Describe project contract capabilities
VanArsdel Ltd has been manufacturing and selling bikes to individuals and organizations for five years. This month, a local government agency launched a tender for a branded e-bike rental program. Contoso and its partners would be a perfect fit for such a project. You need to work with your partners at ProseWare, Inc., who provide the docking stations, and with Northwind Traders for payment processing.
The type of project you create for a project contract determines the method used to invoice project customers. You can change a project contract and the related project, but you can't change the project type.
By using a project contract, you can invoice one or more projects at the same time. The project contract also helps guarantee a consistent invoicing procedure for every subproject in a project structure.
Every project that is invoiced must be associated with a project contract. The settings for a project contract apply to all projects and subprojects that are associated with that project contract.
A project contract can specify one or more sources of funding. Therefore, you can split the billing among multiple funders, set up funding limits so that funding sources aren't billed more than a specified amount, and configure funding rules for charging expenditures.
Funding for project contracts
Some project contracts specify that multiple parties share the responsibility for funding the project costs. Here are some examples:
A large customer that has multiple divisions requests that funding of a project is split by division.
Your company shares the costs of a large project with an external organization.
A road project is cofunded by two municipalities.
A bridge project is funded by a government grant and a private corporation.
In Project Operations, you can split the billing for a single transaction or an entire project among multiple customers, grants, or organizations.
In some project contracts, multiple parties may share the responsibility for funding the costs of the project. In a company, multiple divisions may want to have the funding of a project, split between the numerous divisions associated with the project. Projects where multiple parties contribute to the funding of an advanced funding project are called funding sources. After a customer, organization, or grant is defined as a funding source, it can be assigned to one or more funding rules. Funding rules contain the criteria that determine how charges are allocated to the various funding sources for a project.
Stocked items, such as those that appear on purchase requisitions and purchase orders, can't be split. Therefore, the cost amount can't be split among multiple funding sources at the time of distribution. Therefore, the funding source value remains 0 (zero) until the inventory issue is posted. When the inventory issue is posted, the cost amount is distributed according to the account distribution rules for the project.
Here are some steps you can take to make it easier to split the billing among multiple funding sources:
Specify that all transactions that are entered for a project use the same sales currency as the project contract.
Set up funding limits, so a funding source isn't invoiced more than a specified amount toward a project.
Configure funding rules and funding limits for each worker, item, category, category group, and transaction type (or for all transaction types).
Select optional start and end dates to define the period when each funding rule is valid.
Specify the percentage that each funding source is responsible for.
Specify which funding source is responsible for rounding differences that are caused by funding allocation calculations.
Set up rules that determine how project costs are invoiced to external customers and charged to internal organizations.
Record transactions in an on-hold funding account until more funding can be obtained, or until you decide to bear the costs internally.
To determine which tax group to associate with a transaction, the project is searched for a tax group assignment. If no tax group assignment has been made at the project level, the project contract is searched.
Some examples
Multiple funding sources (simple)
Let’s discuss a few scenarios for managing funding allocation among multiple funding sources. These scenarios are based on the following assumptions:
Priority settings are factored into the allocation of funds before other funding rule criteria are applied.
No date range has been specified to define the period when the funding rule is valid.
Scenario 1: You have three funding sources. You want to allocate costs to one funding source until its funds are exhausted, then allocate costs to the second funding source until its funds are exhausted, and finally allocate the remaining costs to the third funding source.
Scenario 2: You have three funding sources. You want to allocate 75 percent of costs to 1 funding source and 25 percent to the second funding source. When either funding source is exhausted, you want to pay the remaining costs from the third funding source.
Scenario 3: You have four funding sources. You want to allocate 75 percent of costs to 1 funding source and 25 percent to the second funding source. When either funding source is exhausted, you want to split the remaining costs between the third funding and fourth funding sources.
Scenario 4: You have two funding sources. You want to allocate the first 25 percent of costs to one funding source and the rest to the second funding source.
In the preceding scenarios, you have specific allocation percentages set for individual funding sources. You also have the payment priority defined for the sources. For a single payment transaction, a single rule is applied for the payment setup.
Multiple funding sources (complex)
You have three funding sources that you want to use in the following order:
Use funding source 2 and funding source 3 equally until funding source 2 is exhausted.
Continue to use funding source 3 until it's exhausted.
Use funding source 1 after funding source 3 is exhausted.
To accomplish this goal, you must do the following:
Set up funding limits for funding source 2 and funding source 3, for their respective amounts.
Create the following funding rules:
Rule 1 (Priority 1): Allocate 50 percent of transactions to funding source 2 and 50 percent to funding source 3.
Rule 2 (Priority 2): Allocate 100 percent of transactions to funding source 3.
Rule 3 (Priority 3): Allocate 100 percent of transactions to funding source 1.
This setup works because transactions are checked against rules and limits to determine whether any of them apply to the transaction. If no specific rules or limits apply to the transaction, the All transactions rule applies. The All transactions rule matches all transactions.
If a rule is found that matches a transaction, the percentage that has been allocated in that rule is applied first, but only after the matches are checked against any limits that have been set up. If a limit has been met, and a funding source’s funds are exhausted, the funding rule that is associated with the funding limit is disregarded, and the program checks for the next rule that applies.
In some cases, only part of a transaction can be allocated under a rule. This might happen because a limit is reached when the transaction is allocated. In this case, only a certain amount is allocated according to that rule, such as 50 percent to each funding source. This is the case in rule 1, which is described earlier in this section. The remainder is allocated according to the next rule in the sequence.
The following table examines this scenario in more detail.
| Focus | Details |
|---|---|
| Funding rules | - Rule 1 (Priority 1): All transactions. Allocate funding source 2 at 50% and funding source 3 at 50%. - Rule 2 (Priority 2): All transactions. Allocate funding source 3 at 100%. - Rule 3 (Priority 2): All transactions. Allocate funding source 1 at 100%. |
| Funding limits | - Funding source 1 limit = 10,000.00 - Funding source 2 limit = 500.00 - Funding source 3 limit = 750.00 |
| Transaction 1 | Transaction amount: 100.00 Funding: The transaction is paid according to rule 1 only, because the transaction is fully paid after rule 1 is applied. The transaction is funded equally between funding source 2 and funding source 3. - Funding source 2: 50.00 - Funding source 3: 50.00 |
| Transaction 2 | Transaction amount: 5,000.00 Funding: The transaction is paid according to all three rules. Rule 1 - Funding source 2: 450.00 - Funding source 3: 450.00 Rule 2 - Funding source 3: 250.00 (=750.00 –50.00 –450.00) Rule 3 - Funding source 1:3,850.00 (=5,000.00 –450.00 –450.00 –250.00) |
| Total funds that are distributed for each funding source | - Funding source 1: 3,850.00 - Funding source 2: 500.00 - Funding source 3: 750.00 |
In the preceding example, in the same transaction, one part of the payment is following rule 1 and the two remaining parts are then following rules 2 and 3. Therefore, the funding source calculation is complex.
Billing rules
After you set up the project contract and the project, you can set up billing rules for the project. Billing rules are based on the project terms that are specified in the project contract.
The billing rules that you can create depend on the terms of the project contract and the project type, such as time and material or fixed-price, that you associate with the billing rule. You can create more than one billing rule for a project contract. You can also assign a billing rule to multiple projects that are associated with the same project contract and have similar billing terms.
You can set up the following types of billing rules:
Unit of delivery: Invoice a customer when you complete a unit of delivery. You define the units of delivery in the contract.
Progress: Invoice a customer when you complete a specified percentage of the project. You can set up a billing rule to automatically calculate the percentage of work completed, or you can manually calculate the percentage of work completed and the amount to invoice the customer.
Milestone: Invoice a customer for the full amount of a project milestone when the milestone is reached.
Fee: Invoice a customer for your services plus a management fee, which is typically a percentage of the cost of services.
Time and material: Invoice a customer for the value of time and materials that are used on a project.
For all types of billing rules, you can specify a retention percentage that is deducted from customer invoices until a project reaches an agreed-upon stage. The payment retention percentage is specified in the project contract. The amount is calculated based on, and subtracted from, the total value of the lines in a customer invoice.
For Time and material and Progress billing rules, you can assign chargeable categories. Chargeable categories indicate the transactions that should be included in customer invoices.
When you're ready to invoice the customer, the amount to invoice for the project is calculated based on the billing rules, and a project invoice proposal is generated.
The following screenshot displays the project contract, which includes four FastTabs in addition to the General FastTab.
In the Billing rules FastTab, you can define the rules for raising the invoice.
In the Funding sources FastTab, you can define the list of customers who fund the project.
In the Funding limits FastTab, you can define the spending limit for each funding source. You can also define spending limits based on the transaction type.
In the Funding rules FastTab, you can define the allocation percentage based on invoice percentage and transaction type.