Not all carriers cater to consortiums. Wireless carriers in particular are a challenge to get discounts from, and some even have policies against working with buying groups, says Des Palmes, whose consortium represents close to 10,000 wireless devices. Their reps claim it’s tough to give volume discounts because of the variety of plans needed, Lewis says. But carriers have something to gain from consortiums, too, Des Palmes says. “If they do a good job and please us, more business will move their way,” he says. Plus, Des Palmes sees relief ahead as carriers look to combine wireless and wireline in single contracts. Sometimes it’s a matter of working with the consortium or not getting any business at all. One TTSC member’s telecom manager who wishes to remain anonymous told Voice Report that he first learned of the consortium from an AT&T rep on the brink of losing his enterprise’s 1,000 toll-free lines. The rep said he couldn’t lower the rates he quoted – which were 20% higher than the competition – but he suggested giving another TTSC member a call. And a consortium doesn’t just result in better prices from carriers. Four of TTSC’s five members now participating in an RFP for Avaya maintenance, systems and parts, for example, will split evenly the $12,000 cost of having a consultant prepare the document, Des Palmes reports. The group also benefits from its shared knowledge base. Each of TTSC’s five communication technology professionals bring unique knowledge of what their non-member peers are getting on rates, terms and conditions, and concessions thrown in to sweeten deals, Des Palmes says. The members take turns serving as group chairman and hosting quarterly in-person meetings. They hold conference calls eight times a year, though the group ramps up its meeting schedule as its AT&T contract nears expiration, he says. Given how carrier mergers are diminishing enterprises’ leverage, now is a good time to consider organizing a consortium if you’re not already a member of one, suggests Lisa Pierce, VP of the Forrester Group’s telecom research division [VR 8/6/07]. Consider the following steps: Tip #1: Look for Enterprises with Similar Spend Breakdowns Though the benefits of a consortium might seem obvious, recruiting members will be one of your toughest challenges, Lewis warns. Telecom pros fear losing independence and decision-making capability. “Others are leery of sharing spend information, or they’re not sure they’ll save more than the time and money it costs to be a member,” he says. TTSC is confronting the same challenge in trying to grow its membership. More important than being in the manufacturing business, enterprises should use interstate, intrastate and international services in similar proportions, one TTSC member’s telecom manager explains. It helps when going after low rates for the group to have its priorities aligned. For example, the consortium focuses heavily on AT&T’s Schedule B (on-net to off-net) rates, the anonymous voice pro says. The group also gives carriers a list of countries where its members have high international spend, though a new member would be welcome even if it has a presence in other nations, he says. But even a close services usage match isn’t guaranteed to make a prospective member a good fit. The consortium considered adding a medical enterprise to its ranks a few years ago, but ran into concerns over the member’s legal ability to speak freely, due to the medical privacy act, Des Palmes reports. Competition could be a stumbling block, too. Ball and another member are competitors. Fortunately, “it’s not a one-for-one overlap,” Des Palmes says. “But if it were our largest competitor in our core business, it might be a different story.” Tip #2: Sort Out Common Spend Priorities Before going out to bid, TTSC’s members sort the carrier’s services they purchase from largest combined spend to smallest. The consortium members wouldn’t push for good rates on Schedule A (on-net to on-net) services if it weren’t in their top 20, Ball’s Des Palmes says. Use of services is broken down on the individual company level, too. If a schedule ranks highly for a member company, other members will give it consideration, Des Palmes says. The consortium members annually fill out a 20-point “Aggregate Opportunity List,” ranking interest in Dell PCs, Cisco network equipment and even forklifts [See WorkTool]. Then the scores are tallied to find common interests. Just two members can go out to bid for a service once they find a shared priority, Des Palmes says. Some communication technology pros fret that bidding outside a consortium for services that are of interest to the group can cause an ethical quandary because it weakens the bargaining power of the whole group. You can’t get good deals on “onesies and twosies” in a group, and that’s all we buy, grumbles one chief technology officer who doesn’t plan on joining a consortium. But consortium specialist Lewis disagrees. “If you can go out and negotiate a better deal on your own than three companies that are doing it together, then you should” because the consortium isn’t working, he says. Tip #3: Develop Shared Use Agreement to Mitigate Risk for ‘Customer of Record’ Though five enterprises are members of TTSC, only one signs contracts with vendors, Des Palmes reports. As the “customer of record,” this enterprise is financially liable for the obligations of the other members. In other words, if one member enterprise goes bankrupt and is unable to pay its share of the fees due a vendor, the customer of record is on the hook. To mitigate the customer of record’s risk, the other four companies sign an inter-company contract – called a “Shared Use Agreement” – in which they commit to cover their shares of the MARC, for example, Des Palmes explains. Plus, an officer from each member company signs off on every contract the enterprise enters as part of the consortium, one member’s telecom manager explains. It wasn’t a tough call for the CIO or legal department when he presented the consortium’s deal that would nab his enterprise $300,000 savings a year on toll free lines with AT&T, he reports. If one TTSC member’s shortfall causes the entire consortium to fall short of the MARC, the offending member is liable for AT&T’s penalty. But it’s never happened. Some companies have fallen short, but it’s been overcome by the overages of other members, Des Palmes reports. The consortium commits to a MARC that represents only between 75% to 80% of its average spend to avoid shortfalls. The “customer of record” agreement is a standard structure for telecom buying groups, consortium specialist Lewis adds. But if no one enterprise is willing to take the full MARC burden, each consortium member can sign an individual contract with the vendor at the consortium rates and terms and conditions, he suggests. Tip #4: Require 90 Days Warning Before Member May Leave Group
Should a disagreement arise between members that can’t be resolved through discussion, the members of the TTSC defer to their eight-page bylaws, which mandate the decision be put to a vote. Non-financial votes are a simple majority while financial votes require a two-thirds majority.
But the members of TTSC share a mutual respect, and the group is small enough that members know each other, Des Palmes asserts. “If it’s important enough to him, I’m going to listen because it’s important to Mark,” Des Palmes says, referring to another member of the group. What if a disagreement escalates to the point where someone wants out? Members that leave the consortium need to give written notice no fewer than 90 days before the end of the consortium’s fiscal year (ending Dec. 31), according to the bylaws. “Because a Member’s resignation can place the surviving Members in jeopardy in terms of meeting their collective commitment, a resignation must be approved, following the accounting, by a majority of the Voting Members,” the consortium’s bylaws read. “The approval will acknowledge that the surviving Members are satisfied that any annual committed amounts will be met, either by the surviving Members themselves, or with a payment by the resigning Member to bring the Consortium’s expenditure up to the committed level or to pay any assessed fees or penalties associated with a missed commitment.” The consortium’s bylaws were hammered out by each of its members’ legal departments, Des Palmes says. Tip #5: Include Cost of Consortium Manager’s Salary in Budget But running a consortium doesn’t come without costs, Lewis warns. Expect to spend between $10,000 and $50,000 to start one up, including costs for attorneys and consortium consulting firms like his to draw up paperwork. Each consortium participant should expect to continue spending $1,000 to $35,000 in annual dues, he suggests. Chief among your costs likely will be the salary needed to sustain a consortium manager. A telecom manager at one of TTSC’s three founding enterprises tried to do the bulk of the administrative work. But the workload was so overwhelming, the group now employs a part-time consortium manager to fulfill the duties and run reports from AT&T’s records. The consortium gets a $50,000 annual credit from AT&T (in exchange for accepting a rate increase in a service five years ago) that it uses to offset the consortium manager’s fees. The rest of the manager’s compensation, along with any administrative fees the consortium manager incurs, is paid from the group’s roughly $80,000 annual budget. To sustain their organization, TTSC members contribute to the annual budget as follows, according to the consortium’s bylaws: 1. “50% of the amount will be divided evenly among the Voting Members; and
2. “50% of the amount will be allocated based on the pro rata percentage of the individual Voting Members’ actual spend during the previous twelve-month period. Actual spend as used in this Section VIII.C.2 shall be defined as ten (10) months of actual spend as reported by AT&T and two (2) months of projected spend as reported by each Voting Member.” This formula helps “normalize” the contributions between disparate-sized members and charges the members who get the most benefit from the consortium the most, Des Palmes says. He reports the largest organization spends 10 times more with AT&T than the smallest. “The cost is really a pittance compared to the value that you get,” Des Palmes concludes. ( Note: Those interested in joining TTSC are advised to write Info@ttsconsortium.org. | 
