Understanding Procurement Contract Default Rules

Before you start creating contracts, you should identify and use the contract process options that are most appropriate for the organization's business processes. The contract process option must be the Purchase Order, General Contract, Manufacturer, or Release-to-single PO Only to qualify for use at the requisition or purchase order line level.

The PeopleSoft Procurement Contracts feature gathers essential elements of contract transactions. You can define one or multiple contracts for suppliers. You can optionally set up contracts with an overall maximum amount and an expiration date, along with amount threshold and expiration date notifications.

You can associate goods and services with a contract in several different ways:

• The first is using one contract for all items ordered from the contract's specified supplier by using the Open Item Reference feature on the contract. You can define general or ship-to-percentage-based price adjustments that are applicable to all items for the supplier.

• The second way is by defining specific item categories on the contract along with item exceptions for the category. This means that any item you order from the supplier for the contract categories can reference the contract as long as the item is not listed as an item exception. You can also define general or ship-to-percentage-based price adjustments for each category. You can also specify a maximum order amount for the category.

• The final way for associating goods and services with contracts is by defining specific items or services on the contract. You can enter specific item IDs or order-by-description (ad hoc) commonly used for services. Orders with the supplier and item or service that match the contract can reference the contract. You can define general or ship-to-percentage-based adjustments or unit of measure amount-based or percentage-based adjustments for the items or services.

You use contract validation rules to:

1. Manually search for valid contracts on requisitions or purchase orders.

2. Copy existing requisitions or purchase orders to a new requisition or purchase order.

   If a copied transaction has an existing contract, the system copies that contract again using the more current version, and carries out the validation and pricing logic described for the price adjustment calculations. If a copied transaction does not have a contract, the system attempts to provide a contract by default if the Default Contract on Req or Default Contract on PO check box is selected.

3. Ensure that a contract is still valid for the transaction. For example:

   • If information on the line is changed such as the requester or buyer changing the item to one that is not referenced on the contract.

   • If information on the contract is changed when a requisition that references the contract is sourced to a purchase order.

4. Determine the pool of contracts from which the system determines the most valid contract to default on transactions.

The system considers this information to validate whether a contract is valid for a transaction:

1. The contract process option must be Purchase Order, General Contract, Release to Single PO Only, or Manufacturer.

   You can manually reference only the Release to Single PO Only process option contracts through online requisitions.

2. The contract current version is Approved.

   For Manufacturer contract, the associate Distributor contract is also approved.

3. For non-Manufacturer contracts, the supplier matches the transaction supplier for purchase orders only.

   For Manufacturer contracts, the manufacturer on the transaction line matched the manufacturer on the Manufacturer contract and the distributor on the Manufacturer contract matches the transaction supplier.

4. The requisition or purchase order date must fall within the contract begin and expiration dates.

   For Manufacturer contracts, the requisition or purchase order date must fall within the Distributor contract begin and expiration dates.

   The expire date doesn't always exist, so you should assume an infinite time frame in this case. Also:

   • On manually entered requisitions, failure to meet the date requirement generates a warning.

   • On manually entered purchase orders, failure to meet the date requirement generates an error message. In this case, the prompt on the contract will not list these contracts.

   • Purchase order sourcing does not select a contract if the transaction date is outside of the contract dates.

5. Item, or Order-by-description (ad hoc) eligibility requires one of the following conditions:

   1. The transaction item ID matches the one on the contract.

   2. Order-by-description (ad hoc) lines matches using the transaction category and an alternate item identifier such as the supplier item id, manufacturer item id, or UPN ID when either the Punchout Items or Other Description Items are enabled on the Contract and Vendor Rebate Controls Page.

   3. The transaction item category matches the one on the contract category reference, and the item is not listed as an exception.

   4. The contract allows for open-item reference.

6. Contract Control Type restricts contract usage when enabled and eligibility requires one of the following conditions:

   1. Contract Control Type usage is restricted to Ship To and the transaction line ship-to location matches the contract Ship To. Manufacturer contracts matches using the Distributors contract’s Ship To.

   2. Contract Control Type usage is restricted to Contract Domain (region) and the transaction line ship-to is associated with a contract domain (region). Manufacturer contracts matches on the Distributor contract’s Contract Domain (region).

   3. Non–corporate contracts are setup using contract control type business unit and the transaction is setup for the transactional business unit.

If the Use Contract if Available check box is selected and the contract specified on the requisition line is no longer valid during purchase order sourcing, the sourcing process searches for a new, and the most valid, contract to reference. If no valid contract is yet available for reference, the system displays an error message and rejects sourcing the transaction.

You can set up contracts to automatically be requisitions and purchase orders by default. This enables you to use items already contained in a contract to populate requisitions and purchase orders with items and prices. The system retrieves contracts for:

• Requisitions when the Default Contract on Req check box is selected as a business unit option, or when the Default Contract on Req check box is deselected, but the Default the found contract ID to Requisition line check box defined on the RFQ Required Rule Page is selected.

  To do this, access the page and select a rule in the RFQ Required Rule field. Then click the Go to RFQ Required Rule button.

• Purchase orders if the Default Contract on PO check box is selected as a business unit option.

  This includes when you copy a purchase order from a contract. See the contract validation rules described next in this section.

• Purchase orders created through purchase order sourcing.

  The system uses the contract default rules hierarchy to determine the most valid contract to supply default values to requisitions, purchase orders, and purchase orders created through purchase order sourcing. The system selects the most valid contract from the available contracts.

The contract defaulting rules hierarchy determines the order of how the system selects to automatically supply a contract by default to requisitions and purchase orders. The rules enable the system to determine the single most appropriate contract. These combinations must be unique:

1. Supplier.

   Manufacturer contracts are considered first. The manufacturer on the transaction line matches the manufacturer on the Manufacturer contract, and the distributor on the Manufacturer contract matches the transaction supplier.

   Non-Manufacturer contract supplier matches the transaction supplier.

2. Current contract version.

3. Approved contract status.

   For Manufacturer contracts, the associated Distributor contracts are also approved

4. Contract begin date.

   More than one contract can exist for the same supplier and item, or supplier and category, as long as the contract begin dates are different.

   For Manufacturer contracts, the associated Distributor contract begin date is used.

5. Item ID unless the item is in a different line grouping.

6. Order-by-description (ad hoc)

   The system checks for a match using the category and alternate item identifier such as supplier item id, manufacturer item id, or UPN ID when the order-by-description item is a Punchout or ad hoc item, and the Punchout Items or Other Description Items options are enabled on the Contract and Vendor Rebate Controls Page.

7. Category.

   Even if an item ID exists on a contract, the item's category can be specified, and the item doesn't need to be listed as category exception.

8. Open item reference.

   An open item can be referenced even if the item ID is listed as a category exception.

9. Purchasing business unit when used for non–corporate contracts.

Based on the rule hierarchy, this list describes the validation process that the system uses to provide contracts onto requisition and purchase order transactions by default:

1. If the contract is a Release to Single PO Only process option contract or the Auto Default check box on the contract is not selected, the contract will not automatically be supplied by default onto transactions regardless of whether the item or the category has an exact match.

2. The system then sorts all valid contracts by date, using the contract begin date. The contract with the begin date closest to, but not later than, the transaction date is the most valid contract.

3. The system considers Manufacturer contracts first using the priority established for the distributor contracts and the distributor contract supplier.

   Then non–Manufacturer contracts that match the transaction supplier are considered.

4. The system determines whether the type of contract reference is item, ad hoc, category, or open item:

   1. The system first tries to match at the contract-line level. If an item ID is on the transaction, the system checks for the same item ID on the contract.

      If a match is found, the contract and contract line number are referenced on the transaction:

   2. If the transaction line is order-by-description (ad hoc), the system checks for a match using the category and an alternate item identifier such as supplier item id, manufacturer item id, or UPN ID, when line matching options are enabled on the Contract and Vendor Rebate Controls Page. If a match is found, the contract and contract line number are referenced on the transaction

   3. If a match is not found at the contract-line level, the system checks the category reference level.

      If the category for the line item on the transaction matches the contract category reference, and the item is not listed as a category item exception on the contract, then the contract and category are referenced on the transaction.

   4. If a match is not found on the contract line item or contract category reference, the system looks for and uses an open item reference contract.

5. The system uses the control type to restrict contract usage to specific ship-to locations, contract domains (regions), or business units, and matches one of the following conditions”

   1. The transaction line ship-to location matches the contract control ship to when the contract’s control type is Ship To.

   2. The transaction line ship-to location belongs to a control domain (region) that matches the contract’s contract control domain (region) when the contract control type is Contract Domain.

   3. The transaction is setup for the transactional business unit and the control type is business unit. Non–corporate contracts are setup using the contract control type Business Unit

The preceding defaulting rules are also applicable to the purchase order sourcing batch process with the exception that the batch process automatically matches transactions with Release-to-single PO Only process option contracts if the item or the category has an exact match.

For ad hoc requisition lines, you have to manually reference a contract line for requisition lines. And as with requisition lines that reference a contract when the ad hoc requisition lines are sourced to a purchase order, if the contract referenced at the requisition line is no longer valid during purchase order sourcing, the system displays an error message and rejects sourcing the transaction.

After the system locates an eligible contract on which to base a requisition or purchase order, it:

1. Updates the requisition or purchase order line with contract information when the information exists on the contract, including:

   • Contract ID.

   • Contract line number when a contract line number is referenced.

   • Category line number when a contract category is referenced.

   • Group ID for purchase order lines only.

   • Release number.

   • Milestone line for purchase order lines only.

2. Determines the base price when the contract line item is referenced.

   The system uses the contract base price if it is specified on the contract. Otherwise, it uses the item/supplier price. For requisitions, the system calculates the contract price.

3. Calculates price adjustments:

   • For item IDs, you can establish price adjustments at the contract level, item/supplier level, or both. You can also establish whether the system calculates item/supplier price adjustments before or after the contract price adjustments.

   • You can establish ad hoc line price-adjustments only at the contract level.

   • You can establish price adjustments on the contract at the category level and open-item reference level. When referencing a contract at the category level or open-item reference level, the corresponding price adjustments along with whether the system calculates item/supplier price adjustments before or after the contract price adjustments will apply.

4. Updates the contract released amounts and quantities for contract releases on purchase orders.

   The contract reference on a requisition does not update the contract release amounts and quantities. However, after the contract is built into a purchase order, the system updates the released amounts and quantities.

5. Creates contract events.

   Events (releases) are the association of contracts referenced on purchase orders. You can inquire about the events using the Review Contract Information menu.

Before you create a procurement contract, you need to ensure that several basic setup steps have been completed.

To prepare to create procurement contracts:

• Establish suppliers.

  To define contracts, you must first establish suppliers for the contracts.

  See Entering Supplier Identifying Information.

• Define items and item-supplier relationships.

  For a fixed-item contract, you must first set up the items for the contract and establish item-supplier relationships.

  The item setup is not required when you are defining voucher or order contracts for ad hoc items (description only).

  See Purchasing Attributes -Item Supplier (ITM_VENDOR)Page.

• Setup manufacturer IDs, manufacturer item IDs, and universal item identifiers.

  See Defining Manufacturer IDs, Defining Items at the SetID Level, and Using Universal Item Identifiers.

• Set up contract controls, such as auto–numbering, reason codes, and default currency information.

  See Understanding Procurement Options.

• Define contract styles.

  See Defining Contract Style.

• Set up contract domains (regions) and ship to locations.

  See Defining Ship To Locations.

• Define contract version control, change reasons, and change tracking parameters.

  See Defining Contract and Vendor Rebate Control Parameters.

• Define contract intervals and detail counters for contract releases.

  These settings determine the schedule for releasing contracts.

  See Defining Contract Intervals for Contract Releases.

• Define installation options that include the maximum number of rows to retrieve for contracts.

  This feature is used in conjunction with advanced contract item searches. When the maximum number of contract rows is exceeded, the system automatically provides an item search link so that you can limit the returned results.

  See Setting Up Application-Specific Installation Options.

• Define user preferences that enable users to, for example, approve or cancel contracts, place contracts on hold, and establish user display options.

  Among the user preferences you can define are default contract statuses and authorized actions for a user and you can define how the system initially displays the collapsible areas on the Contract page.