PROCUREMENT+CONTRACTS

8/7/2019 PROCUREMENT+CONTRACTS

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Oracle Procurement Contracts

While many organisations have a well-defined procurement policy and system, it can be difficultto relate purchases and financial information back to the original contract agreement.

In many cases the contract manager is not the same person who issues the purchase order, orreviews and approves the invoice for payment. The contract document is often held outside theprocurement or financial system, so is not visible to anybody apart from the contract manager.

Some examples of issues this separation can cause are:

Goods and services may be purchased outside the scope of the contract

Purchases may be recorded in the system without a reference to the contract, so it isdifficult to tie them back

When invoices are received it can be difficult to determine which contract the invoicerelates to (or even identify that there is a contract)

Contract managers can find it difficult to collate financial information for their contracts,and therefore rely on manual systems

While it may be possible to monitor the receipt of goods & services, it may be difficult to

measure the qualityof those items, particularly with the provision of services.

Some more generic issues that may arise are:

Contract Managers may not be contract experts, so may inadvertently introduce risk bydeleting or modifying required clauses

Contract approval rules may not be enforced, so non-standard contracts may not beidentified before they are released to the supplier

Contracts are often held in MS-Word format, and filed in several locations (eg bybusiness group), so it can be difficult to locate and report on contracts

It can be difficult to consolidate information across multiple contracts

The Oracle Procurement Contracts module is an extension of Oracle Procurement which

provides functionality for contracts to be created and linked to Purchasing documents. It requiresOracle Purchasing as a minimum, and if Sourcing and iSupplier Portal are implementedadditional functionality is available to electronically manage the initial tendering and negotiationprocesses.

The Contract Lifecycle typically includes the following stages:1. Establish Contract Standards2. Create Contract

a. Negotiate Contractsb. Approve and Sign Contracts

3. Monitor Contracts4. Contract Amendments5. Manage Contract Expiry

To support the Contract Lifecycle, Procurement Contracts has following key components:

Contract Terms Library

Contract Terms maintenance and approval

Deliverables

Contract Expert

Contracts Repository


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Establish Contract Standards

Contract Standards are defined in the Contract Terms Library. This is typically managed by thelegal department and covers the creation, maintenance and approval of Clauses, Variables,Deliverables and Contract Templates.

Clauses contain the actual wording of the terms and conditions. As well as the wording, clauses

are categorised (for searching and reporting), linked to default sections, and can be linked toother clauses as either Alternate or Incompatible wordings. In a multi-Org environment clausescan be set up as Global or Local (specific to a single organisation).

Variables are contract-specific fields within a clause wording and are useful for capturingspecific, mandatory information in a pre-defined format within a string of text (clause) which variesper contract. Some examples are Contract Amount, Dates, and any classifications you want todescribe in your contract wordings (eg Service Type). This information is then available forvalidation within the contract, and can also be used for analysis and reporting.

Deliverables that relate to all contracts can be included in templates. Deliverables can be one-time or recurring, and notifications can be sent prior to a deliverable due date.

Contract Templates define the basic contract layout - Sections, Clauses, Numbering Schemes,document layouts and core deliverables, and which Document Types (eg Standard PO, BlanketPO) it can be used for.

Approvals are required for Clauses and Templates. A basic approval workflow to route it to oneperson is provided with the base system, but it can be modified if required.

Once a Clause or Template has been approved, it is available for general use. Any subsequentchanges will require re-approval. Version history is retained for clauses.

From the Contract Terms Library- Preview the contract- Validate the template- Create a revision- Place on Hold

Create Contracts

Depending on which modules you have installed, you can either create your draft contract andelectronically manage contract negotiations with your supplier within Oracle Procurement, ornegotiate the contract off-line and load the final version into the system for approval. Either way,the method to create a contract is the same.


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To create a contract you must first have a Purchasing Document. Once created, open the Termsscreen, Author Contract Terms then select the required Template and start updating:

ClausesClauses are defaulted from the Template. If a change is required to one of these clauses it canbe flagged as a Non-Standard clause and the wording updated. Clauses can be moved withinthe template, and new clauses added from the Terms Library or created from scratch.All changes to clauses are flagged and reported on in the Contract Deviations report. Thisreport is a useful tool for approvers to quickly see what the changes are.The contract can be viewed in pdf or MS-Word throughout this process this enables the user tosee what the end result will look like.

VariablesVariables must be completed before the contract is submitted for approval. Variables thatreference information directly from the PO will be completed automatically, but others will need to

be completed by the user. This can be done clause-by-clause, or globally across the entirecontract using the Update Variable Values function.

AvailableActions

Clauses


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DeliverablesDeliverables are assigned to an Internal person or the Supplier for action, and areeither one-time or recurring (eg weekly status report). Notifications can optionally besent in advance of the deliverable due date. Documents and notes can be attachedto the deliverable if required.Note that deliverables defined within the contract terms are contractual commitments and

obligations for this specific contract, and are not directly linked to PO Lines.

ValidateBefore the contract is submitted for approval it is validated to ensure that all variables have beencompleted, clauses are still active and have not been duplicated etc.

Approval

Once the contract is complete it needs to be approved. The Purchasing Document and ContractTerms are approved together using the PO Approval Workflow. The workflow can be configuredto have separate approvals for the contract terms if required.Approvers are able to view the contract terms and conditions from the Approval Notification, aswell as the Contract Deviation Report.

Some of the key functions available are:- Update Variable Values- Validate- Preview Contract- Manage Contract Documents- Check for Clause Updates- Remove Terms- Review Contract Deviations- Generate Word Document


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Monitor Contracts

Once the Contract has been approved, it becomes active and needs to be monitored. TheDeliverables defined within the contract will typically send a notification before they are due. TheManage PO Deliverables screen provides a Deliverables workbench so users can see all theircontracts.The Contract Manager can update the Deliverables status (eg Completed, Failed to Perform).

Notes and documents can be added to the deliverable, thus building a history. This is especiallyuseful if there are issues that need to be documented. If a Deliverable is overdue an escalationnotification can optionally be sent.

Contract Amendments

Any change to a contract after it has been approved will generate a document revision andrequire re-approval. The same functionality as Create Contracts is available if required, theentire contract could be rewritten or even deleted from the Purchase Order. Each version of thecontract is retained and available for review in the same way as PO Revisions are retained.

Manage Contract ExpiryAs the Procurement Contract forms part of the Purchasing Document, the contract expiry processis essentially the Close PO process with an additional review to ensure all Contract TermsDeliverables are closed as well as the PO Lines being closed. It may be useful to have a defaultDeliverable defined in the contract template to remind the Contract Manager to review alldeliverables.

Contracts Repository

The Contracts Repository gives you a workbench to store and manage miscellaneous contacts.You cannot use the full Terms Library functionality, but you can create Contract Types, Risks andRoles.

Contract ExpertThis is a rule-based contract creation tool within Procurement Contracts that allows you create aseries of questions and answers (based on your business rules) that will guide a user to the rightanswer. An example of how it could be used is to help an inexperienced Contract Manager toselect the correct clauses for inclusion in a contract.


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Things to be aware of:

While the Contract Terms are web-based forms, they can currently only be accessedfrom the Purchase Order screen which means your contract managers need to be set upas Buyers.

Contracts Workbench does not currently allow you to manage deliverables forProcurement Contracts this screen is restricted to deliverables for Repository Contracts

only. Contract Terms deliverables are not linked in the system to PO Lines. Depending on

how you are using Procurement Contracts this may mean that your contract managerswill need to think about how they create PO Lines, and will have to manage deliverablesin two places - Contract Deliverables and PO Receipting

Because Contract Terms Deliverables and PO Lines are not linked, you cannot use theContract Terms Deliverables to automatically approve/hold AP Invoices. You may wantto ensure the Contract Manager is part of your invoice approval process.

There is little standard reporting provided for Contract Terms, Deliverables etc. If this is arequirement you may need use Discoverer or a similar reporting tool to generateadditional reports.

In Summary:Procurement Contracts is a powerful tool that allows you to automate your Contract Managementprocess and seamlessly integrate it with your Procurement process.

Standardise your process

Enforce policies

Eliminate sub-optimal contracts

Reduce exposure to unnecessary risk

Streamline your processes

Simplify contract creation

Streamline approvals

Streamline management of contracts

Allow your users to Comply with Flexibility

Visibility into contracts for key stakeholders

Enforce contract pricing and terms

Track internal and external compliance

Report

All your information is in a single repository

Management reporting

Operational reporting

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