Terminating Contracts

This chapter covers the following topics:

Overview of Terminating Contracts

This group of topics explains how you can terminate contracts, contract lines, and contract sublines.

About Terminating Contracts

You can terminate a contract, a contract line, or a contract subline. The termination date must fall between the start date and end date of the service or services being terminated. You cannot terminate a service or contract that has already been terminated. For example, if you have a future date terminated, you cannot change it to an earlier date.

You can terminate multiple contracts and contract lines at one time.

During the termination process the application calculates a credit amount. You can:

How Termination Works

The following describes various termination scenarios. These scenarios will help you understand the termination methods that you can use and their impact on the true value of the contract. See Viewing the True Value of a Contract.

Assumptions for all examples: Your customer has a one-year contract that is valued at $1,200. The contract start date is December 1 and the termination date is March 1. The contract has two billing periods, which bill in advance. Billing period 1 has been billed; billing period 2 has not.

Override the credit example: The customer is due a credit of $300, which is for the unused portion of the billed amount. However, you and the customer have mutually agreed to deduct $100 from the credit.

An override amount of $200 is entered during the termination. The customer is issued a credit of $200.

The contract total is updated to $400 and the terminated amount is updated to $800. The terminated amount is equal to the override amount plus the unbilled amount in billing period 2.

Provide a full credit example: The customer is due a credit of $300, which is for the unused portion of the billed amount. Because this is a very good customer, you allow a credit for the full amount, not just the unused portion.

The full amount is $600 for the billed amount. The customer is issued a credit of $600. The contract total is updated to $0 and the terminated amount is updated to $1,200. The terminated amount is equal to the full credit amount plus the unbilled amount in billing period 2.

Suppress the credit example: The customer is due a credit of $300. However, the contract is being terminated for a breach and your company policy is that credit is not issued when a contract is breached.

You can suppress the credit so that the customer receives no credit, which ensures that the credit is not processed by Accounts Receivable. The contract total is updated to $300 and the terminated amount is updated to $900. The terminated amount is equal to the amount suppressed plus the unbilled amount in billing period 2.

Terminating a Contract

To terminate a contract:

  1. From the Contract Navigator, highlight the contract that you want to terminate.

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  2. From the Tools menu, select Terminate.

    The Terminate Contracts window appears.

  3. Select the following:

    • Date: The termination date, which must be within the contract start and end dates.

    • Reason: The reason for terminating the contract.

      Your administrator can define reasons by navigating to Setup: Contract and then Termination Reasons.

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  4. Select Review.

    If the customer is due a credit for amounts that were paid prior to the termination date, then the credit amount, which is prorated based on the date terminated and the amount billed, appears in the Amount field.

  5. Optionally, you can use the Override Amount field to override the calculated amount.

    The amount that is entered for override cannot be negative or more than the original credit. Entering zero in the Override field will not prevent a credit memo from being generated; it will generate a credit memo for zero dollars.

  6. To issue a full credit during termination, select the Full Credit check box.

    The Amount field displays the total amount that was billed for the contract at the time of termination.

    Note: The Full Credit check box gives you greater flexibility to control the credit amount. You can also use this check box in situations where you wish to credit more than the prorated amount but not the full credit amount, by selecting the Full Credit check box and then entering a value in the Override Amount field.

    For example, if the prorated amount is $500 and the Full Amount is $1,000 and you want to credit $800, you can select the Full Credit check box and enter $800 in the Override Amount field.

  7. If you do not want to generate a credit memo, select the Suppress Credit check box.

    Note: If credits are suppressed in error, you can run the Service Contracts Program to Process Suppress Credits. This program enables users to generate credits for contract terminations for which credits have been suppressed. See About Concurrent Programs.

  8. Click Terminate.

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  9. A Decision window appears, indicating that the contract was successfully terminated. Click Yes to save your changes.

    Note: After you terminate the contract, you can run the Main Billing program to generate the necessary billing transactions as a result of the termination.

Restrictions for Terminating a Contract

Be aware of the following restrictions relating to the contract status. If the contract status is:

Terminating a Contract Line

To terminate a contract line:

  1. From the Contract Navigator, double-click the contract.

    The Contract Execution window appears.

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  2. From the Overview tab, highlight the contract line you want to terminate. You can select multiple lines.

  3. Right-click the mouse, and select Terminate Line.

    The Terminate Contract Lines window appears

  4. Select the following:

    • Date: The termination date, which must be within the contract start and end dates.

    • Reason: The reason for terminating the contract line.

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  5. Select Review.

    If the customer is due a credit for amounts that were paid prior to the termination date, the credit amount appears in the Amount field.

  6. Optionally, you can use the Override Amount field to override the calculated amount.

  7. To issue a full credit during termination, select the Full Credit check box.

    The Amount field displays the total amount that was billed for the line at the time of termination.

  8. If you do not want to generate a credit memo, select the Suppress Credit check box.

    Note: If credits are suppressed in error, you can run the Service Contracts Program to Process Suppress Credits. This program enables users to generate credits for contract terminations for which credits have been suppressed.

  9. Click Terminate.

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    A Decision window appears, indicating that the contract line was successfully terminated. Click Yes to save your changes.

    The Status Meaning for the line shows as Terminated.

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    Note: After you terminate the contract line, you can run the Main Billing program to generate the necessary billing transactions as a result of the termination.

Terminating a Contract Subline

To terminate a contract subline:

  1. From the Service Contracts Authoring window, select the Line tab, Pricing/Products subtab, and the Effectivity secondary tab, and then select the subline to terminate.

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  2. From the Tools menu, select Terminate Subline.

    The Terminate Sublines window appears.

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  3. Select the following:

    • Date: The termination date, which must be within the contract start and end dates.

    • Reason: The reason for terminating the contract subline.

  4. Select Review.

    If the customer is due a credit for amounts that were paid prior to the termination date, the credit amount appears in the Amount field.

  5. Optionally, you can use the Override Amount field to override the calculated amount.

    The amount that is entered for override cannot be negative or more than the original credit. Entering zero in the Override field will not prevent a credit memo from being generated; it will generate a credit memo for zero dollars.

  6. To issue a full credit during termination, select the Full Credit check box.

    The Amount field displays the total amount that was billed for the covered level or usage at the time of termination.

  7. If you do not want to generate a credit memo, select the Suppress Credit check box.

  8. Click Terminate.

Terminating Multiple Contracts at the Same Time

To terminate multiple contracts at the same time:

  1. From the Contracts Navigator, highlight the contracts to terminate.

    To select multiple contracts, hold down the Control key and select the contracts that you want to delete. To select a block of rows, select the first contract row, hold down the Shift key, and then select the last contract row.

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  2. From the Tools menu, select Terminate.

    The Terminate Contracts window appears.

  3. Select the following:

    • Date: The termination date, which must be within the contract start and end dates.

    • Reason: The reason for terminating the contract.

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  4. Select Preview.

    The Selected Contracts for Termination region appears with a listing of the contracts that you have selected to be terminated.

  5. Confirm whether the customer is due a credit for amounts that were paid prior to the termination dates. The amount is indicated in the Amount field for each associated contract number.

  6. Optionally, you can use the Override Amount field to override the calculated amount.

    The amount that is entered for override cannot be negative or more than the original credit. Entering zero in the Override field will not prevent a credit memo from being generated; it will generate a credit memo for zero dollars.

  7. For each contract, you can enter a different:

    • Termination Date

    • Reason

  8. To issue a full credit during termination, select the Full Credit check box for the associated contract number.

    The Amount fields display the total amount that was billed for the associated contract number at the time of termination.

  9. If you do not want to generate a credit memo, select the Suppress Credit check box for the associated contract number.

    Note: If credits are suppressed in error, you can run the Service Contracts Program to Process Suppress Credits. This program enables users to generate credits for contract terminations for which credits have been suppressed. See About Concurrent Programs.

  10. Click Terminate.

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    A Decision window appears, indicating that the contracts were successfully terminated. Click Yes to save your changes.

    Note: After you terminate the contracts, you can run the Main Billing program to generate the necessary billing transactions as a result of the terminations.

Viewing the True Value of a Contract

When you terminate a contract, a contract line, or a subline, the contract total in the header is automatically adjusted to reflect the terminated amount.

To view the true value of a contract:

  1. From the Service Contracts Authoring window, review the following in the header:

    • Total: Reflects the true value of the contract incorporating any price adjustments or credits that have been applied to the contract.

    • Terminated: Reflects a sum of the following after a termination is submitted:

      • The unbilled amount for the original contract

      • The termination credit that was issued

      • Any termination amounts that were suppressed

  2. Alternatively, navigate to the Summary tab and Pricing/Billing subtab.

  3. Select Billing.

    The Billing window appears.

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  4. Review the following:

    • Amount: Reflects the true value of the contract.

    • Total field in the terminated region: Reflects the amount that was credited after the termination was submitted.

    • Billed: Reflects the amount that was originally billed.

Understanding Termination and Credit Generation with Partial Periods

If a contract is terminated during a billing period, credits are prorated by the application. The calculation of the prorated amount varies among line types. Following are descriptions of how the prorated amount is handled for each line type.

Service Lines

You can request service line termination at different levels, such as contract level, line level, and subline level. Regardless of the termination level, the new extended price, termination amount, credit, or unbilled amounts are calculated at sub line level and then rolled up to the higher levels.

The following list describes how the application calculates terminations and generates credits using partial periods for service lines:

Note: You define Partial Period attributes in the Global Contracts Defaults window. See Entering Contract Defaults.

The application processes partial periods differently for contracts that are generated from Oracle Order Management. The following table describes some of the variations within the termination logic.

Type Partial Period Impact on Termination Logic
Oracle Service Contracts Generated Contracts As described in the preceding list.
Oracle Order Management originated contract with dates and Partial Periods attributes defined.
Fixed logic
As described in the preceding list.
Period Start: Period Start
Period Type passes from Global Contracts Defaults
Oracle Order Management originated contract with dates and Partial Periods attributes defined.
Actual logic
As described in the preceding list.
Period Start: Period Start
Period Type passes from Global Contracts Defaults
Oracle Order Management originated contract with dates and no Partial Periods attributes defined. Application bases termination on Daily Rates.
Application does not stamp contract with Partial Period values.
Oracle Order Management originated contract with no dates defined on the contract and Partial Periods attributes defined.
Fixed logic
As described in the preceding list.
Application does not calculate Partial Period.
Fixed Rate UOM conversion as follows: 1 Month equals 30 days.
Oracle Order Management originated contract with no dates defined on the contract and Partial Periods attributes defined.
Actual logic
As described in the preceding list.
Application does not calculate Partial Period.
Fixed Rate UOM conversion as follows: 1 Month equals 30 days.
Oracle Order Management originated contract with no dates defined on the contract and no Partial Periods attributes defined. As described in the preceding list.
Application does not calculate Partial Period.
Fixed Rate UOM conversion as follows: 1 Month equals 30 days.

For information about service lines, see About Service Lines.

Usage Lines

For usage lines, you must define the termination method that the application will use to calculate the usage and to credit the customer upon termination. You can choose between the Amount Based Termination and Counter Based Termination method.

Amount Based Termination

Charges the customer based on the amount of usage that is recorded when the contract is terminated. The customer is charged based on the actual usage. This is the default method for all usage types.

Counter Based Termination

The application credits the unused portion of the service based on the price that the customer would pay if they continued consumption at the same rate for the rest of the period. This means that the customer receives any price break based on the estimated usage.

For information about usage lines, see About Crediting a Customer in Terminations.

Partial Periods Effect on Usage Line Terminations

Partial periods affects only estimation and termination of usage. Price UOM and Period Start (Service or Calendar) do not drive pricing or billing of usage lines. The period that you define for the Usage Type in the Lines tab and Effectivities subtab drives usage pricing. The billing schedule is manually entered.

When the application is calculating estimated fill for partially billed periods or termination amounts, usage lines use the Period Type setting for partial period calculations. Estimated fill involves calculating a partial period amount for the rest of the billing period. Termination amounts can be calculated by determining the amount per day in a billing period to determine the termination amount (Amount Based) or can be calculated by determining the consumption per day to determine the estimated consumption as of the termination date (Counter Based). Whether determining amount per day or consumption per day within a billing period, the application bases the calculation on actual days or fixed days according to the Period Type setting.

The following table summarizes the how Partial Period setup impacts different usage types:

Usage Types Partial Period Impact on Termination
Negotiated Price Partial Period termination calculation uses the Period Type settings.
Fixed per Period Partial Period termination calculation uses the Period Type settings.
Actual per Period Partial Period termination calculation uses the Period Type setting. Volume based terminations call Oracle Installed Base for estimated consumption.
Actual by Quantity Partial Period termination calculation uses the Period Type setting.

Subscription Lines

For subscription lines, how the terminated contract is prorated depends on whether it is for a tangible or an intangible subscription.

Tangible Subscription Termination

Termination for tangible subscriptions can be done only for quantities (or fulfillment periods), that have not been passed to Oracle Order Management. The termination amount correlates to the quantity that is terminated. For example, if 12 fulfillment periods exist for the subscription line, then the line can be terminated only in 1/12th increments of the total line value. If the end date of the latest fulfilled period is greater than the termination date, the termination date for the subscription line will be moved forward to be equal to the end date of the latest fulfilled period.

Suppose that you have a 12-month subscription with a start date of January 1. The billing amount for each month is $10. The months of January, February, and March have passed to Oracle Order Management. If a termination date of February 15 is entered, the termination date is moved to March 31 because this is the end date of the latest fulfilled period. The months of April through December are included in the terminated amount, which is $90.

Intangible Subscription Termination

Termination for intangible subscriptions can be either fulfillment based or effectivity based, depending on whether the system profile, OKS: Intangible Subscription Pricing Method is set to Effectivity Based or Subscription Based. Effectivity Based is the same as the termination functionality for terminations that are performed against Service Lines. Subscription Based, is the same as the termination of tangible subscriptions.

For information about subscription lines, see About Subscriptions.

Partial Periods Effect on Subscription Line Terminations

The application does not calculate partial periods for tangible subscription lines because pricing, billing, and termination amounts are strictly tied to whole-number fulfillment quantities for the subscription line.

If profile OKS: Intangible Subscription Pricing Method is set to Subscription Base, the application does not calculate partial periods for Intangible. This profile setting causes the intangible subscription lines to price, bill, and terminate in the same fashion as tangible subscriptions.

If profile OKS: Intangible Subscription Pricing Method is set to Effectivity Based, the application calculates partial periods for pricing, billing, and termination amounts on intangible subscription lines as follows: