Reader Forum: Nine tips for better wireless site development sourcing

With more than 250,000 cell sites operating in the U.S. and over 10,000 new sites being added each year, one might assume that selecting site development vendors and structuring their contracts has become a standardized process. Unfortunately, the reality is that the wireless site development industry is beset with contract disputes, shrinking vendor margins, and deployment delays due to hasty sourcing processes and ill-conceived deal structures.
While even the best site development deals can fail, a poorly managed sourcing process and slipshod contract almost guarantees sub-par results and wasted time. To address these concerns, following are nine tips to consider when sourcing wireless site development services. These guidelines will help carriers take a structured approach to these complicated deals, ultimately creating healthy, sustainable carrier-vendor relationships that minimize cost and schedule risk.
1. Invest time and energy upfront. Allocating too little time and analysis to RFP development will only result in drawn-out contract negotiations and raise the risk of pricing and scope disputes. Pre-RFP release is the time when a buyer has the most leverage to define standards, commercial terms and scope. As the process evolves, the buyer will have less control over defining the deal on its terms.
2. Drill down on pricing structure. Pay strict attention to details in defining the pricing structure during the early stage of the process. Conduct focused meetings during the RFP development process with all stakeholders – including engineering, supply chain, and legal. Consider every possible contingency that may happen during deployment and how each scenario should be commercially treated. Think about the continuum between 100% “all in” fixed fee pricing versus menu-based or case-by-case pricing and make a conscious decision about where your deal should fall based on individual circumstances.
3. Keep pricing sheets targeted. The objective with pricing is to cover all possible scenarios while avoiding needless complexity. Accomplish this by making sure each line item corresponds to a specific description or set of requirements in the RFP text, without leaving anything up to interpretation. Divide each section of the pricing sheet into logical partitions and build a total cost of ownership model before releasing the RFP. You want to ensure that the bids can be compared on a normalized (“apples to apples”) basis and that you’ll be able to run various scenarios (e.g., different site mixes, geographical allocations, vendor allocations).
4. Document commercial treatment of non-standard items. While developing the pricing sheet, use a simple decision framework or criteria for deciding whether each item should be part of the lump sum fixed fees (e.g., part of a single price for construction) or if it should be non-standard. Then decide whether each non-standard item is best handled as a fixed fee (e.g., pre-negotiated price), case-by-case quote, or assigned through unit pricing. For instance, a structural modification might be best handled via case-by-case quote, as the costs and requirements vary widely. However, for each meter of access road in addition to the standard length, there can be a unit price per meter. One approach is to use a simple two-by-two matrix, with the x-axis representing the expected frequency of the item, and the other axis the relative cost of the item. Items that are infrequent and expensive should be non-standard, while those that are frequent and inexpensive should be included in the lump sum fixed fees. Items in the middle (expensive and frequent, or infrequent and inexpensive) should be judged individually. Regardless of whether an item is included in the fixed fee or non-standard, the most important thing is addressing its commercial treatment.
5. Define site types carefully. The three main categories for new sites are typically 1) raw land greenfield (i.e., new towers), 2) rooftop, and 3) collocation (existing towers). For fixed fee pricing, it is often worthwhile to define additional variations on these categories. For instance, monopoles, lattice towers, and guyed towers are three subcategories of greenfields. In some jurisdictions, water tower or flagpole sites are common, so it may make sense to include them as well. Regardless of how many site types you choose, describe the standard scope and detailed specifications for each type.
6. Optimize SLAs and incentive structure. With site development, speed and quality are major elements of an incentive structure. Incentives should be focused on the outcome you want, not necessarily the outputs. For example, if you want a certain number of sites built within 12 months, determine penalties based on how many sites the vendor will build in that period, but avoid focusing penalties on interim milestones, such as completing site acquisition. Again, balance is the key: too many metrics and penalties can raise vendor risk and prices, while wasting productive time for both parties; too few, or misdirected, SLAs can result in vendor resources being used on the wrong activities.
7. Pretend to vend. Any buyer in a negotiated transaction should think from the vendor’s perspective, but this is even more important in wireless site development. Where are they likely to see risk sources, which might cause them to increase prices? Is anything in the RFP unclear or subject to interpretation? How will the vendor account leader build his or her argument for low prices to the vendor’s senior leadership? Remember that the vendor sales team wants to get the deal done and will carry your argument up the chain if you can help articulate the “win-win” theme of the deal.
8. Know your vendors. Research each vendor before you invite them to bid to learn their strengths and weaknesses. Invite their account team in for a discussion. Do they understand your company and its challenges? Are there deal-breaking terms that they will insist on? Also, understand that there is a big difference between the general reputation of the vendor and the capabilities of the team they are proposing for your project. The vendor may point to a successful deployment of 20,000 sites in India, but that will be irrelevant if the resources they are planning to assign to your project have little experience working together in your market.
9. Align on program objectives. This sounds like common sense, but many RFPs are issued before the program plan has been fully developed or socialized. For instance, are the vendors being hired for a specific program, such as overlaying a new wireless technology or building out a new region, or are they being vetted as additional vendors to handle the organic capacity and coverage growth of an existing network? What are the regulatory or business plan deadlines for deployment? Answers to these questions, and many more, should be incorporated into the sourcing strategy. Additionally, as executive buy-in on the program strategy is vital, you should establish an executive steering committee and obtain formal approval at each major decision point in the process. Aligning on objectives and obtaining executive approval early and helps minimize the potential for major changes to the program objectives mid-way through the sourcing process.
Pace Harmon is a third-party outsourcing advisory firm.