Understanding Contracts
In PeopleSoft Contracts, a contract consists of two levels: the contract header and the contract line. The contract header relates one-to-many with the contract line. The contract header is where you enter the agreement information that is relevant to all the products and services that you are licensing through the contract. Agreement information may include customer information, terms and conditions, contract sign dates, and so forth. Also stored at the header level is any administrative information, such as notes and support teams, that are associated with the entire contract.
The contract line relates many-to-one with the contract header. You add products that you are licensing to the customer in accordance with contract terms and conditions to contract lines. You can add multiple lines to each contract. You link contract lines to billing and revenue plans. Each contract line has its own status, which enables you to add all products associated with a contract during contract setup and then to manage each contract line as appropriate to the line in accordance with the terms and conditions of the contract.
The information within a contract controls multiple business processes. Users within different departments might be responsible for setting up a contract, administering the billing for the contract, administering the revenue recognition for the contract, processing any amendments for that contract, and so forth. Effective contract management requires the ability to analyze contracts quickly and easily to gain insight into the specifications of the contract.
This section lists prerequisites and discusses:
Contract classifications.
Contract headers.
Contract lines.
Contract line statuses.
Products on contract lines.
Before creating contracts, you must complete the contract setup components.
Field or Control |
Description |
|---|---|
Amendment Number |
Displays the current amendment number and date of the amendment if the contract was amended through amendment processing. |
Amend Contract |
Click this button on an active contract to make adjustments to the current contract by creating an amendment. If a pending amendment exists, click to edit the existing, pending amendment. When you click this button, the system transfers you to amendment mode, and the button name changes to View Current. |
View Current |
In amendment mode, this button appears on the pages of the contract component. Click to view and edit the current contract. When you click this button, the button name changes to Amend Contract. |
Contract Number |
The contract number that you entered appears at the top of the page. If automatic numbering is enabled and you select a value of NEXT, the system generates a contract number. The contract number is a unique number used to identify a contract. The parameters that you establish for a contract number affect all components of the contract. |
Contract Status |
Displays a user-defined value that provides a visual indicator of where the contract is within the contract life cycle. This element also controls what processing can occur against the contract. When you define a new contract, the default contract status that you established appears; you can select a different contract status. If you select a contract status that is mapped to a different contract processing status, the system performs edit checking to ensure that the contract is eligible for the new processing status that you selected. |
Go To |
Click one of the links to navigate to key contract areas that you can assign before activating the contract: Billing Plans: Click to assign lines for this contract to new or existing billing plans. Revenue Plans: Click to assign lines for this contract to new or existing revenue plans. Milestones: Click to edit existing milestones and add new milestones to this contract. Renewals: Click to assign renewable contract lines to renewal plans. Amount Allocation: Click to apply the contract billing amount, revenue amount, plus any discounts, to fixed-amount contract lines. This link is not available for active contracts. More: Click the drop-down arrow in this list box to access the additional contract links. |
More |
|
Processing Status |
Displays the processing status corresponding to the selected contract status. |
Sold To Customer |
Displays the name and customer ID of the customer to whom this contract was sold. A sold to customer can be associated with multiple ship to and bill to customers, enabling you to associate different contract lines with different ship to customers and different billing plans with different bill to customers. |
Select a value for the contract classification when creating a new contract. The contract classification appears on the contract header and cannot be changed. The contract classification selection determines the way that fields and pages are displayed in the PeopleSoft Contracts application.
Contract classification values include:
Term |
Definition |
|---|---|
Standard |
The classification for a standard contract. |
Internal |
The classification for a contract that supports interunit billing. You can process interunit bills by selecting Internal in the Contract Classification field of the contract header. The following rules apply to internal contracts:
You can process interunit bills by selecting Internal in the Contract Classification field. |
Government |
The classification for a government contract. With a classification of Government, all of the features and fields that are specific to government contracts become active. Using the core features of PeopleSoft Contracts in combination with the features of government contracts, you can perform the following functions:
|
Federal Reimbursable Agreement |
The classification for a reimbursable contract. This option appears only if you selected the Federal Reimbursable Agreement check box on the Contracts - Installation Options page. This option is designed for U.S. federal government customers. |
Note: Once you specify a contract classification and create a new contract, you cannot change the contract classification value. Contract classification is not under amendment control. If you create a contract with the wrong classification, you must create a new one with the correct contract classification.
The contract header serves two primary functions in the PeopleSoft Contracts application. First, the header captures agreement information for a specific contract. Second, the header provides a simple and flexible format that enables you to tailor the structure of the contracts to match the business model. Based on the selections that you make at the header level, the PeopleSoft Contracts application can support multiple contractual relationships, including individual contracts, multiple contracts per customer, one contract per service provided, and one contract for multiple services.
The following sections discuss how to use the field settings and options on the contract header to create interdependencies between contracts, and what the default hierarchy is for fields on the contract header.
Understanding Contract Classes
You specify the contract class on the contract header. To support a broad range of contractual relationships, PeopleSoft Contracts uses two contract classes: a master contract and a standard contract. These classes are used in conjunction with the contract types that you establish on the Define Contract Type page. Contract types enable you to categorize contracts for reporting purposes and to limit the contracts to which certain milestones can be applied.
Note: Do not confuse contract class with contract classification. The contract classification selection, chosen when you create a new contract, determines the way that fields and pages appear in the PeopleSoft Contracts application.
Standard contracts are the primary contract class; at a minimum, you must set up standard contracts. The standard contract contains all agreement information for a specific contract. Additionally, the standard contract is linked to the contract lines that contain the contract line details for the contract; only standard contracts can have contract lines attached to them.
You can link a standard contract to a master contract, or assign the standard contract a parent contract. By assigning a standard contract to a master or by assigning a parent contract, you create a parent-child relationship between the two contracts. This parent-child relationship can aid you in contract tracking and reporting. No processing is driven off of the parent-child relationship.
On the standard contract, you can override any values copied over from an existing standard contract, master contract, or contract template.
Master contracts can be used in conjunction with standard contracts to support a broad range of relationships. A master contract contains high-level agreement information that is applicable to a series of contracts. For example, you might use master contracts to relate several standard contracts together for reporting or to create default header information to be used when creating new standard contracts.
Creating master contracts can increase the efficiency and accuracy of the contract information by reducing the amount of information that you need to enter when setting up a new standard contract. For example, to set up multiple contracts for a customer, you could set up a generic master contract for the customer and then copy the master information to create several standard contracts based on the specific contract lines. All the header terms and conditions set up at the master level are copied over to the standard contracts. If you license additional products or services to that customer, you can associate the new standard contract with an existing master. This setup enables you to easily query (by using PeopleSoft Query or a different query tool) the database to find all contracts that are related to a single master. Please note that you cannot associate billing or revenue plans with master contracts.
A standard contract can be linked to a master at any time before the contract is set to Active processing status. For example, you may have several existing standard contracts in the contracts system that you want to associate with each other. By assigning these to a master, you can take advantage of the grouping and reporting features provided by the master contract. Linking a standard contract to a master contract does not affect the agreement information that exists on the standard contract.
Note: You cannot link a standard contract to a master if the standard contract is already saved to Active processing status.
A master contract cannot be linked to another master contract. However, you can associate a master contract with a parent contract. The parent contract with which you associate the master contract can be either a master contract or a standard contract.
Using the Parent-Child Relationship
PeopleSoft Contracts enables you to create parent-child relationships between any two contracts. In addition to the parent-child relationship that exists between master and standard contracts, you can create a parent-child relationship between two master contracts or between two standard contracts. PeopleSoft Contracts can support a complex array of hierarchical contract structures. How you use the parent-child functionality is dictated by the structure of your company's contract system.
These examples discuss how you might use parent-child relationships to structure a contracts system:
You use only standard contracts.
You have licensed a set of products and services to a customer's East Coast branch. The customer expands to the west coast, and wants to license an additional set of products and services for its new location. You create a new standard contract by copying the existing contract to capture the terms and conditions that were established on the existing contract. You can then designate the original contract as the parent to enable grouping of the two contracts for viewing and reporting.
You have a single master contract that covers the general terms and conditions required to do business with your company.
You issue subsequent standard contracts that focus on the specific products and services that you are licensing. After you set up the master contract, you can create standard contracts by copying from the master. After the information is transferred to the standard contract, you can add additional header information to the standard contract, overwrite the header values that were brought over from the master contract, and add contract line detail information to the standard contract.
You have a single master contract that covers the general terms and conditions required to do business with your company.
You create additional master contracts for each customer, wherein you capture any contractual information that is specific to that customer. You then issue subsequent standard contracts that focus on the specific products and services that you are licensing. In this scenario, you assign the single master contract as the parent to each of the customer-specific masters. Then you issue an additional standard contract for a customer site with a standard contract already in place. In this scenario, you can create the new standard contract from the existing standard contract, and assign the existing standard contract as the parent to the new standard contract. The new standard contract will be implicitly linked to the single master—individual customer master—and explicitly linked to the existing standard contract.
Creating Contract Templates
You will often have multiple contracts that use the same set of standard information. One way to reduce the amount of data that you need to enter into the contracts system is to open a new contract header, enter the information once, and then save the contract header as a contract template. To designate a contract as a template, the contract must not be:
Active.
Designated as a master or a parent.
Linked to a master or a parent.
When you save a contract header as a template, the contract status field becomes unavailable for entry. This happens because the contract status drives Application Engine processes, and no Application Engine processes can occur against templates. After you save a template, you can use the template to create new contracts.
Creating a Contract from an Existing Contract
Using an existing contract as the basis for a new contract reduces the amount of data that you need to enter into the contract, speeding up entry time and reducing keying errors.
Any existing contract, regardless of contract status and contract type, can be used as the basis of the new contract. If you select a contract that has undergone amendment processing, you copy from the latest iteration of that contract.
When you create a contract from an existing contract, all contract header fields from the existing contract are copied into the new contract. These items are not copied into the new contract:
Notes.
Support team information.
Billing plans.
Revenue plans.
After the contract information is copied to the new contract, you can add information and overwrite existing information.
Note: If you copy from a contract containing billing and revenue templates, the system creates the billing and revenue plans in the new contract. The system bases the new billing and revenue template defaults on the current product setup in the copy from contract.
Note: If you copy from a contract with a classification of government or internal, the system copies eligible lines only.
After you create a contract header in PeopleSoft Contracts, you can begin adding contract lines to the contract. A contract line corresponds to an individual product that you are licensing. To set up a contract line, you first select a product onto a contract line.
When you select a product onto a contract line, the information that you defined for that product is stored on the contract line. The system uses the information that you defined for the contract header and for the product to create a set of defaults for that contract line. You can override much of this default information at the line level, and add details, such as applying specific discounts or surcharges. For contract lines that are service-related, you associate the contract line with a list of PeopleSoft Project Costing project and activity IDs, and a rate set or plan.
For amount-based contract lines, the system prices the contract line based on the pricing that you established for the product, either from the product's list price or PeopleSoft Enterprise Pricer. You can adjust the pricing for the contract line as required. You must navigate to the Amount Allocation page to validate the pricing for the contract. The Billing Allocation page and Revenue Allocation page is where you ensure that the sum of the contract lines equals the contract's billing amount and revenue amount, and that any contract discounts or surcharges have been fully allocated across the contract lines.
After you save a contract line with Active status, you can assign the contract line to a billing plan and a revenue plan. The billing plan and revenue plan represent the entitlements, cash and revenue, that you receive upon fulfilling the contract obligations.
The process flow for setting up a contract line consists of these steps:
Add the product to the list of contract lines on the Contract - Lines page.
If a contract line has a prepaid balance associated with it, enter the prepaid balance information on the Prepaid Balances - Prepaids page.
For all contract lines except those with a Recurring price type, the system populates the Contract Asset on the Accounting Distribution page with the Contract Asset account that was defined for the contract's product group.
If no Contract Asset account was defined for the product group, the system applies the Contract Asset account that was defined for the contract's PeopleSoft Contracts business unit.
Note: This Contract Asset is also populated for rate-based lines for use when the contract line is assigned to a value-based billing plan.
For contract lines with a price type of Amount or Percent, the system automatically populates the revenue (and contract liability if you selected the Contract Liability Recognition option on the related contracts product group) group boxes on the Accounting Distribution page when you save a contract line with a line status of Active.
For contract lines with a price type of Rate, revenue distribution codes are stored on the Accounting Distribution page for revenue forecasting purposes.
However, the actual revenue distributions are established on the Accounting Rules page. These rules can be established across all PeopleSoft Project Costing ChartFields and projects, or specifically for one project with different rules for each Projects ChartField combination.
For contract lines with a price type of Recurring, the system automatically populates the revenue (and contract liability if you selected the Contract Liability Recognition option on the related contracts product group) group boxes on the Accounting Distribution page.
For recurring contract lines, PeopleSoft Billing manages revenue and handles contract liability processing.
From the Contract - Lines page, you can navigate to other components to perform these activities:
For renewable products, create a renewal plan and cycle.
For rate-based contract lines, either link the product to existing PeopleSoft Project Costing projects and activities or create new projects and activities.
For other products, either link the product to an existing PeopleSoft Project Costing project and activity or create a new project and activity.
After you select all of the products onto contract lines, perform these activities on all contract lines with a line status of Active:
Define the contract pricing by allocating the contract header billing amount, revenue amount and any discounts across the active contract lines.
Assign all active contract lines to a revenue plan.
Assign all active contract lines to a billing plan.
Each contract line has its own status field. The contract line status field works in conjunction with the contract status field on the Contract - General page. A contract line is eligible for application processing when both the contract status and the contract line status are set to Active. You do not need to set all contract lines to active before the contract status is set to Active. This enables you to capture on contract lines, during contract setup, commitments for products that can be exercised at a future date. Having individual contract line status enables you to manage the status of individual contract lines during the life of a contract. For example, if a contract has 10 contract lines and one of those lines needs to be cancelled, you can cancel just that line.
Every contract line is associated with a contract status of Pending, Active, Renewed, or Cancelled. Here is a summary of each of these line statuses, and a list of the attributes associated with each status:
Term |
Definition |
|---|---|
Pending |
Enables you to capture commitments for contract lines that can be exercised at a future date. Pending lines are not included in the contract header billing and revenue amounts and cannot be assigned to a revenue plan or a billing plan. Contract lines that are in Pending status have these attributes:
|
Active |
Appears as the line status default when you create a contract line. Active contract lines are included in the contract header billing and revenue amounts and can be assigned to a revenue plan or a billing plan. Contract lines that are in Active status have these attributes:
|
Renewed |
Indicates that the contract line is associated with a renewal package and that the renewal cycle package for the line is set to ready. After the status is set to Renewed, no data fields on the line are available for entry. Contract lines in Renewed status have these attributes:
|
Cancelled |
Occasionally, you might need to drop or cancel a line on a contract. For amount-based contract lines, change the line status to Cancelled. This removes the line from processing. For rate-based contract lines that do not have any billing or revenue processed, before you can change the line status to Cancelled, you must unassign any billing plans or revenue plans that are associated with the line. Rate-based contract lines that have billing or revenue processed cannot be cancelled. If you need to cancel a line for which the status is Renewed, manage the cancellation on the renewal cycle itself instead of on the line. You can cancel a contract line in a pending or active contract. However, if the contract is active, you must create an amendment to cancel the contract line. While in amendment mode on the Contract - Lines page, change the line status to Cancelled. Contract lines that are in Cancelled status have these attributes:
|
Contract Line Process Flow
The flow for the contract line status is basic:
The contract line status values can never move backwards—with the exception of moving an Active line to Pending on a contract with a Pending processing status.
Only the system can change the status to Renewed.
This diagram shows the flow between status values and functionality for each line status value:
The flow between status values and functionality for each line status value is showed
Saving the Line Status as Active
The system's edit checking does not prohibit you from saving a contract line with incomplete or invalid data. However, before you can set the contract to an active processing status, you must complete these activities:
Complete all required fields for the contract line.
Enter the start and end dates if the line is marked as renewable.
If the contract line has discounts or surcharges associated with it, complete the distribution code information; ChartField combination edits validate the distribution codes.
Note: While not a prerequisite for contract activation, contract lines with a price type of Rate must have at least one project and activity associated with the line to price, bill, and recognize revenue for PeopleSoft Project Costing transactions.
Moving the Line Status to Renewed
The contract line status can only be set to Renewed by the system as part of the renewal process flow.
Moving the Line Status to Cancelled
Before you can set the contract line status to Cancelled, no (additional) Pending or Ready amendments can be related to the line.
In addition, for rate-based contract lines, the following conditions must be met:
No billing plan can be assigned to the line.
If a ling is assigned to a billing plan, you must set the billing plan status to Pending or Cancelled, and then unassign the line from the billing plan. If processing has already occurred against an assigned billing plan, the line cannot be cancelled.
No revenue plan can be assigned to the line.
If the line is assigned to a revenue plan, you must set the billing plan status to Pending, Reversed, or Cancelled, and then unassign the line from the revenue plan. If processing has already occurred against an assigned revenue plan, the line cannot be cancelled.
If you are cancelling an Active contract line that is associated with an active project and activity in PeopleSoft Project Costing, the system generates a warning. If you need to process additional transactions for any of the active projects and activities currently associated with the contract line that you are cancelling, you must remove those associated projects and activities from the contract line and associate them with another contract line. Otherwise, you can update the project status to Closed or the activity processing status to Inactive for the currently active projects and activities.
Additional Rules for Contracts with Prepayments
Two additional conditions exist for rate-based lines on contracts containing prepayments for which the prepayments have a status of Pending or Active:
The contract must contain at least one Active rate-based line.
You cannot cancel a rate-based line that is associated with a prepayment.
When you select a product onto a contract line, the system creates a single contract line. Products or services are often sold as part of a product kit. A product kit is a collection of products. When you select a product kit onto a contract, the system creates an individual contract line for each product within the product kit.
Setting up product groups, defining attributes to contract product groups, defining products, defining the product's list price, and associating a product with a product group are discussed in the topic about structuring contracts.
See Understanding Products and Product Groups.
This section discusses:
Product kits
Service (rate-based) products
Accounting distributions
Product Kits
A product kit consists of multiple products and services. When you select a product kit onto a contract, the contract lines created for the products within that product kit inherit the attributes defined for the product kit.
PeopleSoft Contracts does not distinguish between contract lines created by the selection of an individual product onto a contract line and contract lines created by the selection of a product kit of products onto contract lines.
Service (Rate-Based) Products
The integration of PeopleSoft Contracts and PeopleSoft Project Costing enables you to associate the scope of the service product captured in PeopleSoft Contracts with the expenses and billable hours that are captured in PeopleSoft Project Costing as work is performed. You must associate contract lines representing service products with a PeopleSoft Project Costing business unit, rate, project ID, and activity ID on the Related Projects page. From this page, you first associate the contract line with a single PeopleSoft Project Costing business unit.
Next, specify a rate selection and rate for the contract line. PeopleSoft Contracts provides you with four rate selection options: Rate Set, Contract Rate Set, Rate Plan, and Contract Rate Plan. The available rate sets or rate plans depend on the rate selection option chosen.
Note: The Rate Set and Rate Plan selection options refer to rate sets and plans with a rate type of Standard.
The advantage of linking to a standard rate set in PeopleSoft Project Costing is that you can associate the contract line with the most current standard practice rates. You might select this option for a contract involving rate-based consulting services, for which the consulting rates that you charge are the standard practice rates at the time that work is performed.
The advantage of linking to a contract-specific rate set in PeopleSoft Project Costing is that you can create a consistent set of rates that will not change during the life of the contract unless you explicitly change them for that contract. You might select this option for a contract involving rate-based consulting services, for which the customer agrees to provide consulting services for a set amount that will not change during the life of the project.
The advantage of linking to a standard rate plan in PeopleSoft Project Costing is that you can associate the contract line with multiple current standard rates. Together, these rates can enable the full costing, billing, and revenue recognition of project transactions for such areas as indirect costs, overhead expenses, and general and administrative expenses.
The advantage of linking to a contract-specific rate plan in PeopleSoft Project Costing is that you can create a consistent combination of standard and contract rate sets. This combination of rate sets can represent the most current, standard practice rates. Or, they can represent rates that will not change during the life of the contract unless you explicitly change them for that contract line.
After you associate a rate with the contract line, you can link a contract line to one or more combinations of existing or new projects and activities. Contract lines that represent fixed-fee products can only be assigned to a single project and activity combination.
See Understanding the Relationship Between PeopleSoft Contracts and PeopleSoft Project Costing.
Accounting Distributions
Upon saving a contract line, the system creates the accounting distribution. Accounting distributions are discussed in the "Understanding Accounting Distributions" topic.