Contracting process is critical to business so that the materials and services are exchanged at the agreed price in the necessary quantities which is agreed by both the selling and buying entities/companies. Those services/products must be delivered at the desired quality within the agreed time frame. IFRS 9 must be applied to contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, with one exception. The exception applies to contracts that need the receipt or delivery of a non-financial item in accordance with the company s expected purchase, sale or usage requirements (‘own use scope exception’ in paragraph 2.4 of IFRS 9).

The procurement contracting process is critical to minimize costs, as business needs to buy quality materials and services at the best possible price in the necessary quantities. When there is a need to procure goods or services from external suppliers, we need to ensure that the product or service provided by the supplier is at an agreed-upon price and at expected quality standards. To make sure that the supplier follows the agreed terms & conditions, we need contract which is a legally binding agreement that comprises of details like price, schedule, penalty, and deliver to location.

On the contrary, the supplier of the services mirrors the sales/customer contract with the objective of maximizing the profits, as business strive to sell/deliver the quality materials and services by incurring lower cost and maximize the profits. During the process of sourcing/negotiation, the blog describes the various business use cases and the functionality supported by Oracle Enterprise contracts on the buy and sell contracts.

Overview:

A company applies IFRS 9 to contracts to buy or sell a non-financial item in the future at a fixed price. Procurement contracts are important because it’s often more cost-effective and efficient to enter into a contract with a vendor than to make a component or perform a task on your own. Business owners should always ask themselves whether it is cheaper to manufacture this item or do this task themselves, or if can they get better deal from a vendor.

Professional services firms often engage with vendor(s) / contractor(s) to perform tasks that they can’t perform themselves due to a lack of appropriate equipment, expertise, or capacity. An example of procurement contracting for a service is engaging a consultant to help analyze a particular part of your business where they lack inhouse capabilities.

Few of the pain points associated with contracts being offline are given below:

1. Inability to quickly search relevant contracts based on various criteria.
2.Inability to track contract expiry and notify relevant resource leading to contracts being outdated.
3.Traceability of the status of the active contracts.
4.Amendment of contracts and audit history of those contract amendments.
In this blog, we will list out some of key capabilities of Oracle Enterprise Contracts Cloud which will help clients to overcome the issues faced by them with the offline contracting process.

Oracle Enterprise Contracts Cloud provides the most complete solution for managing sales, procurement, and other contracts. The procurement side of Enterprise contracts cloud is often referred as Procurement Contracts cloud. Oracle Procurement Contracts Cloud helps you create quality contracts faster and reduce risk with enterprise standards, policies that govern their use.

The professional services firms are heavily dependent upon the Contracting process as this is the agreed document with the customer which allows the firms to recognize revenue by billing the customer against the customer sales contract.

At the settlement date, the companies physically settle the contract by either delivering or taking delivery of the non-financial item. In accounting for that settlement, the entity records the cash paid (in the case of the purchase contract) or received (in the case of the sale contract).

A Real-world Examples:

Let us take a deeper and more detailed look at the Contracting process with Buy and Sell intent contracts. The real-world problem provides a view of the complexities involved with systems, communications, processes, and people. It also helps define the process and illustrate the dependencies among the trading partners.

Use Case 1: Authoring Contracts Terms and Conditions

a)     The Contract Library can be used to create and maintain clauses that can be applied to a contract template which can be leveraged in Contract, Purchasing documents.

b)     These clauses and contract templates when created/modified are routed for approval. Oracle procurement cloud provides a configurable and flexible approval rule for clause/template approvals.

c)     The Clauses/Templates during creation can be either defined as ‘Global’ or ‘Local,’ implying that they can be created in one Business unit and adopted in others.

d)     Seeded system variables can be leveraged in Clauses as well as Contract templates to fetch details from either the contract or other documents dynamically. This helps in reducing redundant manual activity and helps the business user to create contracts in ease without much hassle. For Ex: Supplier Name, Payments Terms, Procurement Business unit are some of the system variables provided as part of Fusion Procurement Contracts module.

e)     Oracle provides Version control which can be leveraged to review the differences between past and current versions in the clauses.

Use Case 2: Collaborate on Contract Negotiations Using Oracle Content Management

Profession services firms have the requirement on online redlining capabilities which can be addressed with Oracle content management. Using Oracle Content Management, we can collaborate with internal and external stakeholders in real-time and gain transparency in each step of the negotiation process. Users across various internal teams like legal, sales, and procurement can review, edit, start conversations, and add comments to a contract document in Oracle Content Management. External users, including Customers, Suppliers, and third-party users like lawyers, can have controlled access to the contract documents. They can actively collaborate using the built-in Microsoft Word Online capability.

At any point in time, all stakeholders have access to a single source of truth which makes the entire negotiation process seamless. Once the collaboration is completed, you can check in the document to Enterprise Contracts from Oracle Content Management (OCM).

Use Case 3: Leverage User Statuses and User Transitions
Oracle Procurement Contracts cloud provides the standard statuses to track the progress of the contract from Draft till it is approved. Custom user statuses functionality can be leveraged when the contract must be shared with the legal team / Project Manager for review, and it must be captured as part of status history for audit purpose.

For the user statuses to be available on a contract, you must add the custom statuses and the transitions into the event model. Event models are applied to various contracts based on the conditions specified in each event model.

To leverage user statuses/transitions functionality, Groovy scripts are written to transition the contract user status from one user defined status to another user defined status as well (For ex: Sent_For_Legal_review to Signature_Required).

Professional services firm manages most of the contractual work by outsourcing their back office to other trading partners and ensure that all the contract terms and mandatory clauses are completed on the agreed service lead times. The process ensures the non-value-added work is minimized and the firms project managers can focus on the critical part of the business operations.

Use Case 4: Out of Box Integration with DocuSign

The DocuSign helps in saving time with the pre-built integrations with Oracle Procurement Contracts cloud and Oracle Procurement Cloud. We can leverage the below features using DocuSign.

• Send documents out for signature without ever leaving Enterprise Contracts application.
• Manage the signature process and see status updates of the contract.
• View the signature history and complete audit trail.

The documents attached in the contracts document tab will flow through seamlessly via DocuSign for signature to the concerned parties which will help in working effectively avoiding any manual intervention.

In addition to the standard signature tags which will be embedded by default at the end of the contracts template. There are additional tags available for both internal and external contacts which can be configured based on the business requirements.

For Internal Contacts              For External Contacts

sign_internal_1                         sign_external_1
name_internal_1                       name_external_1
title_internal_1                          title_external_1
sign_date_internal_1                sign_date_external_1
initial_internal_1                       initial_external_1

Use Case 5: Leveraging Enterprise Contracts – Buy and Sell Intent

Leveraging the Master Contract capability, Enterprise contracts with buy intent for the primary party (supplier) and all parents of the primary party can be associated with a purchase documents. The MSA contract can be associated with purchase document which sets the overall terms and conditions between two parties. Only caveat is that the MSA contract should not have any lines as determined by the contract type.

On the contrary, Oracle Enterprise Contracts cloud have the option to add project information to sell intent contracts. Project Billing solution is modified in Oracle Cloud using contract-based Billing. All the projects must be associate to contract and contract line to create a Project invoice. Billing controls functionality will help to control revenue and billing.  The hard limit can be set to stop beyond funding amount and soft limit to get a warning. Billing controls can be configured at contract level or project level, project, task and resource level combinations.

Conclusion:

Profession services firms have access to the real time data and analytics for making informed business decisions based on the spend and revenue generated against the contracts. The use cases detailed are some of the key features of Oracle enterprise contracts cloud across procurement and projects for paying cash against the purchase contract and receiving cash against the sale contract. Contract management helps in the smooth running of transactions, maintaining good relationships with trading partners, reducing risks, and the speedy resolution of problems.