This chapter describes the process of terminating a contract.
This chapter covers the following topics:
This group of topics explains how you can terminate contracts, contract lines, and contract sublines.
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:
Override the credit
Provide a full credit
Suppress the credit
View the credit tax
To apply the credit amount to any invoice, select on-account credit memo to create a credit memo that is not referenced to any invoice. You can do this by selecting the On-Account Credit Memo check box in the Organization or Party tab of the Global Contracts Defaults window.
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.
From the Contract Navigator, highlight the contract that you want to terminate.
From the Tools menu, select Terminate.
The Terminate Contracts window appears.
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.
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.
If a tax credit amount is applicable to the contract, then view the amount in the Tax field.
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.
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.
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.
Click Terminate.
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.
Be aware of the following restrictions relating to the contract status. If the contract status is:
QA Hold: You cannot perform a termination.
Hold: You can perform a termination irrespective of the status and operation setting, Eligible for Invoicing.
All Other Statuses: You cannot perform a termination if the status and operation setting, Eligible for Invoicing, is not enabled.
From the Contract Navigator, double-click the contract.
The Contract Execution window appears.
From the Overview tab, highlight the contract line you want to terminate. You can select multiple lines.
Right-click the mouse, and select Terminate Line.
The Terminate Contract Lines window appears
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.
Select Review.
If the customer is due a credit for amounts that were paid prior to the termination date, then the credit amount appears in the Amount field. Similarly, the Tax field displays the tax credit amount for the contract line.
Optionally, you can use the Override Amount field to override the calculated amount.
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.
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.
Click Terminate.
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.
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.
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.
From the Tools menu, select Terminate Subline.
The Terminate Sublines window appears.
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.
Select Review.
If the customer is due a credit for amounts that were paid prior to the termination date, then the credit amount appears in the Amount field. In addition, the tax derived for this amount is displayed in the Tax field.
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.
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.
If you do not want to generate a credit memo, select the Suppress Credit check box.
Click Terminate.
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.
From the Tools menu, select Terminate.
The Terminate Contracts window appears.
Select the following:
Date: The termination date, which must be within the contract start and end dates.
Reason: The reason for terminating the contract.
Select Preview.
The Selected Contracts for Termination region appears with a listing of the contracts that you have selected to be terminated.
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.
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.
For each contract, you can enter a different:
Termination Date
Reason
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.
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.
Click Terminate.
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.
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.
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
Alternatively, navigate to the Summary tab and Pricing/Billing subtab.
Select Billing.
The Billing window appears.
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.
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.
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.
Determines a start date and an end date of termination period.
Termination Period Start Date: Termination date
Termination Period End Date: Original Service End of sub line
Calculates Termination period duration in terms of price unit of measure (UOM) using Partial Period Method as described in pricing section.
Calculates termination amount by multiplying termination period duration with unit price.
Calculates new extended price of subline by subtracting termination amount from original extended price.
Compares new extended price and already billed amount.
Calculates unbilled amount, credit amount, suppressed credit amount and overridden amount based on suppressed credit flag, full credit flag, and override amount (as is).
Additional Information: Credit amount is not generated for imported contracts that are billed at source.
If termination action is requested at service line level or contract level, then repeats the preceding for all sublines that are affected and rolls up amounts to higher levels.
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.
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 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 Install Base for estimated consumption. |
Actual by Quantity | Partial Period termination calculation uses the Period Type setting. |
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.
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:
Because Price UOM is not available for subscription lines, the fulfillment frequency (weekly, monthly, quarterly, and so on) acts as the Price UOM in the partial period calculation
Regardless of Period Start value on the contract, the application always uses Period Start as Service Start when billing subscription lines. This is due to the relationship between fulfillment quantity, pricing, and billing on subscription offerings.
The application uses the Period Type setting.
You can reverse the termination of a contract, line, or subline:
If you have mistakenly terminated any of them, or
If your business requires a change in the termination date
You can use the Roll Back Termination action to reverse a termination process. Reversing the termination process:
Removes the termination date
Restores the billing schedule, if any
Changes the status of a contract, line, or subline from terminated to active
If the termination date is before the maximum billed date, you cannot roll back the termination of a contract, line, or subline.
Prerequisites
The contract, line, or subline must not be billed for the period that has the termination date.
The termination must not have been done through the Oracle Installed Base application.
To reverse the termination process:
Navigate to Service Contracts Manager responsibility, Contract Administration, and then Contract Search.
The Service Contract Search page appears.
Search the contract for which you want to reverse the termination process.
Click the link in the Contract Number column.
The selected contract appears.
Select Roll Back Termination from the Actions list.
For line and subline, select Roll Back Termination from the Actions list in the Line Summary page.
The Service Contracts Roll Back Termination concurrent program is launched to reverse the termination process.
The Service Contract: Request Status page appears.
Click the Details icon.
If the concurrent program executes successfully, the contract, line, or subline termination is reversed. Or else, you can check the concurrent program log to know the reasons for the concurrent program request failure.
All the details that you have entered at the time of termination are removed when you reverse the termination process.
Use this navigation to reverse the termination process in Oracle Service Contracts windows:
For a | Window Name | Navigation Path |
---|---|---|
Contract | Search Templates and Contracts | Search for the contract > Tools menu > Roll Back Termination |
Contract Line | Search Templates and Contracts | Search for the contract > right-click contract line > Roll Back Termination |
Contract Subline | Service Contracts Authoring | Lines tab > Actions menu > Roll Back Termination |