Understanding Progress Payment Amounts
Some government contracts may include progress payments as part of the contract's financing terms. Progress payments enable the contractor to receive payment prior to a regular bill being issued for item delivery (which may occur late in the contract period).
Progress payment requests are issued from the contractor to the government, as costs are incurred, using an approved progress payment rate percentage. Such requests can be issued regularly, based on a schedule, or progress of work.
Once the items in the contract are delivered, and a regular bill is issued, progress payment amounts are liquidated according to progress payment liquidation rates.
This section discusses:
Progress payment business process flow.
Progress payment statuses.
Progress payment billing.
Progress payment liquidation.
Progress payment accounting.
Progress payment processing.
The following list identifies the steps for setting up and processing a progress payment:
Create a contract with a contract classification of Government.
Add amount-based contract lines to the contract associated with progress payment amounts.
Note: Government contracts can include amount-based or rate-based (Time and Material or fee associated) contract lines on the same contract. However, progress payments can only be associated with amount-based contract lines.
Define progress payment terms:
Assign progress payment and liquidation rates.
Assign a distribution code to the progress payment for progress payment liability.
Assign defined projects, activities, and amount-based contract lines to the progress payment terms for use during liquidation.
Set the progress payment terms to Ready status.
Define billing and revenue plans for the contract lines.
Define the billing amounts for the contract lines.
Set the contract processing status to Active.
Prepare the progress payment request using the progress payment worksheet.
Define an immediate billing plan for the progress payment request.
Run the Contracts/Billing Interface process to initiate billing for the progress payment amount.
Complete the billing process for the progress payment request.
After the contract items are ready for delivery and you are ready to bill, set the billing plans (or events) for amount-based contract lines to Ready status.
Run the Contracts/Billing Interface process to generate the regular bill for the items delivered and initiate liquidation of the progress payment amount.
Complete the billing process for the items delivered and liquidation of the progress payment.
When defining progress payment terms, you need to assign a status. Progress payment terms statuses are managed by the user, and control the actions that can be performed against the progress payment. Progress payment status values include:
Term |
Definition |
|---|---|
Pending |
When creating a new progress payment row, Pending appears by default as the status. All fields for pending progress payment terms rows are fully editable and are not subject to system edit checking. No processing occurs against pending progress payment terms. Progress payment terms rows that have a status of Pending can be deleted. |
Ready |
After the progress payment terms information is complete, and the progress payment is ready for processing, manually update the status of the progress payment terms row to Ready. Progress payment term rows in Ready status are edit checked by the system, most of the fields become unavailable for edit, and the progress payment terms are eligible for billing and liquidation (if the progress payment amount is greater than zero, and the contract is activated). Progress payment terms cannot be set to Ready status if the Progress Payment Rate or Liquidation Rate is greater than 100, or a negative rate. Note: Progress payment term rows in Ready status can be changed back to Pending status only if the contract has a processing status of Pending. Any changes required after the contract has a processing status of Active must be performed using amendment processing. |
Completed |
After the progress payment amount has been fully liquidated, manually set the status of the progress payment terms row to Completed. No processing occurs on progress payment rows with a status of Completed. When setting the progress payment terms status to Completed, the system performs the following steps:
Note: Progress payment term rows with a status of Completed can be changed back to a status of Ready for an active contract, if additional progress payment requests are required. However, the completed date is not reset in these instances. |
Cancelled |
Progress payment term rows in either Pending or Ready status can be manually set to a status of Cancelled if the following conditions are true:
Note: If billing or liquidation has occurred on a progress payment amount, you must first reverse those amounts to bring the corresponding balances to zero before you can set the status to Cancelled. |
|
Contract Processing Status |
Progress Payment Terms and Billing Plan Statuses |
|---|---|
|
Pending |
|
|
Active |
|
|
Closed |
|
PeopleSoft Contracts enables you to bill the government for progress payment amounts, then liquidate those amounts against regular bills after your contracted items are delivered. To manage this process, you must define billing plans for both your progress payment requests and the contract lines associated with the progress payment amount. Billing plans control the timing and parameters for contract bills.
To bill for progress payment amounts, you must complete the progress payment worksheet, set up a billing plan that uses the Immediate billing method, and assign it to the progress payment worksheet. A separate Immediate billing plan is required for each occurrence of a progress payment request and cannot span multiple progress payment requests or multiple contract lines. Any adjustments made to progress payment bills require a new immediate billing plan to be created.
Note: Although progress payment amounts and prepaid amounts may coexist on the same contract, they cannot be combined onto the same immediate billing plan. Progress payment amounts do not include taxes. Instead, all taxation occurs on the regular bill.
Setting up and assigning Immediate billing plans for your progress payment requests can be done manually or automatically. When you perform computations in the progress payment worksheet, and the worksheet is approved, the system may create an Immediate billing plan in either Ready or Pending status (depending on the billing plan template setup).
To bill for delivered items associated with your contract lines, you can set up billing plans using the Milestone, Percent Complete, or Immediate billing plan method and assign them to the corresponding contract lines. When regular bills are processed for these items, the system liquidates the progress payment amounts against the bill amount according to the progress payment liquidation rate specified for the progress payment terms.
When setting up billing plans for contract lines associated with progress payment terms, it is important to note that PeopleSoft Contracts provides the user complete flexibility when setting up and sharing billing plans across contract lines associated with the same price type. However, for contract lines associated with progress payment terms, consider the following points:
PeopleSoft Contracts enables you to combine contract lines with the same billing parameters onto the same billing plan.
You can combine contract lines that have the same billing parameters, whether or not the contract lines are associated with the same set of progress payment terms, different sets of progress payment terms, or no progress payment terms at all.
Contract lines combined onto a single billing plan, but not associated to the same set of progress payment terms are prorated during the liquidation process based on the contract line net amount.
The system uses this proration calculation to determine how much of the total billed amount is associated with the contract line linked to the set of progress payment terms.
The calculated prorated amount is used to complete the liquidation calculation.
Note: To avoid proration of your billed amount for progress payment liquidation purposes, it is strongly recommended that you only combine contract lines that are associated with the same set of progress payment terms onto a single billing plan.
See Progress Payments Terms Page, Progress Payment Worksheet Page.
To manage progress payments, PeopleSoft Contracts enables you to bill for the progress payment amount, and then subsequently liquidate that amount against the bill when the item is delivered. The amount of the progress payment that can be liquidated against a bill is capped by the liquidation rate specified in the progress payment terms.
To liquidate progress payment amounts against regular bills, you must:
Set up a billing plan for the contract lines associated with the progress payment terms.
Identify a liquidation rate for the progress payment terms.
Associate contract lines, projects, and activities to the progress payment terms.
Run the Contracts/Billing Interface process (CA_BI_INTFC) to initiate billing for the contract line item.
This process triggers the Progress Payment Liquidation process (CA_PGP_LIQ) to evaluate the bill line and liquidate any outstanding progress payments against it.
Note: Progress payment liquidation only occurs if the progress payment amount and remaining amount are greater than zero. The progress payment amount and remaining amount are updated only after the progress payment request is finalized, so a progress payment request cannot be billed and liquidated in the same run of the Contracts/Billing Interface.
The Progress Payment Liquidation process performs the following tasks:
Calculates the amount available for liquidation (remaining amount minus committed amount).
Determines if the contract lines associated with the billing line is linked to the same set of progress payment terms.
Note: Contract lines that are not associated with the same set of progress payment terms are subtracted out of the total billed amount used in the liquidation calculations.
Calculates the maximum liquidation amount (available billing amount multiplied by the liquidation rate factor).
Liquidates the calculated amount against the regular bill (either the total amount available for liquidation or the maximum calculated liquidation amount; whichever is less).
Note: Liquidation bill lines display on the invoice as a credit amount using the liquidation description that you entered on the Progress Payment Terms - Liquidation page.
Progress payment processing creates accounting entries when you bill for the progress payment amount, and when you liquidate the progress payment amount.
Progress payments are booked to a liability account instead of a revenue account. When setting up your progress payment terms, you must define either the account distribution code or ChartField set that the system uses to create the accounting entries. When defining the accounting distribution for the liability account, you must use an account code or distribution code that is associated with a contract asset distribution type.
Only one accounting line is created per progress payment request. Project ChartField data specified on the Progress Payment Terms - Accounting Distribution tab is used for accounting purposes and passed to PeopleSoft Billing. You cannot split progress payment liability accounting distributions between multiple projects and activities.
When progress payment request are submitted for processing, the liability account information specified for the progress payment terms is sent to PeopleSoft Billing, creating a debit to billed accounts receivable (AR) and a credit to the progress payment liability account.
When the progress payment amount is liquidated, during regular billing for the contract line items associated with the progress payment terms, the system sends a credit amount to PeopleSoft Billing for the liquidated amount. To create the accounting entries for the billed amount and to relieve the credit liability account for the progress payment; the system creates a debit to billed accounts receivable (AR), a debit to the progress payment liability account, and a credit to revenue. The progress payment liability account is eventually netted out to zero once the progress payment is fully liquidated.
Progress Payment Accounting Example
This example shows the accounting implications for processing a 1,000 USD progress payment amount and its subsequent liquidation using an 80 percent liquidation rate:
|
Process Step |
Accounts Receivable |
Progress Payment Credit Liability |
Revenue |
|---|---|---|---|
|
A 1,000 USD progress payment amount is billed. PeopleSoft Billing creates these accounting entries using the ChartField data sent from PeopleSoft Contracts: |
1000 |
(1000) |
|
|
A 2,000 USD contract line item is billed that is associated with the progress payment amount. PeopleSoft Billing creates these accounting entries using the ChartField data sent from PeopleSoft Contracts: |
1000 |
1000 |
(2000) |
Note: In this example, even though the liquidation amount for the bill amount is 1,600 USD (2000 x 80%), the liquidation amount is capped at the amount of the progress payment (1,000 USD). So the bill and credit liability are reduced by this amount.
Processing progress payments involves the following processes:
Calculate Inception to Date Costs process.
Contracts Billing Interface process.
Progress Payment Liquidation process.
Calculate Inception to Date Costs (Calculate ITD Costs process)
To calculate allowable progress payment request amounts based on the projects and activities costs tracked in Project Transactions, you must first run the Calculate ITD Costs (CA_PGP_CALC) process. This batch process retrieves the current inception to date and estimated cost to complete costs from the Project Transactions (PROJ_RESOURCE) table for projects and activities associated to the progress payment terms, then inserts the resulting rows into the Progress Payment Costs (CA_PGP_COSTS) table. Any rows (associated with the same As of Date) that already exist in the table are updated and overwritten by the process. After the process is complete, you can copy the costs data from the Progress Payment Costs table into the various fields in the progress payment worksheet.
Contracts Billing Interface Process
The Contracts/Billing Interface process (CA_BI_INTFC) is used to populate the billing interface tables and generate bills for contracts. For progress payment processing, this process is used to process progress payment requests and liquidation through to PeopleSoft Billing.
Progress payment request bills are controlled by the immediate billing plan associated with the progress payment worksheet. The Contacts/Billing Interface processes progress payments that are associated with progress payment terms with a Ready status, have an immediate billing plan associated to the progress payment worksheet in Ready status, and the contract is in Active processing status. If all of these conditions are met, the Contracts/Billing Interface process performs the following actions:
Creates a bill line type of REV.
Updates the billing plan status for the immediate bill plan to In Progress.
Inserts a row into the Contracts/Billing Plan Cross-Reference (CA_BP_XREF) table.
Each row inserted into the Contracts/Billing Plan Cross-Reference table inherits the sequence number (CA_PGP_SEQ) associated with the progress payment terms to uniquely identify that row as a progress payment request row for a specific set of progress payment terms.
After the bills are finalized in PeopleSoft Billing, you must run the Billing to Project Costing/Contracts Interface process (BIPCC000) to update the bill row in the billing plan history page to a status of FIN (finalized) and update the progress payment amount and unliquidated amount to include the finalized progress payment request amount.
Warning! The Billing to Project Costing/Contracts Interface process updates the progress payment tables and fields with the original progress payment amounts that are sent to PeopleSoft Billing. Any manual adjustments made in PeopleSoft Billing for these amounts are ignored by the system and can cause the applications to be out of sync. It is strongly recommended that any required adjustments are made in PeopleSoft Contracts.
Progress Payment Liquidation process
Progress payment liquidation is triggered by the processing of billing plans for amount-based contract lines that are associated with progress payment terms. After the Contracts/Billing Interface process selects contract line amounts for bill processing, but prior to passing the billing data to PeopleSoft Billing, the Progress Payment Liquidation process (CA_PGP_LIQ) is called. This process liquidates eligible progress payment amounts against bills for contract line items that are delivered.
The Progress Payment Liquidation process only liquidates progress payment amounts if the progress payment terms are defined and have a status of Ready, the contract processing status is active, and the progress payment amount has not been fully liquidated.
The Progress Payment Liquidation process performs the following actions:
Creates a bill line type of UTL.
Creates a negative bill line amount that is passed as a credit to PeopleSoft Billing.
Calculates the liquidation amount.
Updates the committed amount with the amount to be liquidated.
Inserts a row in the Contracts/Billing Plan Cross-Reference (CA_BP_XREF) table for the contract's line liquidated billing plan reflecting the credit sent to PeopleSoft Billing.
Each row inserted into the Contracts/Billing Plan Cross-Reference table inherits the sequence number associated with the progress payment terms to uniquely identify that row as a progress payment liquidation row for a specific set of progress payment terms.
After the bills are finalized in PeopleSoft Billing, you must run the PeopleSoft Billing to Project Costing/Contracts Interface process to relieve the committed amount, update the unliquidated amount accordingly and update the row status in the Contracts Billing Cross reference table to Finalized (FIN) status.
Note: Progress payment requests must be finalized to be eligible for liquidation.