Example of an Intercompany Billing Contract

This example describes the requirement of a professional services organization with global offices that must share contract revenue for a resource between different business units.

Scenario

You are a specialized information technology professional services organization with headquarters in the New York, and international offices in Aberdeen, Scotland, Paris, France, and Jakarta, Indonesia. Your organization provides design, support, and maintenance expertise for energy companies. You just received a contract to provide information technology upgrade services for an oil and gas exploration company located in the United States. Resources will work on the contract for four weeks, and the client will be invoiced for labor hours and expenses at the end of each month. One consultant who will work on the project is based in Paris. The remainder of the resources are based in the United States.

Billing Requirements

Major features of the contract are:

• Invoice and recognize revenue based on hours worked by resources, and expenses incurred. The travel budget is limited to $25,000.

• The resources allowed on the contract are project manager, senior consultant, and junior consultant.

• The contract is expected to be complete in four months.

To share revenue for the consultant from Paris, you must create an intercompany contract. Your corporate policy dictates that borrowed resources from different legal entities or business units receive 70 percent of the standard job bill rate. The following table summarizes the setup of key contract and project features.

Key Feature	Configuration
Provider business unit	Paris
Receiver business unit	New York
Project	Create a project with the following key features: Enabled for time and materials. Enable the project to receive cross-charge transactions.
Project plan	Assign the following resources to a chargeable and billable task: Project Manager Senior Consultant Junior Consultant Expenses Set the baseline for the project plan.
Contract type	Intercompany
Contract lines	Create the following contract lines: Line 1 for the Paris consultant's labor. Line 2 for the Paris consultant's expenses. Line 3 for all other consultants' labor. Line 4 for all other consultants' expenses.
Bill plan	Select an invoice method with a rate-based invoice method classification , and associate it with the contract lines. Enter the transfer price schedule on the bill plan.
Revenue plan	Select a revenue method with an as-incurred revenue method classification, and associate it with the contract lines. Enter the transfer price schedule on the revenue plan.
Billing controls	Create at the contract level, with the following details: $25,000 hard limit for expenses. Billing resources: expenses and labor.
Project transactions	All resources charge transactions for this contract to the same project.

Resulting Intercompany Invoice and Revenue Details

After you submit the cross-charge identification process and generate invoices, your client receives one invoice from the New York business unit that contains charges for the work performed by all resources. The invoice amounts are determined from the transfer price schedule in the bill plan, and calculated from transactions charged to the receiver project. Revenue amounts are determined from the transfer price schedule in the revenue plan, and calculated from transactions charged to the receiver project.