Published Monday 2nd November 2020
Many organisations do not properly understand their telecoms contracts/terms or are unaware what they are which can make it more difficult to minimise costs and can impact on the agility of an organisation which may want to make changes. Covid-19 has increased this risk as changes have already been made quickly and many organisations are continuing to review the way they work. It is more important than ever to understand contracts and not make reactive decisions as a surprise may await.
Complexity of Contracts
- Across all your Telecoms, there are likely to be multiple contracts with different terms (eg phone lines, ISDN, call charges, maintenance, broadband, leased lines, mobiles)
- Each contract can consist of several documents not just the one signed. Terms in one document can override those in another
- Contracts may be inter-linked so they need to be considered together to be aware of any termination charges
- Some contracts are long, containing sections not applicable to your purchases which can make them more difficult to understand
- Within an individual contract there may also be minimum terms for each item, so not everything may not be out of contract at the same time
- Terminating something on one contract can lose discounts on another
- Older style contracts are typically 1,2, 3 or 5 years (even 7 years) depending on the product and supplier and newer ones for modern phone systems are usually at least 3 years and can also be more complex
- Some contracts renew/roll into a new term when they end, being the same length as the old term. Some contracts become more complex if items have been added as these items can have their own minimum terms
Subsidies and Discount
- Do you know if and when any discounts stop or can change?
- In what circumstances can you lose some of your subsidy or have it clawed back?
- Termination charges can be complex and formulae for calculating them vary. Do you know if and when they may be applicable and if they might constrain changes you need to make to your business? In some situations charges can be more than you would have paid by seeing the contract out
- The longer the contract, the bigger the potential termination charges and the potential ‘lock-in’. Some contracts may also be payable annually in advance (eg maintenance) with no pro-rata refund when terminated
In an ideal situation you need everything to be ending at the same time but this is often not the case and being aware of your situation is important to provide the flexibility to make decisions. Don’t be caught out by surprise termination charges or having inflexibility in making decisions or having to delay business change
Some termination charges may be expected if you want to consider changing supplier and these need to be minimised through detailed consideration and planning. Contracts can make it difficult to change supplier if you are unhappy with service and your supplier may also increase prices more than others, whilst you are within contract and cannot leave
Once you have moved from a phone system on the PSTN to a modern Internet based system, you may have fewer contracts but the complexity may still be there and it is likely still to be difficult to change supplier should you wish, so the choice of supplier and understanding your contracts is still important.
Note that OFCOM regulations regarding contracts only apply to consumers and do not apply to businesses with more than 10 employees.
If you would like more information on managing your telecoms contracts or supporting in helping to reduce your telecoms costs simply contact Expense Reduction Analysts today and one of our industry specialists can provide you with more details about how we can help your business.
About the Author: John Trimble, is a Chartered Accountant, Certified Information Systems Auditor and formerly a Fellow of the Institute of Internal Auditors with extensive experience in technology, business processes, risk and control, security, compliance, project management and supplier ‘control’.
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