Complex Procurement in

Oracle EBS R12

Bruce Kozlowski
Director Solution Architecture
Procurement for Complex Services
Description

– An integrated solution to automate acquisition of complex

services

– Complex Services Procurement is characterized by:

• High dollar value projects
• Long lead time delivery schedules
• Progress payments based on work completion
• Contract Financing

– Commodities of Interest
• Professional Services
• Engineering Services
• Construction Services
Market Drivers

• Spend Volume on Services Contracts

Average % Usage
70 Typically
Complex
60

50
% Usage

40

30

20

10

0
Firm-Fixed Time & M ilestone Volume of Service Level Risk/Reward Incentives for
Price M aterials Deliverables Service Agreements Innovation
“Services Spend Management: Outsourcing/Offshoring Your Services
Type of Contracts Spend”
Source: CAPS Research, August 31st, 2006
Market Drivers

– Business Requirements
• Public Sector
– Customers (DoD, Veteran Affairs,
Office of Naval Research)
– Regulations (FAR)
• Engineering & Construction
– Customers (US-AGC, Bechtel, Black &
Veatch, UK-Clive Allen, Jarvis)
• Aerospace & Defense
– Customers (Rafael)
Procurement for Complex Services
Terminology

• Progress Payment Schedule

– Represents a schedule of services and work with associated payments
• Progress Payments
– Payments for progress made on a Progress Payment Schedule
• Pay Item
– Refers to a specific work/service component of the Progress Payment Schedule, and its
associated payment amount
• Progress Payment Rate
– Used on Cost Reimbursement Contract. Represents the rate at which costs incurred by
the Contractor are reimbursed
• Contract Financing
– Typically used in Public Sector Contracts. Contract financing is paid based on work
performed or cost to date. If the contractually specified performance or cost milestones
are met, financing is given to aid in the completion of subsequent work
Procurement for Complex Services
Terminology - Continued

• Advance
– A financing payment usually released before any work/service has been
performed
• Recoupment
– Liquidation of previous financing payments from payments made for the
delivery of services
• Recoupment Rate
– Rate applied to Invoices which determines the fraction of the Invoice
amount used towards recoupment of previous financing payments
• Retainage
– Retention from payments to ensure that the contractor completes the job
• Retainage Rate
– Rate applied to Invoices, which determines the fraction of the Invoice
amount that is withheld from payment
 Procurement for Complex Services
High Level Business Flow

Request for Service Source Author Contract Advance Payment Track Progress Process Payment

‰ Requests for Services can originate from multiple sources

ƒ Facilities Manager
ƒ Project Manager
ƒ Field Engineer
ƒ Architect
 Procurement for Complex Services
High Level Business Flow

Request for Service Source Author Contract Advance Payment Track Progress Process Payment

‰ Invite Suppliers to Sourcing Event

‰ Negotiate with Suppliers on

ƒ Complex Payment Terms
ƒ Progress Payment Schedule
ƒ Clauses & Deliverables
 Procurement for Complex Services
High Level Business Flow

Request for Service Source Author Contract Advance Payment Track Progress Process Payment

‰ Award Contract to best Supplier

‰ Supplier and Contracting Officer sign off on Contract

 Procurement for Complex Services
High Level Business Flow

Request for Service Source Author Contract Advance Payment Track Progress Process Payment

‰ Supplier requests the advance if provided for on the contract.

‰ The advance amount is paid to the supplier

 Procurement for Complex Services
High Level Business Flow

Request for Service Source Author Contract Advance Payment Track Progress Process Payment

‰ Contractor reports progress

‰ Progress is certified by Facilities Manager, and/or Project Manager

 Procurement for Complex Services
High Level Business Flow

Request for Service Source Author Contract Advance Payment Track Progress Process Payment

‰ Contractor submits Invoice for Progress Payments and Contract Financing

‰ Retainage is applied

‰ Financing is recouped

‰ Payment is released
Procurement for Complex Services
Major Features

– Source and Negotiate Payment Terms & Progress Payment

Schedule
– Incorporate Payment Terms & Progress Payment Schedule
into Contract
– Track & Report Progress based on Schedule
– Track commitment costs against the Project
– Release Progress Payments
– Release and Recoup Advances
– Apply Retainage on Invoices
– Release Retained Funds
Procurement for Complex Services
Benefits

– Streamline and Automate Procurement of the Complex Services

Spend Category

– Ensure Compliance with 360º Visibility to all aspects of the

Contract Lifecycle

– Reduce Acquisition Costs through Seamless Collaboration with

Key Stakeholders

– Minimize Acquisition Risks by using Negotiated Payment Terms

– Ensure Fiscal Compliance

Demonstration Scenario
Procurement of Construction Services
Objective
• Create a request for Construction Services.
• Source the Project.
•Contract for Fixed Price Services with Provisions for Progress Payments
•Flexible Progress Tracking Options with use of Rate, Lumpsum and
Milestone Pay Items
• Creation of Construction Purchase Order
• Supplier Self-Service in Reporting Progress and Submitting
Payment Requests
•Online Certification and Approval of Work and Payment Requests
• Automated Self-Billing Options based on Confirmed/Certified
Work
•Retainage and Retainage Release
Looking at Complex Procurement

Demo
 Implementation Considerations
Setup Overview
System Administrator Purchasing Payables Approvals Management E-Business Tax

Set key profile Approval Tax

Financial Options
options Rules Configuration

Document Payables
Style Options

Change Invoice
Order Tolerance
Tolerances Templates

Supplier Attributes
Procurement for Complex Services
Setup – Set Key Profile Options

• POR: Amount Based Services Line Type

– Defines how the services are to be quantified and ordered
on the transaction document.
– Value should be set to ‘Fixed Price Services’ at the desired
levels.

Profile Value Description

Fixed Price
Services will be ordered as a lump sum amount.
Services
Services will be ordered as a quantity with a unit
Amount Based
price (=1)
Procurement for Complex Services
Setup – Financial Options

Define Retainage
Account
 Procurement for Complex Services
Setup – Define Document Style

Document Style
Name, Description

Display Name on
Document

Setup Purchase
Commodities

Allow Advances,
Retainage, Progress
Payments

Payment Schedule
as Financing

Specify Pay
Item Types
Procurement for Complex Services
Setup – Invoice Tolerances

Define Invoice
Tolerance Policies for
both Services and
Goods

Enable desired
tolerances, provide
amounts or a %
allowance.
 Procurement for Complex Services
Setup – Supplier Site

Payables
Accounting

Purchasing
Default Invoice Invoice Management:
Match Option Invoicing: Retainage
Rate

Invoice Management:
Invoicing: Services
Tolerance
Procurement for Complex Services
Setup – Supplier Change Order Tolerance

Specify Auto-Approval
Tolerances for Pay
Item Changes
Procurement for Complex Services
Setup – Change Order Tolerances

Specify Auto-Approval
Tolerances for Pay
Item Changes
Procurement for Complex Services
Setup – Approval Rules

New/Changed
Transaction Types in
AME
Implementation Considerations

– Available Line Types:

• ‘Goods’
– Only Milestone Pay Items supported
• Fixed Price Services
– Rate, Lumpsum and Milestone Pay Items supported
• Fixed Price Temp Labor
– Rate, Lumpsum and Milestone Pay Items supported
• Rate Based Temp Labor is not supported
• Amount-Based Services is not supported

– Destination Types
• Only Expense Destination Types are allowed (not Inventory, Shop Floor)
• Inventorized Items are supported with Expense Destination Types only
Implementation Considerations

– Advances
• Available only with Progress Payments
• Paid with ‘Prepayment’ Invoices only
• Can be recouped on ‘Standard’ Invoices only if ‘Prepayment’
Invoice is paid (not billed!)

– Retainage
• Available only with Progress Payments
• Retainage withheld on Standard Invoices only
• Released using a ‘Retainage Release’ Invoice only
Implementation Considerations

– Non-Financed PO’s
• Pay Items need to sum up to the Line
• Recoupment Rate should be high enough to liquidate the Advance (if any)
– Financed PO’s
• Line has its own Delivery Shipment
• Pay Items are financed, can be billed only using ‘Prepayment’ Invoices
• Pay Items + Advances need to be less than the Line Amount
• Recoupment Rate should be high enough to liquidate Advances + Pay Items
amount
• Accrue at Receipt not supported for Financed Pay Items
Summary
• Maximize Preferred Supplier Savings:
– Create and enforce better agreements, enforce preferred supplier use in
every requisition, and set policies for services spend approval
• Eliminate Over-Billing and Overruns:
– Eliminate over-billing with comprehensive invoice matching and
reconciliation, lower processing costs through supplier collaboration, and
ensure service delivery and compliance with deliverable tracking
• Create Visibility into Services Spending:
– Oversee the entire services procurement cycle, measure supplier and
contingent labor performance, and achieve a complete view of services and
goods spending

• Greatly simplified process for procuring and

managing services of all kinds.
Thank you !