Review Contracts | Audit Steps

Obtain copies of all telecom-related contracts, including those for voice long-distance, data communications (such as Frame Relay and dedicated circuits), local, cell phone, pager, wireless services, and others, such as VSAT links. In a spreadsheet, summarize key information that directly affects pricing. For example:

• Implementation and termination dates.

• Any ramp-up period (i.e., a point between the effective date of a contract and the point at which required minimums must be in place). Ramp-up time is often provided when a large organization is converting from one provider to another; the favorable rates are provided during the interim of the cutover.

• Per-minute rates. This is not as easy as it would appear. Interstate rates for switched-to-switched, switched-to-dedicated, and dedicated-to-dedicated may be straightforward. In contrast, intrastate rates vary considerably and may not be documented in the contract. While obtaining this information in total (for all states) may not be worth the trouble, intrastate per-minute charges for the most common calling patterns should be documented. Ideally, the contract will list a flat intrastate rate for the state(s) where most business is conducted.

• Special price schedules. Rates are sometimes tiered. For example, at a volume of up to one million minutes per month, the discount off standard tariff might be 44 percent; beyond that volume, the discount may go up to 47 percent. Watch for discounts that drop to zero.

• Minimums for all services. Some carriers make minimum commitments more complex than necessary, with a bevy of sub-minimums that require constant oversight. Document the minimum required minutes by service.

• Traffic percentages. Contracts may require that a certain percentage of the traffic be dedicated-to-dedicated or penalties will apply.

• Installation and other waivers.

• Up-front and scheduled sign-on credits.

• Any special equipment or service provisions. For example, are audio conferencing services provided at a discount?

• Any locations specifically listed for discounts, lower rates, etc. This will be useful later when examining billing by location on the invoice.

The following clauses, adapted from a carrier contract with a large firm in the Southwest, illustrate terms that might typically need to be monitored and included in the pricing summary spreadsheet.

• At least 55 percent of the customer's long-distance services usage must be rated under schedules B and/or C (meaning dedicated-to-dedicated and/or dedicated-to-switched traffic).

• The customer must bill at least $95,000 per month in the Xtra-service Volume Pricing Plan and $23,000 per month in local channel services.

• In the first year, the customer must satisfy 66 percent of the minimum commitment with usage previously provided by another carrier.

• XYZ carrier will provide an annual credit of $78,000 to the customer's bill in the 13th, 25th, and 42nd months.

• International calling for direct-dialed services will have the following discount schedules off tariff:

  • $0 to $50,000 (19 percent)

  • Over $50,000 and up to $99,000 (21 percent)

• Usage rates are based on initial 18 seconds or fraction; additional rates apply for each additional 6 seconds or fraction.

Contracts are typically 50 to 100 pages long, so this documentation step will be time-consuming for many organizations. Carriers typically provide summary sheets to the customer when bidding for the business; they are a good starting point because they are often more straightforward than the jargon-infested legal documents.