How to Negotiate a Winning AMR Contract
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1 How to Negotiate a Winning AMR Contract Don Schlenger, Cognyst Consulting, L.L.C. COGNYST CONSULTING, L.L.C. Technology and Customer Service for the Utility Industry
2 Successful Relationship Between Utility and Suppliers is Embodied in Contract Documents! Hierarchy of contract documents! Request for proposals! Contract provisions! Detailed Statement of Work! Managing risk Minimize negotiation!
3 Utility s Relationship with Suppliers Shaped Early in Procurement Process! Utility deeply involved in implementation process! Provides data to vendor/contract installer! Administers rules and regulations! Oversees either project or general contractor! Sells project to customers and other stakeholders! Both utility and supplier responsible for success of project! Tone of RFP dictated by utility culture and its comfort with technology and other project elements! Have the right participants early, get educated, to avoid writing discomfort factors into RFP
4 A Hierarchy of Documents Governs AMR Project Precedence
5 Successive Documents Attempt to Correct Perceived Deficiencies! Overly restrictive RFP leads to abundance of exceptions, etc.! Compensation language takes extra time and energy Document Succession Balanced Process Unbalanced Process
6 Request for Proposal Should Eliminate Surprises! Focus on performance specifications, not design specifications.! RFP (as well as pre-qualification) should create a level playing field.! Distinguish between absolute requirements and highly desirable features.! Establish clear standards for implementation and system performance.! Clearly state selection process and evaluative criteria.! Accompanied by all the provisions in the contract, as well as general and specific terms and conditions.
7 Contents of Typical AMR Contract! Definitions! Term! General scope of services and deliverables! Performance requirements and measures (material)! System acceptance criteria! Payments! Incentives and penalties! Defaults and damages! Dispute resolution! Indemnifications! Attachments, precedents and subagreements! Boilerplate
8 Other Elements Often Found in RFPs/Contracts! Catastrophic failures/maximum failure rates, and what happens when they are exceeded! Specific performance! Pilot! Pricing protection! Retainage! Liquidated damages! Conformance to standards; interoperability! Escrow of intellectual property! Transfer of title
9 Typical Subagreements! Warranties periods, causes of failures, limitations, shipping and other cost offsets! Training! Test plan for system acceptance! Licenses meter protocols, frequencies, software, etc.
10 Detailed Statement of Work! Developed in conjunction with contract negotiations! Attachment to the contract, but easier to modify! Minimizes scope creep because of oversights! Training tool for staff and installers! Audit trail
11 Typical Contents of Detailed Statement of Work! Project organization, staffing and contact info! Project meeting schedules and responsibilities! Installation schedule! Equipment delivery, warehousing, inspection! Utility staff training! Installer recruiting, screening and training! Public communications plans and content! Installation procedures and policies! Project control and data management procedures! Reports! Procedures for making changes
12 Regular Reporting on Key Performance Measures Enables Progress Tracking! Initial and follow-up customer contact percentages! Installation contractor s call center performance (call waiting time, abandoned rate, etc.)! Installation quality! Customer complaint response time, both during normal and non-working hours! Number of customer complaints! Data discrepancies! Read success rate! AMR system component failure rate Indicator measures as well as material measures.
13 Principles of Managing Project Risk! Any large technology project involves some risk.! Each party should own the risk it can best control and for which it is most directly responsible.! Each party should manage the risk it owns.
14 Risk/Cost of System Failure Fluctuates with Maturity of Project Total Project Cost Level of Risk Equipment warranty Low Installation Service Life, years
15 Performance Bonds! To ensure that project is completed! To ensure that contractor/system will perform to specifications! Relief of last resort! Utility may require a performance bond for full project cost, full duration of project! General contractor may require performance bonds from subcontractors! Extra cost! Excessive protection! Limits vendors
16 AMR Project Characteristics Mitigate Need for Extensive Performance Bond! If a substantial number of units are installed and working, then little risk that system as a whole won t work.! If a substantial percentage of units are installed and working, those units don t need to be covered by bond.! If meters and MIUs are separate, problems with one may leave other intact.! Equipment warranties
17 Alternatives or Complements to Performance Bonds! Equipment! Supply or delivery bond! Extended warranties on meters, AMR devices! Warranty provisions include labor to replace units! Higher warranty reserves! Labor! Payment conditioned on acceptable work! Timely inspections! Retainage! Other! Due diligence! Vendor s commitment to industry, reputation
18 Excessive or System-wide ( Catastrophic ) Failures! Scenarios:! Component failure rate above expected maximum or agreed-to levels! System performance rate consistently below requirements! Failure rate tending upwards! Investigation reveals design or manufacturing flaw that could affect all units! Difficult to insure or bond! Define criteria, required action in RFP
19 Pilot As Critical Decision Point! New technology or configuration! At least make sure all systems working! Consequences and actions if there are problems?! Size, duration! Evaluation period! Corrective actions! Responsibilities of parties
20 System Acceptance Testing! Unit and system! Endpoint stores and forwards info correctly! Timeliness and accuracy of reads! Readings delivered to utility's office! Outage and tamper alarms, other system features! Subsystem integration testing! Interface to system management software (e.g., MV-90)! Data transfer! Meter reading schedules! Synchronization with utility s master file (CIS)! Measures to correct
21 Thorough Approach to Project Documents Simplifies Negotiations! Ensure all stakeholders informed, involved in drafting RFP! Avoiding surprises minimizes negotiation effort, ensures quality of partnership! Contract fixed provisions! DSOW day to day operations, track performance! Strategies for cost-effective and realistic risk management
22 Questions? Don Schlenger, Ph.D. Managing Partner Cognyst Consulting, L.L.C
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