenge of calibrating the level field on a continuous basis. Adding flexibility to the contracts to adopt to the complexity of this ecosystem will be of paramount importance in the new technological landscape.

Evolving the discovery phase

One of the ways to mitigate this challenge is to set up a discovery phase or ‘Phase 0’, to the complex contracts at the beginning of the program, and to also continue to meet   at a regular frequency after implementation to discuss and discover implication of such life cycle management or scope changes. The frequency and duration of ‘Phase 0’ may vary depending on complexity and dynamics in the evolving ecosystem. The outcome of the discovery phase must be agreed by all parties and any changes to the original assumptions must be treated as a change request to the original scope. The discovery phase also helps identify the impact of LCM roadmaps of various players and on various aspects of business, which will provide better visibility to the operators and all the parties involved, to identify the risk of liability and indemnification, security concerns etc. which may change or shift depending on the various evolution steps of the entire ecosystem during the lifecycle. Such dynamics and complexity can be managed by provisioning the flexibility in the contracts around key business parameters such as scope and pricing.

During the discovery phase, the CSP must bring all the parties to the table at an agreed interval to refresh and sync up on the key aspects such as updated requirements, interfaces, integration points, delivery methodology, testing automation and RASCI matrix in the statement of work (SOW). The SI prime must lead the discovery phase activities.

Figure 2 explains the concept of the discovery phase. Although it looks like a straight-forward activity, the success of this phase depends largely on how well structured and meticulously it’s performed. A well-structured and governed discovery phase helps to identify missed requirements and interfaces, can minimize unpleasant surprises and cost over runs, as well reduce the number of change requests, optimize time to market (TTM) and protect the CSP’s investment.

Figure 2: The Discovery Phase

Taking a new approach to outdated master agreements

During the evolution of ICT business, CSPs have engaged with various vendors through master sales/services agreements (MSA). However, some terms in the MSA that were signed decades ago have lost some relevance for the new business models. The legacy of already signed master agreements provide a degree of comfort and complacency to the negotiating parties. Master agreement renegotiation is a very long and complicated process for all parties. The time pressure of the business and the concerns around losing on some of the favorable terms from old agreements may deter the parties to renegotiate the master agreement, however looking at change in the complexity and the speed of change, it is sometimes imperative and helpful to all the parties to revisit the master agreement and make it relevant for the business of next decade. The 5G revolution will be monetized through hundreds of use cases from irrigating farms to performing remote surgery and the change in technology merit the additional effort to make the agreement fit for purpose.

The liability landscape will also keep changing with the new 5G use cases and evolution. Identifying the right party to be held liable may have to be dynamically addressed across the life cycle of the business. The change control process will have to be much more meaningful than the traditional contracts and will need to be accepted and provisioned in the total cost of ownership (TCO) by all parties. In addition, cyber security is an extremely critical and sensitive part of electronic business (e-business). Every responsible organization tries to counter the threat in the best possible way. To ensure the security compliance, a well-coordinated governance programs will need to be defined and orchestrated across all parties in the eco-system and will need to be defined in the contracts, customized for the specific business solution.  

Developing a well-defined statement of work

One of the main pitfalls eroding the value of contracts has been the poorly written statement of work (SOW). With the increasing complexity, this pitfall can be the most significant of them all. The SOW provides a clear working structure to the teams that provide the contracted value to the stakeholders. It’s critical that the working team understands the scope of deliverables, both objectively and upfront. This document is best written by the teams who will be the group implementing the work, rather than lawyers or procurement teams. 

While standardizing the templates is a great beginning to bring uniformity to all contracts across the ecosystem, it is equally important not to oversimplify the SOW. The complexity of the telecom evolution outweighs the desire to simplify the SOWs beyond certain extent.

The system integrators of complex programs must carefully break the program down to project level and develop corresponding SOWs without adding ‘catch all’ phrases.

In addition, the SOW must be developed based on a strongly and clearly defined technical solution. A flawed solution could lead to a deficient SOW. A well-defined SOW must at least consist of the following sections:

1. Overview of deliverables
2. Bill of quantities of hardware
3. Bill of quantities for software
4. Timeline or delivery schedule, subject to the conditional flexibility
5. Supplier responsibility broken down into various work packages (WP)
   • Description of the WP
   • Tangible Deliverable of the WP
   • Acceptance Criteria of the WP. Agreeing to finalize the Acceptance Criteria during the Project Execution Phase reveals many gray areas resulting in project delays and cost overruns.
6. Operator responsibilities must include general responsibilities as well as WP specific responsibilities. Such responsibilities can be crucial for the project success must be performed timely and with compatible quality.
7. Shifting any assumptions either to the supplier or to the CSP responsibility section will help minimize the gray areas during execution phase.
8. Delivery methodology: Projects can be delivered using the waterfall or agile or a hybrid model for different phases. The adoption of agile methodology significantly changes the role of the CSPs, which in the past were used to holding one party accountable for everything.
9. A detailed and qualitative RASCI matrix is a key to bring clarity in the complex programs. As like everything else, the RASCI matrix is only as good as it is written. A long RASCI matrix is not necessarily a detailed one unless it has the desired quality.
10. Service level agreements (SLA) need to be broken down and carefully cascaded from program level to project level SOWs. A traditional 99.999 percent availability in telecom networks should be validated across the entire ecosystem and appropriately detailed in the corresponding SOWs.

Conclusion

The merger of IT and telecom domains, coupled with an architectural evolution based on cloud native solutions, opensource software and a new vendor ecosystem, are creating new contracting challenges for CSPs and vendors alike. In order for contracts to deliver the intended value to the stakeholders, parties will need to work more collaboratively to develop next-generation contracts based on new relevant master agreements and more flexible contract terms without any catch all phrases. System integration will play a critical role in orchestrating the delivery of the intended value. A well-defined solution and the periodic validation of relevance, through a thorough and collaborative discovery phase, will help minimize value erosion. A clear and complete SOW will also ensure smooth flow of contracted value during the lifecycle of the program.