Understanding PeopleSoft Project Costing and Government Contracting
Integration
The Government Contracting feature enables contractors to effectively manage government contracts in accordance with governmental rules and regulations. The Government Contracting system uses project, activity, and transaction data that is stored in PeopleSoft Project Costing to calculate costs and fees for billing, and to create accounting entries for revenue recognition for rate-based products or services. Transactions that the Government Contracting feature creates, such as fees and withholding transactions, are sent back to PeopleSoft Project Costing for analysis purposes.
This chapter provides an overview of the PeopleSoft Project Costing and Government Contracting integration.
Understanding PeopleSoft Project Costing and Government Contracting
Integration
This section discusses:
Terminology that is relevant to the integration between PeopleSoft Project Costing and the Government Contracting feature.
Cost-plus contract lines.
Government contract pricing.
Government contract limits processing.
Government contract withholding.
Government contract progress payments
Government contract variance pricing.
Terminology
This table describes terms that are relevant to the integration between PeopleSoft Project Costing and the Government Contracting feature:
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A type of account that is associated with a specific cost pool and is used to store the difference between provisional (burden) expenses and actual indirect expenses. Cost rows that are generated from variance pricing typically reduce the balance of this account to zero. |
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Indirect costs that are created in PeopleSoft Project Costing by applying indirect rates, such as provisional rates and forward pricing rates. |
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Burden rate |
A rate that is associated with each defined cost pool and is typically approved by government auditors. Burden rates are subject to change based on a periodic assessment of actual indirect expenses. Changes to burden rates require adjustments to burden costs by using variance pricing. |
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The term used in PeopleSoft Contracts and Project Costing to identify a rate-based contract line on a government contract with a fee type of fixed, award, incentive, or other. For cost-plus contract lines, direct costs are billed and revenue is booked at cost, with no mark up. Typically profit is based on a prenegotiated fee. |
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Direct costs are defined by the source systems, such as PeopleSoft Payables, Expenses, Time and Labor, and third-party applications. In cost-reimbursement pricing arrangements, such as a cost-plus contract, government contractors typically bill the government for the direct costs, and recognize revenue with no markup for these costs. |
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In cost-reimbursement pricing arrangements, fees are the profit that is negotiated and documented in the contract. Fees can be fixed at the outset of performance, as in cost-plus-fixed-fee arrangements, or may vary, as in a cost-plus-incentive fee arrangement. In Government Contracting, a contract can include one or more of these fee types: fixed, award, incentive, and other. Each contract line, however, can contain only one fee type. |
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Rates that are used to calculate revenue recognition based on indirect costs. Forward pricing rates are determined by the government contractor, and can be different from provisional rates. Forward pricing rates represent the best estimate of the government contractor's overhead costs as a percentage of direct costs. They can also include a calculation against nonbillable costs. Forward pricing rates can be submitted by the contractor to the government for negotiation to bid on future or multiyear contracts. When the contractor and government reach an agreement, typically the rates are documented in a forward pricing rate agreement and are used to calculate indirect costs for revenue recognition. |
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Additional costs that are applied as a percentage of direct costs. Examples of indirect costs are overhead costs, general and administrative expenses, fringe, and cost of money. |
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Estimates of the cost of overhead as a percentage of direct costs, specified by the government. Government contractors calculate and bill the government for indirect costs based on provisional rates. |
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Retroactive rate adjustments that are used periodically to book variances to billing and revenue rows. The system tracks the sum of a project's revenue and billing transactions. Upon final settlement or as required during the project, the government determines the required rate variance adjustment. |
Cost-Plus Contract Lines
After you establish a cost-plus contract line in a government contract, and you create the billing and revenue plans to process billing and revenue for cost-plus fees, you link the contract line to a project and activity. This enables the system to appropriately allocate direct and indirect costs by using a standard or contract-specific rate set or rate plan that you create in PeopleSoft Project Costing.
See Also
Defining Rate Set Categories, Rate Sets, and Rate Plans
Creating Cost-Plus Government Contract Lines
Government Contract Pricing
You can create rate sets with a rate definition type of billing, cost, cost/billing, or revenue, for use on cost-plus contract lines. Rate sets with the revenue rate definition type are available for government contracts if you select the Separate Billing and Revenue option on the Installation Options - Contracts page. The system separates the billing and revenue accounting rules because the amounts that are used for billing a government contract may be different than the amount and timing of revenue that is recognized and sent to the general ledger. You can run the Pricing Application Engine process (PC_PRICING) to process all contract lines, or run the process separately for cost, billing, or revenue transactions.
Billing, cost, and cost/billing rate definition types are always available for rate sets.
Note. Government contracts are not eligible for organizational sharing or quantity-based tiered pricing.
See Also
Government Contract Limits Processing
Costs are subject to transaction and contract line level limits. The system applies transaction limits before contract line level limits. Transaction limits are based on limits that you establish by contract line and transaction identifier, and are comprised of combinations of transaction sources, categories, and subcategories. The system applies the transaction and contract line limits against corresponding direct and indirect cost transactions, excluding the transactions that are outside of the period of performance if the Control Limits and Billing option is selected for the contract line on the Contract Amounts page. The system creates billable transactions (with an analysis type of BIL) and revenue-recognizable transactions (with an analysis type of REV) for cost transactions that completely pass limit checking. The system creates over-the-limit billing transactions (with an analysis type of OLT) and over-the-limit revenue transactions (with an analysis type of ROL) for cost transactions that exceed any applicable limit. The system splits a cost transaction into separate billable and over-the-limit billing transactions and separate revenue-recognizable and over-the-limit revenue transactions in the amount of the remaining limit and excess, respectively, if the Split to Match Limit Exactly option is selected on the Installation Options - Contracts page. The system excludes OLT and ROL rows from billing and revenue processing, and from the costs to be used for the fee calculation, when OLT and ROL analysis types are excluded from the analysis groups in the BIL Analysis Group and REV Analysis Group fields that are specified in the Calculation Basis group box on the Contracts Definition - Fee Definition page for the business unit.
See Also
Government Contract Withholding
The government can require contractors to retain a percentage of rate-based contract lines as an incentive to complete the contract by a specified date. The Contracts Billing Interface Application Engine process (CA_BI_INTFC) generates withholding transactions. During the billing cycle, the Billing Worksheet and the Project Costing-Contracts Interface Application Interface process (BIPCC000) send withholding transactions to the Project Transaction Temporary Billing table (PROJ_RES_TMP_BI). Then the Billing to Project Costing Application Engine process (PC_BI_TO_PC), which updates the Project Transaction table with results from PeopleSoft Contracts and PeopleSoft Billing processes, inserts rows into the Project Transaction table for staged withholding transactions. Withholding transactions are designated with these analysis types:
Withholding (WTH)
Withholding Adjustment (WAJ)
Withholding Release (WRL)
Withholding Release Adjustment (WRJ)
Withholding Write-off (WWO)
See Also
Understanding the Billing Process Flow
Processing Transactions Using Accounting Rules
Setting Up and Processing Withholding
Government Contract Progress Payments
The government can issue progress payments to the contractor prior to contract completion. The payments are based on an approved progress payment rate that can be included as terms in a government contract. The contractor issues progress payment requests to the government as costs are incurred. The requests can be issued based on a regular schedule or work progress.
Progress payments are applied to a specific contract, project, or set of project transactions. Use the Projects and Activities page in PeopleSoft Contracts to associate a project and activity to progress payment terms on a contract. The system uses the specified projects and activities to calculate inception to date and estimated costs. Transaction rows that are eligible for progress payments are stored in the Project Transaction table (PROJ_RESOURCE) with analysis types that are associated with the PeopleSoft Inception to Date (PSITD) or PeopleSoft Estimated Costs to Completion (PSECC) analysis groups. The Accumulate Progress Payment Costs Application Engine process (CA_PGP_CALC) in PeopleSoft Contracts retrieves the eligible costs from the Project Transaction table.
Projects and activities that are associated with contract lines are not included in progress payment cost calculations.
Progress payments are applicable only to amount-based contract lines for government contracts.
See Also
Establishing Progress Payments
Government Contract Variance Pricing
Government contractors typically use provisional rates for billing, because provisional rates are the government-approved rates. They use forward pricing rates for revenue recognition, because forward pricing rates represent a more accurate estimate of overhead costs. You may be required to change provisional rates based on a rate review by the government, or you may want to calculate new forward pricing rates based on an internal audit. The adjustments can impact rates and require billing adjustments.
Retroactive rate adjustments, or variance pricing, are required when the government contractor retroactively applies new rates to unprocessed and previously processed transactions. The system applies the difference in rates against historical costs in a specified date range, and creates new transactions for the incremental difference between the old and new rates. For example, assume that since January 1, the overhead rate has been 40 percent. On July 1, the rate changed to 45 percent, retroactive to the beginning of the year. The variance rate, which is the difference of 5 percent, is applied to all costs year-to-date, using standard rate source matching. The system processes the new transaction rows. As part of the Variance Pricing process, the delta rows are priced for revenue and billing based on the rate set or rate plan.
You can use the Variance Pricing feature to capture and process price variances for a particular set of rates for a specific time period. By using the Variance Pricing Application Engine process, you can:
Process rates that are attached to contract lines or project activities.
Capture the date and name of the person who made the change.
Run variance pricing for one or many burden rate types, such as fringe benefits and overhead.
Run variance pricing on an existing rate set, rate category, or rate plan for a specific contract line or project.
Capture and process variance pricing for a particular effective dated set of rates.
Note. You can capture and process variance pricing against all rate definition types.
The Variance Pricing Application Engine process (PC_VAR_PRICING) selects the eligible transactions that match the effective date range and source criteria for the costing rate set.
See Understanding Variance Pricing.