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By Betsy Loeff, contributing writer
"Once you've negotiated and signed a contract, that contract is your principal risk-management tool," says Steve Hadden, vice president of Plexus Research, a unit of the consulting firm, R.W. Beck. "If that contract isn't a good one and something goes wrong, you might be toast."
He should know. Plexus has been called in many times to help utilities recover from contractual flubs. So has Carolyn Kinsman, president of Automated Communication Links, another consultancy. Below, these advisors share a few contract-negotiation tips that can keep AMI buyers away from courtrooms and contention.
Reasons to be reasonable
According to Kinsman, two attitudes are key to successful contract negotiations: Utilities must go in with reasonable expectations, and they must be willing to make the contract a good deal for both the utility and the AMI vendor.
"Is there really any benefit to putting the vendor on his knees and forcing that vendor out of business?" Kinsman asks. She doesn't see one. Neither does Hadden. "You can put a provision in the contract guaranteeing the utility access to the technology if the AMI provider folds, but no utility wants to be in the AMI business," he says.
Both Kinsman and Hadden liken the union between a utility and its AMI provider to a marriage. It's a long-term relationship, and "you want that supplier to be there for you," Hadden notes.
Going in with a win/win attitude not only helps vendors stay in business, it helps negotiators hammer out deals. "We've worked with utilities whose attitude is 'we're going to squeeze this vendor for every nickel,'" Hadden notes. While he estimates that contract negotiations generally take "at least three weeks," an adversarial attitude can stretch the talks out to "three months. And, you may not get the result you want."
Satisfaction guaranteed
Kinsman says there's one way to ensure good results: "It all comes down to the detailed scope of work," she says. "That's what determines how well the whole process goes."
According to her, "If you don't cover things in the detailed scope of work -- outlining who does what -- you'll get into the deployment or an AMI-functionality requirement and find a big gaping hole in either the process or in who is responsible for solving the issue. Then, the agreement has to be renegotiated." She says this adds both cost and, potentially, difficulty in settling on another agreement.
Hadden adds that system specifications and acceptance testing are important contract inclusions. A "spec" is an important risk-management tool, because it requires vendors to meet certain essential criteria. If they don't, that's where acceptance testing comes in.
In many jurisdictions, using an item for its intended purpose after you purchase it constitutes legal acceptance of the item, Hadden maintains. "That's not OK in an AMI contract," he says. "This is mission-critical data, and the utility has to have it. Acceptance must be established by an acceptance test" that is built into the contract to ensure the system works properly. Warranties are a must, too, he notes.
Engineering the details
Kinsman maintains that, often, a utility's AMI team goes through a transition between the vendor-selection and contract-negotiation phases. She advises utilities to have the people who will be responsible for the deployment -- and those charged with ongoing operations -- involved in contract negotiations. They should review contract points "pertaining to the scope of work, system acceptance and functional specifications to make sure nothing has been left out," she says.
Hadden offers a case in point: Suppose contract negotiators settle on a contract requiring the system to deliver 99 percent of meter reads. "That doesn't require it to deliver data from 99 percent of the meters," he explains. And, he's seen such a case wind up in litigation.
It happened because some of the meters were recording data every 15 minutes, and those worked fine. Because the 15-minute-interval data were coming in consistently and completely, the vendor stayed in compliance with the contract, even though as few as 90 percent of the meters were actually working correctly. Utility workers had to manually read the disabled 10 percent of meters, and that extra work created extra cost.
Having engineers review contracts helps utilities avoid such missteps. So does engaging a consultant or talking to other utilities. As Hadden says, "Experience is what you have right after you needed it. If you want to have it before you need it, talk to someone who's already been through the process."
Betsy Loeff has been freelancing for the past 14 years from her home in Golden, Colo. She has been covering utilities for almost four years as a contributor to AMRA News, the monthly publication of the Automatic Meter Reading Association.
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