The Saratoga Springs City Council has entered into a contract with SiFi Networks to provide Fiber Optic connections to the entire city. The issues are complicated, and given the scope of the project there are legitimate issues that people can argue about. A lot of work went into drafting the contract and given the potential benefits along with the risks, a thoughtful review is very much in order.
In this post I will be looking at those issues but as usually happens these days the White Walkers have launched a social media campaign that cynically misrepresents the agreement. It shrilly proclaims the agreement as a disaster of extreme proportion.
The vehicle for the attack is a pair of articles published on the website, “Common Sense, Saratoga (CSS)”.
The tone should by now be familiar to the readers of this blog. They write:
“More on the Worst Contract in City History”
[JK: Just as “Some things are too good to be true”…somethings are too bad to be true.]
It has the bravura tone so commonly invoked by our President where things are either the best or worst in history.
The articles make a stunning accusation. According to the CSS authors, if SiFi is unable to fulfill its responsibilities in the agreement, the only option the city would have to extricate itself from the contract would be to pay SiFi all the costs SiFi has incurred plus ten percent.
Here is how they put it:
“If the City wants to terminate the contract, even if the contractor doesn’t deliver, they can only do so only (sic) by paying all investments, expenses, plus 10%.”
This is simply untrue. Below is the language from the contract along with an analysis a friend who is a lawyer wrote for me. The bottom line is that if SiFi fails to comply with certain benchmarks and standards the city can exercise its right to terminate the contract in one of two ways. It can:
1. Purchase whatever SiFi has built to that point for the cost of what SiFi has done plus ten percent.
2. Walk away from the agreement. SiFi may continue to operate using however much of the network it has built but it no longer has a right expand its network using the city’s right of way.
So, to be clear, the city is not obligated to buy the network.
CSS also alleges that the contract does not contain language that would require SiFi to serve the entire city. This is also untrue.
I find it interminably frustrating that these people continually exploit social media taking advantage of people by spreading this kind of disinformation.
Readers may recall that I asked the founders of CSS (Gordon Boyd, Ann Bullock, and Bob Turner) who wrote these articles and, if they had the assistance of an attorney, who that attorney was. I have still not had an answer.
Their piece does raise legitimate concerns about the length of the contract (30 years with an option for another 30) and questions about how future developments in technology might affect the value of the network.
The contract also provides unusually generous terms for allowing delays in the progress of the project.
Why Such Generous Terms
The advantage of the proposed network would be its speed. Fiber optics sends data in the form of light through cables. This is much faster than the older technology. Verizon has been constructing networks called Fios using this technology.
SiFi would lay the fiber optic cable and construct electronic stations to facilitate the movement of data. They would not provide the actual web services (ISP) to the residences and businesses. SiFi would provide interested companies use of their network to provide these services for a fee. These companies would in turn pass the costs on to their customers.
Spectrum would continue to offer its services to the city but now they would have competition.
This model has already been implemented in urban environments like New York City. Up to now the cost of providing such services in less dense environments like Saratoga Springs was not financially viable.
Advances in the technology of laying cable and in downsizing the electronic infrastructure to support the cables has changed the playing field.
Still this technology has never been used in the U.S. to construct a fiber optic network on a smaller scale like Saratoga Springs. In addition to Saratoga Springs, SiFi has agreements with Salem, Massachusetts; Fullerton, California; and East Hartford, Connecticut.
One of the central appeals is that most of the risk is with SiFi. SiFi is carrying the entire cost of constructing the network. The cost to the city for this endeavor is minimal.
As they say, you get what you pay for. As the city is not paying for the building of the network, their leverage over the project was minimal. As delays and problems with large networks are inevitable, SiFi negotiated an agreement that provided them with considerable protection for delays. SiFi also insisted on a very long contract to insure they would get a generous payback on their investment.
The protection to the city is based on the logic that SiFi must successfully build a product that has the features that consumers want and that is priced to be competitive not only against Spectrum which is their competitor today, but to whatever other technologies are developed in the future. In addition, if they want to expand their business to other communities in the future, they need customers like Saratoga Springs to be happy.
If the White Walkers (CSS) want to effectively challenge this contract, they need to avoid baseless accusations and, more importantly, they need to address the reasoning why SiFi needs to make the project a success.
This is a link to the articles on the CSS website. The articles have a link to the SiFi contract.
This is an the analysis by the attorney as regards to terms available to the city should it terminate its contract with SiFi.
The rights and remedies of each party in the event of a breach or default under the Agreement are outlined in Section 7 of the Agreement, and ultimately depend upon the nature of the breach or default and when that breach or default occurs.
Subsection 7.1.2 (i) of the Agreement provides that when a breach or default by SiFi Networks (“SiFi”) is other than one occurring in the manner described in:
(a) Subsection 7.1.2(ii) (involving a failure to commence “Construction” on or before the “Construction Commencement Deadline” or with the applicable cure period);
(b) Subsection 7.1.2(iii) (involving a failure to achieve “Substantial Completion” of the “System” by the “Construction Completion Deadline” or within the applicable cure period); or in
(c) Subsection 7.1.2 (iv) (involving a situation in which at any time after “Substantial Completion” of the fiber optic system is achieved, no internet, voice, date, or video service of any kind is capable of being provided over the system for a period in excess of 120 consecutive days, and neither SiFi nor its lender(s) have subsequently restored such capability within the applicable cure period);
then if SiFi fails to cure any actual noncompliance or default as provided in Subsection 7.1.1 of the Agreement, the City may (A) seek specific performance of any of the provisions of the Agreement which lends itself to such a remedy as an alternative to money damages, or (B) seek money damages from SiFi, or (C) terminate the Agreement and seek any and all rights and remedies available to the City at law or in equity.
Subsection 7.1.2 (ii) of the Agreement provides that if SiFifails to commence “Construction” on or before the “Construction Commencement Date” in accordance with the preceding provisions of Section 7.1 of the Agreement, and neither SiFi nor its lender(s) have subsequently commenced “Construction” of the subject “System” within the applicable cure period, the City may “terminate [the] Agreement by written notice to [SiFi] and its lender(s) and neither party shall have any liability or obligation under [the] Agreement.”
Subsection 7.1.2 (iii) of the Agreement provides that if SiFifails to achieve “Substantial Completion” of the “System” by the “Construction Completion Deadline” in accordance with the preceding provisions of Section 7.1 of the Agreement, and neither SiFi nor its lender(s) have subsequently achieved “Substantial Completion” of the “System” within the applicable cure period, the City may “terminate [the] Agreement by written notice to [SiFi] and its lender(s).”
Subsection 7.1.2 (iii) of the Agreement further provides that in the event of termination pursuant to that subsection, the City shall within 60 days of the effective date of that termination elect to either (A) purchase the “System” by paying to SiFi by wire transfer in immediately available funds within 120 days of the effective date of the termination a sum equal to SiFi’s costs of designing, financing and constructing the “System” for use in the City, plus 10% of such costs, upon which payment “neither party would have any liability or obligation under the Agreement,” or (B) permit SiFi to “continue all network operations necessary to maximize use of the existing FON [fiber optic network] in accordance with the Agreement.” (Emphasis added). Subsection 7.1.2 (iii) additionally provides that if the City elects alternative (B), the City “shall however have authority over all extensions of the FON in the Public Way.” (Emphasis added).
Similarly, Subsection 7.1.2 (iv) of the Agreement states that if at any time after “Substantial Completion” of the subject fiber optic system is achieved, no internet, voice, data, or video service of any kind is capable of being provided over the system for a period in excess of 120 consecutive days, and neither SiFinor its lender(s) have subsequently restored such capability within the applicable cure period, the City may terminate theAgreement by written notice to SiFi and its lender(s) and then within 60 days of the effective date of that termination elect to either (A) purchase the “System” on the same terms and conditions specified in Subsection 7.1.2 (iii) above, or (B) permit SiFi to “continue all network operations necessary to maximize use of the existing FON in accordance with [the] Agreement.” (Emphasis added). And as in Subsection 7.1.2 (iii) above, Subsection 7.1.2 (iv) provides that if the City elects alternative (B) to a post-termination purchase of the “System,” the City “shall however have authority over all extensions of the FON in the Public Way.” (Emphasis added).