Oracle Procurement Contracts

While many organisations have a well-defined procurement policy and system, it can be difficult
to 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, or
reviews and approves the invoice for payment. The contract document is often held outside the
procurement 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 is
difficult to tie them back
• When invoices are received it can be difficult to determine which contract the invoice
relates 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 quality of 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 by
deleting or modifying required clauses
• Contract approval rules may not be enforced, so non-standard contracts may not be
identified before they are released to the supplier
• Contracts are often held in MS-Word format, and filed in several locations (eg by
business 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 requires
Oracle Purchasing as a minimum, and if Sourcing and iSupplier Portal are implemented
additional functionality is available to electronically manage the initial tendering and negotiation
processes.

The Contract Lifecycle typically includes the following stages:

1. Establish Contract Standards
2. Create Contract
a. Negotiate Contracts
b. Approve and Sign Contracts
3. Monitor Contracts
4. Contract Amendments
5. 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
Establish Contract Standards
Contract Standards are defined in the Contract Terms Library. This is typically managed by the
legal 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 to
other clauses as either Alternate or Incompatible wordings. In a multi-Org environment clauses
can 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 capturing
specific, mandatory information in a pre-defined format within a string of text (clause) which varies
per contract. Some examples are Contract Amount, Dates, and any classifications you want to
describe in your contract wordings (eg Service Type). This information is then available for
validation 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, Blanket
PO) it can be used for.

Approvals are required for Clauses and Templates. A basic approval workflow to route it to one
person 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 subsequent
changes 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 and
electronically manage contract negotiations with your supplier within Oracle Procurement, or
negotiate 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.
 To create a contract you must first have a Purchasing Document. Once created, open the Terms
screen, Author Contract Terms then select the required Template and start updating: Available
Actions

Clauses

Clauses
Clauses are defaulted from the Template. If a change is required to one of these clauses it can
be flagged as a ‘Non-Standard’ clause and the wording updated. Clauses can be moved within
the 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. This
report 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 to
see what the end result will look like.

Variables
Variables must be completed before the contract is submitted for approval. Variables that
reference 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 entire
contract using the ‘Update Variable Values’ function.
Deliverables
Deliverables are assigned to an Internal person or the Supplier for action, and are
either one-time or recurring (eg weekly status report). Notifications can optionally be
sent in advance of the deliverable due date. Documents and notes can be attached
to 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.

Validate
Before the contract is submitted for approval it is validated to ensure that all variables have been
completed, 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 Contract
Terms are approved together using the PO Approval Workflow. The workflow can be configured
to have separate approvals for the contract terms if required.
Approvers are able to view the contract terms and conditions from the Approval Notification, as
well 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
Monitor Contracts
Once the Contract has been approved, it becomes active and needs to be monitored. The
Deliverables defined within the contract will typically send a notification before they are due. The
Manage PO Deliverables screen provides a Deliverables workbench so users can see all their
contracts.
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 especially
useful if there are issues that need to be documented. If a Deliverable is overdue an escalation
notification can optionally be sent.

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

Manage Contract Expiry

As the Procurement Contract forms part of the Purchasing Document, the contract expiry process
is essentially the ‘Close PO’ process with an additional review to ensure all Contract Terms
Deliverables are closed as well as the PO Lines being closed. It may be useful to have a default
Deliverable defined in the contract template to remind the Contract Manager to review all
deliverables.

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 and
Roles.

Contract Expert
This is a rule-based contract creation tool within Procurement Contracts that allows you create a
series of questions and answers (based on your business rules) that will guide a user to the right
answer. An example of how it could be used is to help an inexperienced Contract Manager to
select the correct clauses for inclusion in a contract.
Things to be aware of:
• While the Contract Terms are web-based forms, they can currently only be accessed
from the Purchase Order screen which means your contract managers need to be set up
as Buyers.
• Contracts Workbench does not currently allow you to manage deliverables for
Procurement 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 managers
will need to think about how they create PO Lines, and will have to manage deliverables
in two places - Contract Deliverables and PO Receipting
• Because Contract Terms Deliverables and PO Lines are not linked, you cannot use the
Contract Terms Deliverables to automatically approve/hold AP Invoices. You may want
to 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 a
requirement you may need use Discoverer or a similar reporting tool to generate
additional reports.

In Summary:
Procurement Contracts is a powerful tool that allows you to automate your Contract Management
process 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