Understanding Pricing Contracts

Once you define the contract and add products to the contract, the next step is to identify the total contract price for billing and revenue. The Billing Allocation page is used to identify the total contract price for billing and the Revenue Allocation page is used to identify the total contract price for revenue. Total Billing and Total Revenue should be net of any discounts/surcharges applied.

The Billing Allocation page should always be updated. Once you identify the total contract price for billing the next step is to allocate that price to the contract lines. The allocation (or identification) of billing values to the contract line is based on the terms agreed to with the customer. Some contracts will have amount based lines, some will have rate based lines and others will have both amount and rate based lines.

The Revenue Allocation page is either updated by the user or programmatically updated to match values used for billing depending on whether the contract separates billing and revenue. If billing and revenue are managed together as one value, without separating billing and revenue, then amounts entered on the Billing Allocation page will programmatically update the Revenue Allocation page and the page is read only. Alternatively, you may enter separate prices and limits for revenue if the contract was identified as having separate billing and revenue when it was created. The distinction to separate billing and revenue on the contract is made based on the contract line’s price type (amount or as incurred). Amount based lines manage billing and revenue separately if the Separate Fixed Billing and Revenue check box is selected on the contract. Similarly, as-incurred or rate based lines manage billing and revenue separately if the Separate As Incurred Billing and Revenue check box is selected on the contract. If neither fixed nor as incurred contract lines manage billing and revenue separately, then the Revenue Allocation page is completely read only and matches values used for billing. If the contract does manage billing and revenue separately, then Total Revenue on the Revenue Allocation page should be updated by the user in addition to maintaining the line level prices and limits for revenue for those contract lines where separate billing and revenue is allowed.

Controls are in place requiring amount based lines to be fully allocated before a contract can be activated. This enables the system to generate appropriate billing and revenue transactions for analysis and processing.

For amount based lines, the Billing Amount and Revenue Amount fields are first defaulted from Order Management and the Enterprise Pricer based on the product ID, contract line start date, quantity and any other contract or product attributes identified as criteria for applying a price. For Billing, the system defaults a list price from Order Management and the Enterprise Pricer and this can be updated manually on the contract line. For revenue, the system defaults a revenue price from Order Management and the Enterprise Pricer which should be the organization’s standalone sales price. That is, the price the good or service would be sold for when it’s sold by itself, on a standalone basis, without any other goods or services. The revenue price (standalone sales price) default can be used as the actual revenue amount on the contract line or it can be used as a basis for automating the allocation of Total Revenue across contract lines. When selecting the automated allocation method for revenue, the system uses the revenue price for the line as a basis for calculating the line’s relative percentage to the total of all revenue prices for all contract lines on the contract. This relative percentage is then used as the basis for allocating a portion of Total Revenue to the line. The system provides options to recalculate the revenue price and to override revenue amounts on specific contract lines with the impact of such actions updating the line level revenue amounts accordingly. These same options and behavior are applicable for rate based lines.

As billing amounts and revenue amounts are updated on the amount based contract lines, the system summarizes the total fixed billing amount and total fixed revenue amount for the amount based lines. Controls are in place to ensure that the total fixed amount billing for the contract and the total fixed amount revenue for the contract are fully allocated before a contract can be activated. This is a separate control for amount based lines only and is independent of the allocation of Total Revenue done across all contract lines. The system will set the fixed billing and fixed revenue allocation status to Complete if the fixed billing and fixed revenue amounts are fully allocated across amount based lines and after doing so a contract can be activated. The contract must have a processing status of Active to bill and to recognize revenue. Changes can be made freely on the Billing Allocation page and Revenue Allocation page before contract activation. Once the contract is in active processing status, changes are processed and tracked using amendment processing. A summary of amounts entered on the Billing Allocation and Revenue Allocation pages is displayed on the Contract General page under the Summary of Amounts group box.

Before you can bill or recognize revenue for rate-based contract lines, you must first define your rate and fee structure through rate sets and rate plans and associate those rate sets and rate plans to your rate-based contract lines. This enables the system to generate appropriate billing and revenue transactions for analysis and processing. In addition, billing limits and revenue limits can be assigned to the contract line.

Rate based contract lines are priced using both PeopleSoft Contracts and PeopleSoft Project Costing. Use the Billing Allocation page and Revenue Allocation page in Contracts to establish a limit for billing and a limit for revenue. The limit for billing and limit for revenue are managed separately if the contract separates as incurred billing and revenue. If not separated, then the revenue limit will match the billing limit. Billing limits and revenue limits are included in the total contract price for billing and total contract price for revenue. Similar to amount based lines, rate based lines can receive a portion of the total revenue using its revenue price as the basis for allocation. When using the automated allocation functionality, the revenue limit is updated with the line’s allocation of total revenue.

Use PeopleSoft Project Costing to create simple or detailed rate sets and rate plans that identify rates per hour/quantity or markups on cost. Other standard methods of calculating billing and revenue on costs or hours incurred in project costing or on other inputs interfaced into the project costing tables are also available. Rates and markups can be defined separately for revenue and assigned to contracts that opt to Separate As Incurred Billing and Revenue. Once defined, you assign the rate set or rate plan to the rate based contract line using the Related Projects page. Rate sets and rate plans can be defined for general use or for a specific contract. Tiered pricing is available for use on rate based contract lines and defined on the Related Projects page. The Related Projects page is also used to apply discounts, retainages and lower level transaction based limits for a contract line. Projects and Activities are assigned to a contract line on the Related Projects page. Transactions recorded to these project and activities are integrated into project costing and priced using the rate sets and rate plans assigned to the line. Amounts sent to Billing and amounts sent to General Ledger for revenue are limited to the billing limits and revenue limits entered on the contract.

Click to watch a short video about Separating Billing from Revenue in Contracts (Step 1) and Separating Billing from Revenue in Contracts (Step 2).

For recurring products, the system dynamically generates the price when billing occurs, which enables the system to maintain a current recurring product price. The system uses either the basic list price or for more advanced pricing the PeopleSoft Enterprise Pricer to price products. The recurring price preview on the billing plan is also dynamically generated, which provides visibility for current and future billing periods.

Recurring contract lines can be added to contracts that do not separate fixed billing and revenue. The amount billed and the amount recognized for revenue are always the same on recurring lines. Although the Recurring Billing amount is entered on the Billing Allocation page, this amount is not used for processing billing and helps only in determining the total contract price. Recurring amounts are included in the allocation of total contract price along with other contract line price types.

Discounts can be added to amount-based and rate-based lines on Standard contracts. Surcharges are only allowed for amount-based contract lines. Discounts and surcharges are not allowed for recurring contract lines.

For a discussion of renewal pricing and discounts and surcharges for renewals, see the Entering Renewals topic.

See Pricing Renewal Plans.

See Applying Discounts and Surcharges to Renewals.

Special payment terms that might be applicable to the contract, based on the company's performance or on the customers' actions are not captured on the Billing Allocation and Revenue Allocation pages. Special terms are categorized as early out options or as bonuses and penalties.

Once you have created your contract, added your contract lines, allocated total contract price for billing and revenue across contract lines and assigned rate sets or rate plans to your rate-based contract lines, any changes that you need to make to the pricing structure is controlled by the processing status of the contract.

While, the contract is in a Pending processing status, you can delete or add contract lines, update total contract price for billing and revenue and reallocate prices for billing and revenue across contract lines on the Billing Allocation page and Revenue Allocation page. If different rate sets or rate plans are needed for your rate-based contract lines, you can update the Related Projects page with any changes that you need.

Once the contract is in an Active processing status, any changes made to the pricing structure of a contract line must be made using amendment processing. If billing or revenue recognition has occurred against the contract lines impacted by the needed changes, then potentially, you may also need to cancel contract lines, or reverse billing or revenue before applying your pricing changes. You can make changes to the associated rate set or rate plan for a rate-based contract line without amendment processing.

The PeopleSoft Enterprise Pricer is an advanced product pricing tool in the Order Management application. Price Lists and Price Rules are used to determine prices for products based on product and contract specific attributes. This functionality, along with integrations into Contracts, enable the PeopleSoft Enterprise Pricer to populate billing prices and revenue prices in PeopleSoft Contracts. If PeopleSoft Enterprise Pricer price lists and price rules are not set up on your system, PeopleSoft Contracts retrieves the product’s basic list price in Order Management.

See Understanding Price Rules.

Several contract and product attributes are available as criteria for determining price in the PeopleSoft Enterprise Pricer including, but not limited to:

• Product

• Product Group

• Business Unit

• Sold to Customer

• Region

• Contract Type

• Contract Classification

• Contract Number

PeopleSoft Contracts requests pricing from Order Management and the Enterprise Pricer when:

• A product (contract line) is added to a contract.

• A product’s price is recalculated (or repriced) on the Billing or Revenue Allocation page.

• A contract line is created through a renewal.

• A recurring bill is generated.