AGREEMENTS, CONTRACTS, AND TARIFFS

Acquisition of equipment and services is almost always pursuant to or governed by some form of agreement, usually a contract or tariff. Two types of contracts are common: active and passive. An active contract is a form of contract that is not binding on the parties until after it is executed or signed. A passive contract is one whereby the parties are bound upon action of the second party as spelled out in the contract by the first party. An example of a passive contract or agreement is the typical shrink-wrapped software license. These agreements are usually printed on the package containing physical storage such as a floppy disk or compact disc, and state, among other things, that the license is binding on the user when the package is opened.

Tariff is one of the most misunderstood terms in the communications industry. The word tariff dates to Roman times when it applied to tax collection and payment of fees for use of bridges or roads. In more recent times, tariffs were a part of the transportation industry, as well as communications industry. Common carriers included airlines, railroads, trucking, and bus companies. Before deregulation, the Interstate Commerce Commission (ICC) regulated these businesses.

Regulation of the communications industry was and, to a lesser degree, still is the purview of the Federal Communications Commission (FCC) and state Public Utilities Commission (PUC) bodies. Interstate tariff matters are the purview of the FCC and intra-state tariffs are dealt with by the PUC in each state. The PUC also deals with a myriad of other tariffs such as electric and in some cases water, gas, oil, and other material and resources.

More specifically, the term tariff filing is the proper term. Entities designated by the FCC and PUC as a common carrier file public documents with the appropriate regulatory body detailing services, equipment, and pricing. The penalty for violation is service disconnection and/or removal of equipment. Tariff filings do not have the force of law. If you or the carrier violates them, then the penalty is service disconnection and/or removal of equipment. Regulatory bodies accept tariff filings, but do not approve, disapprove, validate, or invalidate stated or implied performance, or enforce or police use of the filing.

Attaining capability to order equipment or services delivered by whatever formal agreement, even if it is chosen to order according to a tariff filing, is but a single step in an overall process. Almost any size organization, even if it is a single owner proprietorship, never buys on impulse. This implies some form of practical, prudent due diligence. Conducting due diligence is a key, early step in an overall project. Usually any sizable project will require more than one supplier for equipment, and may well require at least two, and likely three suppliers of facilities and services. Figure 1 portrays that process from a point labeled ‘‘Bright Idea’’ through completion of an agreement.

 

Figure 1: Project Risk–Reward–Approval Process

Any real project has a large amount of tasks. And some or many of those tasks can be done in parallel, given the resources. However, there’s no getting away from the fact that some tasks can’t even be attempted until others are complete. Some can be skipped, or delayed, but the consequences can invite career destruction or worse in the long run. Committing to purchase a piece of equipment without knowing it will function or perform as required, but meets the budget is unwise. Sooner or later, someone in an entity will have to commit to pay before a supplier will agree to ship a piece of equipment, or connect a facility.

The number one overall concern in any project of any size or scale is risk. As a project progresses through the various steps from inception through realization, the number and magnitude of risks associated with or encountered by the business grow and multiply according to scale of the project.