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The paper also provides insights into implementation steps and setup
considerations.
Managing Services Procurement: A step towards better visibility and improved efficiency Page 2
INTRODUCTION
Bulk commodities are construction material such as Rebar, lumber, and piping
etc. The materials undergo a “material take off” process where lengths, weights,
and other metrics are derived from Computer Aided Design (CAD) drawings.
These units are then aggregated into the most economic buying quantities and
measures before they are recorded on a purchase order document.
Catalog items are defined set of items that are procured on a frequent basis.
Some categories of items like “First Aid Kits and Kit Refills” are examples of
catalog items.
Lastly, Utilities and E&C firms use a lot of rental equipment. The Rental category
is for renting heavy equipment such as tower cranes, bulldozers, etc.
Managing Services Procurement: A step towards better visibility and improved efficiency Page 3
Oracle’s solution caters to all of the above procurement process. This white paper
talks about how the requirements around procurement of subcontracting service is
addressed through “Services Procurement” product offerings
A high level business process flow for the procurement of complex services is
explained below.
Request for Services: Request for services usually originates from different
sources. Examples are project manager or the procurement manager involved in a
construction project, field engineers and architects. These users request a service
when there is a requirement.
Request for Quotation: If the required service involves higher value, longer lead
time, and a complex payment term, the buying organization creates a Request for
Quotation (RFQ) to negotiate the contract terms. The RFQ is usually associated
with a specific project. If the buying organization needs to evaluate the technical
expertise of suppliers, the technical evaluation takes place in the RFQ process.
Suppliers who do not meet the minimum required technical criteria are not
considered for the commercial evaluation. Negotiations with the supplier on
commercial terms include negotiating on the complex payment terms, progress
payments schedule, retention clauses and deliverables.
Bid Tabulation: The buying organization analyzes and compares the bids
provided by the suppliers using comparative analysis. Suppliers are evaluated and
then shortlisted based on the offers made on the commercial terms and the
technical expertise they can provide.
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Author Contract: The buying organization and supplier organization agree to the
progress payments schedules and contract terms and conditions. The parties sign
the contract which is then available for execution.
Track Progress: The supplier performs the service and the progress of the work
is tracked periodically. Payments are made to the supplier based on the progress of
the work. The project manager in charge of the work approves the progress of the
work so that payments can be made to the supplier. The project manager views
projected and actual tasks, milestones, and dates. This helps to track commitments,
reported work, completed jobs, work in progress, remaining assignments or operations.
Billing and Payments: When invoices are generated by the supplier for the
progression in work, the complex payment terms specified in the contract
document are made available in the invoices in order to calculate the actual
payments to be made to the supplier. The advance paid to the supplier is recouped
based on the recoupment percentage specified in the contract document. If the
contract document contains retainage information, the retainage percentage is
applied on the invoice value, prior to making payments to the supplier.
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SERVICES PROCUREMENT – AT A GLANCE
Oracle Projects can be used to manage the entire undertaking, the tasks involved,
Industries of interest for Services Procurement as well as to monitor commitments and actuals throughout the complex services
includes: procurement cycle along with project costs and work progress. Service requests
a) Professional services can be created from the deliverables of the individual tasks and in Oracle Sourcing
b) Engineering services these can be negotiated, sourced and awarded to a contractor in Oracle
c) Construction services Purchasing. Oracle Purchasing and Oracle iSupplier Portal provide the capability
to specify complex payment terms, execute the contract, report and track progress
against the progress payment schedule. Oracle Payables provides the functionality
to record invoices using the complex payment terms and process payments for the
contract.
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• Minimize acquisition risks by using negotiated payment terms
Key Benefits
• Maximize supplier savings, • Ensure fiscal compliance
• Improve compliance and
• Increase visibility into your Enhanced Capabilities: Services Procurement Vs Oracle Purchasing
Oracle Services Procurement offers enhanced capability over Oracle Purchasing in
company’s spending
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Oracle iProcurement – Request for Services
Project manager initiates a purchase requisition for Parking Lot Renovation service
in iProcurement. This requisition initiates the complex services procurement
processes for the Parking Lot Renovation project.
The project manager enters the Project, Task, Expenditure Type, Expenditure
Organization and Expenditure Date on the requisition. This information
corresponds to the Parking Lot Renovation deliverable in the work-breakdown
structure (WBS) for the project.
In this example, the Parking Lot Renovation deliverable has been associated with
Task 1.1 of the WBS. After the requisition is complete, it is submitted for approval.
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The various pre-qualification requirements, the evaluation criteria and the scoring
teams are set up in the RFI document.
Supplier Profile Mapping helps the buyer to map the responses from the supplier
to database attributes. Capturing supplier responses helps in integrating supplier
information from an external source.
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Supplier Profile Mapping – key takeaways:
a) Ability to map responses to database
attributes
b) Easy to maintain comprehensive supplier
database
c) Ability to integrate other supplier information
from external source
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Figure 10: Purchasing – Demand Workbench
requisition. Buyers can control whether suppliers are allowed to negotiate payment
evaluation is not considered for commercial
evaluation
terms such as Advances, Recoupment rate, Maximum Retainage Amount and
b) RFQ can be project specific
Retainage Rate.
c) Provides the capability to negotiate on
Contract financing terms, Retainage terms and
When the buyer creates the RFQ, he/she needs to specify a Progress Payment
Progress payment schedules
Schedule (for public sector industries) or a Schedule of Values (for other
industries).
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Figure 12: Sourcing – Create RFQ Lines
Quoted prices, financing and retainage terms can be compared in detail in the
analysis before an award decision is made.
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Quote Comparison - Key Takeaways:
a) Ability to compare quotes side by side
b) Provision to set workflow for quote approvals
c) Provision to analyze quotes online
d) Provision to analyze quotes based on
financing and retainage terms
Seamless integration between Oracle Sourcing and Oracle Purchasing ensures that
all the negotiated terms and the progress payment schedules are copied to the
contract document.
The buyer can add Contract Clauses and Deliverables using the Actions list of
values. The Add Contract Terms action enables buyers to integrate with Oracle
Procurement Contracts.
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Managing Contractual articles and risks:
a) Contracts fully integrated to legally approved
terms
b) Ability to manage contractual risks and
monitor changes through contract expert
c) Provision to publish terms and deliverables in
multiple formats
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The terms defined apply uniformly to the entire progress payment schedule of the
line. This implies that the retainage rate of 10% is applied to all invoices submitted
against pay items of this line. Similarly, the recoupment rate of 80% is applied to all
invoices submitted against pay items of this line.
Further to this, certain attributes defined at the line like retainage percentage and
recoupment amount are treated as defaults onto the progress payment schedule.
Billing details such as Charge Account, Accrue at Receipt, Project Information,
etc., are defaulted as and when new pay items are created for the line.
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Oracle Accounts Payables – Match to Contract Advance
Payables – Key Takeaways:
Suppliers may request advances themselves using iSupplier Portal or by presenting
a) Ability to release progress payments, release
an invoice to the buyer. The Payables clerk can enter invoices using Quick Invoice
and recoup advances, apply retainage on
or the Invoice Workbench. Invoice entry has been enhanced to match to the
invoices and release retained funds
contract advance which prevents over-billing beyond the negotiated value and
b) Ensures that the amounts financed and later
updates the purchase order with the amount billed.
recovered never exceed the allowable amounts The Payables clerk can choose to pay the invoice for the advance based on the
designated by the specific terms captured in the approved purchase order or wish to require that the invoice go through another set
purchase order. of approvals prior to issuing payment. Note that all prepayments must be paid in
full before any amounts can be liquidated on subsequent delivery invoices.
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Suppliers can also request for advances or contract financing, submit invoices for
progress payments and deliveries for the contract. The buying organization can use
the approvals engine with rules on who should be approving the work
confirmation.
Suppliers can use Purchase Order Information to track the due dates for each pay
item on the progress payment schedule, work progress on each pay item and the
payment status of a pay item. The supplier can also use this page to initiate Work
Confirmations for the contract.
Projects – Key Takeaways: The project manger can track matched and unmatched prepayments as
a) Ability to track commitments and actuals for commitments in Oracle Projects.
the entire project
b) Ability to view inquiry by task or resource
c) Ability to drill down to various Purchasing and
Payables commitments
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Figure 23: Projects – Track Progress
Oracle Projects enables project managers to perform summary inquiries that
include commitment information by task or by resource.
The project manager can drill down to the various Purchasing / Payables
commitments.
Tracking progress enables a project manager to view the progress of the project for
all activities including multiple complex service procurement cycles.
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Figure 25: Drill down to PO or AP invoice details
Oracle Accounts Payables – Track Progress
The work confirmation submitted by the supplier using Oracle iSupplier Portal is
approved. Pay on Receipt allows automatic creation of standard invoices for
payment of goods or services based on receipts or approved work confirmation
transactions.
The Payables clerk can see a summary of the invoice. The $ 50,000 progress
Payables – Progress Payments -Key Takeaways: reported towards resurfacing the parking lot shows in the item total, there is $
a) Automatically Recoup Financing Payments 5,000, which is 10% of the invoice total automatically retained, and $ 40,000 of the
b) Automatically Withhold Retainage advance that is automatically recouped. The actual recoupment amount of an
c) Invoice Match Option levels invoice is determined first by calculating the amount of the invoice eligible for
d) Tolerances, Holds, and Holds Resolution recoupment by multiplying the corresponding invoice lines total by the
e) Invoice Approval Processing recoupment rate that is $ 50,000 times 80% which is equal to $ 40,000. If there is
f) Accounting, Budget, and Tax Compliance 40,000 left on the advance, this invoice may use it to reduce the amount owed. As
g) Lien Release (Hold on Contract Deliverables) this is the first invoice for progress, the advance has not had any prior draw down
and can support the full $ 40,000 recoupment.
At this time, $ 5,000 can be paid to the supplier for this progress invoice. The
retained portion is treated as a liability in the books of accounts, until this retained
portion is released at the end of the contract or when agreed events have occurred.
The Payables clerk can view the prepayment applications in detail by selecting the
View Prepayment Applications tab. The Detailed invoice line information is found
in the Lines tab, and distributions can be viewed by clicking All Distributions.
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Oracle Accounts Payables – Retainage Release
The Payables clerk can release the retained amount using “Retainage release”
invoice type to record this unique transaction. The Retainage release invoice is
matched to previously withheld amounts so as to ensure that the released amount
can never be more than the originally retained amount. The retainage liability
account is finally cleared and payment can be made after it is approved.
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Oracle Projects – Change Management and Change Requests
The project manager can create a change request to plan for and document
potential changes to the scope of a project and facilitate its approval. Using a
change request, the project manager estimates changes to a project's cost or
revenue financial plans by entering and tracking potential changes in cost
transactions.
A change request may also have work plan, staffing, contract, supplier and other
impacts. Impacts enable the project manager to define and quantify the effect of a
change to the scope of a project. When a change request is approved, the project
manager can include the change request in a change order to implement the
impacts. Including a change request in a change order closes the change request.
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Figure 30: Projects – Change Management – Change Orders
Project performance reporting provides the project manager with a graphical and
tabular overview of performance. The project manager can view performance
summaries by project, task, resource, and time online or receive this information as
reports in a reporting pack sent as e-mail attachments.
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Figure 32: Projects – Reporting and Analytics
IMPLEMENTATION CONSIDERATIONS
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Destination Types
The destination type is identified based on the selected document style. The
destination type can only be Expense. Inventory items are supported with the
destination type as Expense. Inventory and Shopfloor destination types are not
supported in a complex purchase order.
Non-Financed Purchase Orders
For a non-financed Purchase Order document:
a) The pay items need to add up to the total value of the line
b) The recoupment rate should be high enough to liquidate the advances
paid
Financed Purchase Orders
In a financed purchase order document:
a) The line has its own delivery shipment
b) All the pay items are taken to be financed and can be billed using
“Prepayment” invoice only
c) The sum total of pay items and advances specified should be less than or
equal to the total amount of the line
d) Recoupment rate should be high enough to liquidate the advances and the
pay item amount
e) Accrue at Receipt is not supported for financed pay items
f) Encumbrance is not supported for financed purchase orders
CONCLUSION
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• Enterprises enjoy lower total cost of ownership
Thus Oracle Services Procurement provides the following key capabilities
a) Supports a complete, robust process for procuring services
b) Drives Supply Chain Collaboration
c) Eliminates Over Billing and Over runs
d) Creates high visibility into services spend
e) Supports and manages complexity while procuring services
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APPENDIX: SETUP OVERVIEW
The setup steps consist of defining the following:
• Profile option
• Financial Options
• Document Styles
• Change Order Tolerances
• Payables Options
• Invoice Tolerance Templates
• Suppliers
• Approval Rules
• Tax Configuration
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should be set to ‘Fixed Price Services’, which means that services is be ordered as a
lump sum amount.
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Setup – Supplier Change Order Tolerance
Auto-Approval Tolerances can be specified for Supplier initiated change requests
on the Progress Payment Schedule. Buyers can specify a tolerance based on a
percentage or dollar amount of pay item quantity and pay item amount. If the
requested change is within the limits defined by this range, it is automatically
approved and the contract is updated. The existing auto-approval tolerance
functionality for change requests on the lines will continue to apply for complex
services contracts.
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Setup – Financial Options
Retainage Account for the Operating Unit is set up in the “Financial Options”
page. Users can define one retainage account for the operating unit to account for
funds withheld from suppliers doing business with the organization.
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Setup – Supplier Site
This step is needed to record information about individuals and companies from
whom the customer purchases goods and services.
Tax registrations and profiles are defined for the supplier. Additionally, the buying
organization can specify Payables accounting defaults, the Invoice Match Option
that will default to the purchase order, Invoice Tolerance Templates for Goods
and Services, and a unique Retainage Rate for each supplier site.
Users may maintain the retainage rate based on past performance and the
contractor’s history. Thus when a contract is created with this supplier site, the
retainage rate defined here will default onto the contract.
The Work Confirmation transaction type allows rule configuration for determining
the most appropriate person to evaluate, certify and approve the work
confirmation. This could be a field engineer, a project manager or even an
architect.
The Payables Holds Resolution transaction type allows rule configuration for
determining the most appropriate person to research, negotiate, and resolve
invoice tolerance holds.
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Graphical view approval chains
a) Parallel Approvals
b) Position Hierarchy support
c) Maintaining key stakeholders engagement and
Oversight
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Setup – Tax Status
A Tax Status is the taxable nature of a product in the context of a transaction and a
specific tax on the transaction. Tax statuses are defined to group one or more tax
rates that are of the same or similar nature. Every tax status in Oracle E-Business
Tax is defined under a tax and contains one or more tax rates.
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Setup – Tax rates
A Tax Rate is the rate specified for a tax status. A tax status can have one or
several tax rates. In addition, special tax rates may apply to a specific tax
jurisdiction.
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APPENDIX: GLOSSARY
Progress Payments
Pay Item
A pay item is a single item in the Schedule of Values which is allocated a value for
a specific part of the work, which is used as the basis for submitting and reviewing
progress payments.
Lump Sum pay items as the name suggest are based on a ‘Lump Sum’ amount
allocated to a portion of work. Progress payments can be released for these pay
items based on the level of completion.
Rate pay items are based on a ‘Rate’ of work completion. Payments for these can
be claimed as units of work are completed.
Milestone pay items are based on a milestone in the contract or event that needs
to be fully complete before the associated payment can be claimed by the
contractor.
Progress Payment Rate
Contract Financing
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
A sum of money or percentage of money held back from supplier invoice
payments pending completion of outstanding work.
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Managing Services Procurement: A step towards better visibility and improved efficiency
March 2014
Author: Sivakumar Viswanathan
Contributing Authors: Barbara Fox, Vijayaganesh Sampathkumar,
Selva Mudaliar, Sandeep Sood and Pratima Mahtani
Oracle Corporation
World Headquarters
500 Oracle Parkway
Redwood Shores, CA 94065
U.S.A.
Worldwide Inquiries:
Phone: +1.650.506.7000
Fax: +1.650.506.7200
oracle.com