Managing Services Procurement A Step Tow PDF

Managing Services Procurement:
A step towards better visibility and

improved efficiency
An Oracle White Paper
March 2014
Managing Services Procurement: A Step towards

better visibility and improved efficiency
EXECUTIVE OVERVIEW
Research shows that procurement of services
account for 60% of spend in non-manufacturing
companies, 90% in financial services industries
and 50% in manufacturing organizations
- Indirect Procurement Study, 2010: A.T. Kearney
Enterprises spend a significant portion of their corporate budget on the acquisition

or procurement of services. Acquiring services include purchase of complex goods
and services such as construction subcontract for electrical work, concrete work
and piping, professional services, facilities management and Maintenance Repair
and Overhaul (MRO). Research shows that procurement of services accounts for
more than 50% of spend across industries such as financial services,
manufacturing, etc. However, at a macro level, few enterprises know exactly what
they are buying, how much they are spending and how their service providers are
performing.
Several buying organizations have fragmented, paper-driven, and manual processes
for managing services that result in
Managing and controlling services spend

continues to be a topic of great interest and
importance to all sectors of the economy.
Services Spend Management:

Outsourcing/Offshoring Your Services Spend,
Source: CAPS Research, August 31st, 2006
lack of visibility and lack of control over services spend
inability to initiate and sustain end-user compliance
overbilling and inability to track supplier performance
increased cycle time
There is a real and valid requirement for an integrated services procurement

platform that automates and streamlines the process for sourcing, procuring and
managing payment of services.
Oracle Services Procurement integrates the entire services procurement lifecycle
and supports a broad range of service categories including contingent labor,
facilities management, subcontracted labor, professional services and more. It
provides visibility into service spend and the performance of suppliers. Oracle
Services Procurement enables managers to have complete control and perspective
in the service spend arena.
With Oracle Services Procurement, enterprises can:
a)
Services Spend averages $1.8 billion for a

typical Fortune 1000 Company (11% of Revenue
or 31% of Spend)
Source: CAPS Research
maximize preferred supplier savings with better control through master

agreements and lower processing cost through supplier collaboration
b) eliminate over billing and overruns by using deliverable tracking and

setting up policies for services spending approvals
c) create visibility for services spending by measuring supplier performance
for services rendered
d)
achieve a complete view of services spend and oversee the entire Services
Procurement life cycle
This paper will educate all stake holders on the offerings of Oracle - Services
Procurement with specific reference to procurement of services through statement
of work (SOW). It will elaborate how Oracle provides an integrated solution
approach to automate and integrate the acquisition of complex projects,
commodities and services.
The paper also provides insights into implementation steps and setup
considerations.
Managing Services Procurement: A step towards better visibility and improved efficiency
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INTRODUCTION
The amount of non-procurement spend is much
higher than for direct purchases and in many
cases, organizations have little centralized
control over these areas
Source: Direct Vs Indirect Procurement

Market Intelligence Survey
Procurement of services accounts for 40% to 80% of a project or enterprise

activity. Since Procurement is a major part of companys operations, enterprises
focus on improving the efficiency of their procurement processes.
Procurement plays a major role in industries such as Engineering and Construction
(E&C), Aerospace and Defense (A&D), Engineer to Order (ETO) and Utilities.
The procurement process for these industries is broadly classified into five
different categories:
a)
Procurement of bulk commodities
b) Procurement of engineered equipment

c) Procurement of catalog items
d) Procurement of subcontracting services
e) Rentals
Figure 1: Example for procurement categories
For the E&C Industry

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.
Engineered equipments are complex machines such as boilers that are
represented in the system as one line item for commercial purposes and multiple
line items for receiving and installation.
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.
Subcontracting services include complex outsourcing on a scope of work. For
example, if you operate a power plant, you may outsource the corrosion protection
service to a subcontractor.
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.
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Oracles 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
PROCUREMENT OF COMPLEX SERVICESBUSINESS PROCESS FLOW
A high level business process flow for the procurement of complex services is
explained below.
Request
for
Services
Request for
Quotation
Bid
Tabulation
Author
Contract
Progress
Tracking
Billing and
Payments
Retainage
Management
Figure 2: High level business flow for procurement of complex services
Procurement of complex services is used in construction or related services such as

E&C, A&D, ETO and utilities. This process involves a great deal of collaboration
Complex Services Procurement is
characterized by,
a) High Dollar Value Projects
b) Long lead time delivery Schedules
c) Progress payments based on work
completion
d) Contract Financing
between project managers, buyers and suppliers. Complex service procurement

involves authoring of complex contractual terms and conditions with complex
payment controls.
The business process around procurement of complex services can be divided into
the following major phases:
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.
As a part of Oracles Procure to pay solution,

Services Procurement delivers,
Measurable savings,
Reduced maverick spend
Simplified process for procuring and
Retainage Management: Retainage management is the process of releasing or

paying the portion of a payment that was withheld until a substantial portion or all
of the service procurement work is completed. The amounts retained during the
life of the contract must be released and paid to the supplier or subcontractor
when all, or a substantial portion of the work is completed. When the release
criteria are met, suppliers request a release of the retained amount by submitting a
document called a Retainage Release Request.
managing services of all kind.

Requesters can easily purchase the services
they need while being directed to preferred
vendors and pricing
For purchasing managers, Services
Procurement delivers powerful tools for
Some operational challenges that occur frequently in procuring complex services

include:
a)
managing contracts and settlement
Dealings and relationships with a diverse group of suppliers that

cannot be optimized across projects
b) Large volume of procurement contracts where each one is different

from the other in terms of projects
c) Complex processes associated with the value of work done
d) Complex payment terms and conditions
e) Complex payment control measures
f)
Large volume of documents, deliverables and changes
Oracle Services Procurement is part of Oracle E-Business Suite, Advanced

Procurement family of applications. Oracle Services Procurement is designed to
overcome the operational challenges faced by the customers in procuring complex
services/subcontracted services.
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SERVICES PROCUREMENT AT A GLANCE

Services Procurement High Level Processes
Oracle Services Procurement enables users
to,
a) Maximize preferred supplier savings
b) Eliminate Over billing and Over runs
c) Create visibility into services spending
Services Procurement is usually characterized as high value contracts with longer

lead times, complex payment terms that includes advances, retainage and
recoupment and payments to suppliers based on the progress of work. Typical
categories of services include: professional services, engineering services and
construction services.
Multiple products in Oracle e-Business Suite are integrated to form the Complex
Services Procurement solution. The products - Oracle Projects, Oracle Payables
and Oracle Advanced Procurement (that includes Oracle Purchasing, Oracle
iProcurement, Oracle Sourcing, Oracle iSupplier Portal, Oracle Supplier Life Cycle
Management and Oracle Procurement Contracts) are integrated seamlessly to
provide a complete solution for the procurement of complex services.
Industries of interest for Services Procurement

includes:
a) Professional services
b) Engineering services
c) Construction services
Oracle Projects can be used to manage the entire undertaking, the tasks involved,
as well as to monitor commitments and actuals throughout the complex services
procurement cycle along with project costs and work progress. Service requests
can be created from the deliverables of the individual tasks and in Oracle Sourcing
these can be negotiated, sourced and awarded to a contractor in Oracle
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.
Figure 3: Services Procurement and the Integrated Products

Benefits of using Services Procurement
Oracle Services Procurement provides the following benefits:

Streamline and automate procurement of the complex services spend
category
Ensure compliance with 360 visibility to all aspects of the contract

lifecycle
Reduce acquisition costs using seamless collaboration with key

stakeholders
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Key Benefits
Maximize supplier savings,
Minimize acquisition risks by using negotiated payment terms
Ensure fiscal compliance
Improve compliance and

Increase visibility into your
Enhanced Capabilities: Services Procurement Vs Oracle Purchasing
companys spending
Oracle Services Procurement offers enhanced capability over Oracle Purchasing in

the following areas:
Ability to source and negotiate payment terms and progress payment

schedule using Oracle Sourcing
Ability to incorporate payment terms and progress payment schedule

in the contract document
Ability to track and report progress based on schedule
Ability to track deliverables and payments to suppliers based on

deliverable status
Ability to track commitment costs against the project
Ability to release progress payments
Ability to release and recoup advances
Ability to apply retainage on invoices
Ability to release retained funds
Oracles approach to Complex Work Procurement
In this section, Oracles approach towards complex work procurement is explained

with an example. We find out how a complex contract such as Parking Lot
Renovation services is set up and tracked in Oracle E-Business Suite using Oracle
Services Procurement.
The project manager creates service request for Parking Lot

Renovation
The buyer circulates a questionnaire to identify the suppliers for the

contract
The buyer negotiates complex payment terms with the supplier such
as
a.
Advances
b. Recoupment rate
c.
Retainage rate and maximum retainage amount
The buyer creates the contract with payment schedule for parking lot
renovation
The supplier creates work confirmation/application for payment after

completing the service
The buyer recoups the advance paid to the supplier before releasing
the payment
Buyer creates a retainage release invoice after the supplier completes

the tasks in the project
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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.
Figure 4: iProcurement Request for Services
Oracle Sourcing - Create Vendor Questionnaires
The Sourcing buyer identifies those suppliers with the technical capability to
undertake a complex contract such as Parking Lot Renovation Services. The
buying company sends a vendor questionnaire to the identified suppliers to check
if the suppliers conform to the pre-qualification criteria.
Using Oracle Sourcing, an RFI (Request for Information) is created and is sent to
suppliers. Suppliers fill up the RFI and return the information to the buyer. The
buyer uses the filled RFIs to assess the pre-qualification criteria and shortlist
suppliers who can take up the Parking Lot Renovation complex contract.
Vendor questionnaire can be,
a) Project, commodity, service or geography
specific
b) Part of supplier registration
c) used for collaboration between supplier and
buyer and have flexible document formats
Figure 5: Create Vendor Questionnaire
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The various pre-qualification requirements, the evaluation criteria and the scoring
teams are set up in the RFI document.
Customized questionnaire are used to,
a) Capture template questions and requirements
b) Include unique questions
c) Add specific forms for specific needs
Figure 6: Create Customized Questionnaire
The RFI document enables buyers to invite eligible suppliers to enter their
information in the RFI. The suppliers are identified based on predefined set of
criteria. Examples of some criteria for adding suppliers include: years of
experience in the construction industry, type of commodity of purchase.
Inviting Suppliers to respond to RFI can be
based on,
a) Commodity categories
b) Service categories
c) Geographic regions
d) Pre-populated list
Figure 7: Inviting Suppliers to the RFI
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
Figure 8: Supplier Profile Mapping
Oracle Purchasing Request for Services
Command and Control for Procurement

Professional:
The approved requisition shows in the Demand Workbench in the Professional

Buyer Work Center. The buyer can initiate further action on this approved
requisition.
a) Intuitive UI and streamlined workflows

b) Status at-a-glance
c) Multi Org access control for shared services
d) Extensive options for Personalization
Figure 9: Purchasing Request for Services
Oracle Purchasing Demand Workbench
The Demand Workbench in Buyer Work Center displays the requisition that
outlines the request for renovation of the parking lot at one of the facilities. The
buyer decides to create an RFQ from the requisition in Oracle Sourcing. The RFQ
is used to obtain bids for this renovation project. The RFQ is also used to
negotiate with suppliers on complex contract terms.
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Figure 10: Purchasing Demand Workbench

RFQ - Key Takeaways:
a) Suppliers not qualifying the technical
evaluation is not considered for commercial
evaluation
b) RFQ can be project specific
c) Provides the capability to negotiate on
Contract financing terms, Retainage terms and
Progress payment schedules
Oracle Sourcing Create RFQ
The requisition is converted to an RFQ and the RFQ has a reference to the base
requisition. Buyers can control whether suppliers are allowed to negotiate payment
terms such as Advances, Recoupment rate, Maximum Retainage Amount and
Retainage Rate.
When the buyer creates the RFQ, he/she needs to specify a Progress Payment
Schedule (for public sector industries) or a Schedule of Values (for other
industries).
Figure 11: Sourcing Create RFQ
In the Parking Lot Renovation example, the buyer allows the supplier to provide
the list of pay items in their bids.
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Figure 12: Sourcing Create RFQ Lines
Oracle Sourcing Supplier Creates Quote
The buyer publishes the RFQ and suppliers get to know about it. To continue our
example, one of the invited vendors, Consolidated Supplies provides a quote to the
buyer for the parking lot renovation.
Figure 13: Sourcing Supplier Creates Quote
Oracle Sourcing RFQ analysis
The buyer then compares the quotes received from the invited suppliers. In this
example, the Buyer has received quotes from Consolidated Supplies and CDS
Incorporated.
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
Figure 14: Sourcing RFQ Analysis
Oracle Sourcing Create Purchase Order from RFQ
After the RFQ Analysis is completed, the buyer decides to award the contract to
one or more suppliers. The RFQ is awarded to Consolidated Supplies and a
Facilities Renovation Contract is created in Oracle Purchasing.
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.
Purchase Orders from RFQ - Key Takeaways:
a) Few clicks to convert RFQ to a contract
b) No need to re-enter schedule of values
c) Multiple ways to convert RFQ into order
document based on business needs
Figure 15: Sourcing Create Purchase order from RFQ
Oracle Purchasing Contract Header
The awarded contract is now called the Facilities Renovation Contract which was
the display name specified on the document style. The display name column
enables the buyer to update the document name to individual requirements.
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
Figure 16: Purchasing Contract Header
Oracle Purchasing Contract Lines
The purchase order line is created from the information on the RFQ. The price for
the Parking Lot Renovation service is the negotiated price of $1,000,000.
Figure 17: Purchasing Contract Lines
The contract lines page allows the buyer to capture several pieces of critical
information for the complex services contract.
Buyers can describe a scope of work to provide a detailed description of the
service that is being procured.
The scope of work can be captured either as the line description or can be attached
as an external document.
Complex payment terms for financing and retainage are entered or stored on the
line. In our example, the advance amount and the recoupment rate are the
negotiated values from the RFQ. The retainage related information is also
negotiated and the values are defaulted from RFQ.
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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.
Purchase Orders Key Takeaways:
a) Ability to define and modify financing terms
and retainage terms that are defaulted from RFQ
b)Ability to define progress schedules and track
schedules and the work completion
c) Provision to hold payments if contractual
deliverables are not provided by the supplier
d) Provision to publish terms and deliverables in
multiple formats
Figure 18: Purchasing Contract Line Details
Oracle Purchasing Progress Payments Schedule
In the example, the pay items have been previously negotiated and are transferred
from the RFQ, however, in other situations, the pay items can also be created by
buyers.
Figure 19: Purchasing Progress Payment Schedules
Buyers can also provide a pay item description, quantity, unit of measure, price and
a need-by date. The system also enables buyers to specify additional details for pay
items.
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Payables Key Takeaways:

a) Ability to release progress payments, release
and recoup advances, apply retainage on
invoices and release retained funds
b) Ensures that the amounts financed and later
recovered never exceed the allowable amounts
designated by the specific terms captured in the
purchase order.
Oracle Accounts Payables Match to Contract Advance
Suppliers may request advances themselves using iSupplier Portal or by presenting

an invoice to the buyer. The Payables clerk can enter invoices using Quick Invoice
or the Invoice Workbench. Invoice entry has been enhanced to match to the
contract advance which prevents over-billing beyond the negotiated value and
updates the purchase order with the amount billed.
The Payables clerk can choose to pay the invoice for the advance based on the
approved purchase order or wish to require that the invoice go through another set
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.
Figure 20: Payables Match to Contract Advance
Oracle iSupplier Portal Purchase Order View
Suppliers can track the progress on individual pay item of the progress payment
schedule and create/submit work confirmations to report the progress on the
contract.
Figure 21: iSupplier Portal Purchase Order View
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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.
iSupplier Portal Key Takeaways:
a) Ability for the supplier to acknowledge and
sign the document before it becomes a formal
document
b) Enable suppliers to submit change requests
c) Enable suppliers to track progress on the
progress payment schedule
d) Enable suppliers to create & submit Work
Confirmations
Oracle iSupplier Portal Create Work Confirmation
The supplier creates work confirmations for requesting payments. For each pay
item that is included on the work confirmation, the supplier needs to enter the
amount requested or state the progress percent and any material stored onsite.
Additionally, if there are any supporting documents for the work performed, the
documents may be attached to the work confirmation. When the work
confirmation document is complete, it can be submitted to the buying organization
for approval. This is when the approval rules in Oracle Approvals Management
initiate and the work confirmation can be routed for approval as the organization
requires.
e) Enable suppliers to create & submit Invoices

for contract financing and progress payments.
f) Leveraging AME for Work Confirmation
approval
Figure 22: iSupplier Portal Create Work Confirmation
Oracle Projects Track Progress
The project manager can track progress, deliverables, projections and actuals
across the entire project.
Projects Key Takeaways:
a) Ability to track commitments and actuals for
The project manger can track matched and unmatched prepayments as

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.
Figure 24: Projects Track Progress
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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.
Payables Progress Payments -Key Takeaways:
a) Automatically Recoup Financing Payments
b) Automatically Withhold Retainage
c) Invoice Match Option levels
d) Tolerances, Holds, and Holds Resolution
e) Invoice Approval Processing
f) Accounting, Budget, and Tax Compliance
g) Lien Release (Hold on Contract Deliverables)
The Payables clerk can see a summary of the invoice. The $ 50,000 progress
reported towards resurfacing the parking lot shows in the item total, there is $
5,000, which is 10% of the invoice total automatically retained, and $ 40,000 of the
advance that is automatically recouped. The actual recoupment amount of an
invoice is determined first by calculating the amount of the invoice eligible for
recoupment by multiplying the corresponding invoice lines total by the
recoupment rate that is $ 50,000 times 80% which is equal to $ 40,000. If there is
40,000 left on the advance, this invoice may use it to reduce the amount owed. As
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.
Figure 26: Payables Invoice Status
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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.
Figure 27: Payables Retainage Release
Oracle Projects Create Deduction/Back Charge processing
The project manager deducts the amount from payment made to a supplier as a
penalty for damage or delay to scheduled work. A deduction is submitted for
approval after it is created. When the deduction is approved, Oracle Projects sends
the deduction to Oracle Payables which creates a debit memo.
Deductions may or may not be associated with a change document. Project
managers create deductions when there is a high-value amount and the change
document needs to be updated to reflect this amount.
Figure 28: Projects Create Deduction/Back Charge Processing
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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.
Figure 29: Projects Change Management Change Requests
Oracle Projects Change Management and Change Order
Project Management Change Order

Management -Key Takeaways:
a) Provision to deduct charges for the damages
done by the supplier
b) Ability to create change management
documents and maintain logs
A change order enables the project manager to track and implement the impacts of
changes to a project. As with change requests, the project manager uses the change
order to plan for project changes by estimating changes in cost transactions and
summarizing them as budget impacts.
A change order may also have work plan, staffing, contract, supplier, and other
impacts. The project manager merges the impacts of multiple change requests into
a single change order. When the change order is approved, users can update the
project with the changes. The project manager then analyzes the influence on
financial reports due to the requested changes.
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Figure 30: Projects Change Management Change Orders
Figure 31: Projects Change Management Analyze Financial Impacts
Oracle Projects Reporting Analytics

Project performance management enables project managers to track and monitor
financial and schedule related performance for projects. The project manager can
also track and monitor schedule related performance for programs.
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.
Project performance reporting enables project managers to understand the sources
of variances and make key business decisions to ensure that projects are completed
on time and according to financial plans.
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Figure 32: Projects Reporting and Analytics

IMPLEMENTATION CONSIDERATIONS
Available Line Types
The below table provides information on the different pay items available for
various line types in a complex purchase order.
Line Type
Value Basis
Purchase
Basis
Matching
Basis
OSP
Item
Pay Items
Available
Goods
Goods
Quantity
Quantity
Goods
Goods
Quantity
Quantity
No
Yes
Amount
Amount
Services
Quantity
NA
Fixed Price
Services
Fixed Price
Temp
Labor
Rate based
Temp
Labor
Fixed Price
Services
Amount
NA
Fixed Price
Temp
Labor
Amount
NA
Milestone
Not available in
Complex Orders
Not available in
Complex Orders
Milestone, Lump
Sum and Rate
Milestone, Lump
Sum and Rate
Rate
Temp
Labor
Amount
NA
Milestone, Lump
Sum and Rate
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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
Oracles value proposition to the industry is that it provides a complete

procurement application platform within EBS to cater to all types of acquisition
processes. Services procurement is usually project related and there is a cohesive
relationship between project management and procurement management.
With Oracles Services Procurement:
Enterprises have visibility and control over their services spend and
their supplier performance
Enterprises share best practices and setup business processes when

procuring and managing services.
Enterprises reduce costs by 5 - 15% by eliminating over-billing,

improving spend compliance and demand management
Enterprises may improve quality and performance by 5 10% by

reducing their provisioning cost and cycle time and improving user
satisfaction
Enterprises reduce risk by addressing regulatory requirements,

managing their supplier base, tracking supplier performance and
enforcing budget limits
Enterprises eliminate the need for multiple disparate systems
Page 24
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
Page 25
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
Figure 33: Setup Overview
Setup Set Key Profile Options
The profile option POR : Amount Based Services Line Type needs to be set up.
This specifies how services are to be quantified and ordered on the contract
document. In order to use complex services, the value for this profile option
Page 26
should be set to Fixed Price Services, which means that services is be ordered as a
lump sum amount.
Possible values
profile option
of
Description
Fixed Price Services Services will be ordered as a Lump Sum Amount

Amount Based
Services will be ordered as a quantity with unit price as 1
The profile option PO: Enable Services Procurement needs to be set up. Setting
this profile value to Yes enables service line types in Oracle Sourcing and Oracle
Purchasing. When the profile option is enabled, buyers can create lines with the
following additional line types:
a)
Fixed Price Services
b) Fixed Price Temp Labor

c) Rate based Temp Labor
Setup Document Style
A Document Style builds additional functionality on the Document Type and

provides the user the flexibility to tailor purchasing transaction documents such as
Orders and Agreements by enabling or suppressing specific features. The
document style can be identified by a name and description and its availability can
be controlled through the status.
Document Styles enable users to control which commodities get purchased on the
order. Users can set up specific document styles for the purchase of goods and
have a separate document style for the purchase of services. Styles also allow
flexibility to use Progress Payments, Contract Financing, Advances and Retainage
on a contract. Additionally pay items such as Rate, Lump Sum and Milestone are
available for defining the progress payment schedule on the contract.
The checkbox Treat Progress Payments as Contract Financing enables every
payment released for work performed on the progress payment schedule to be
treated as a financing payment that can be recouped from payments for deliveries
on the contract.
Figure 34: Setup Document style
Page 27
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.
Figure 35: Setup Supplier Change Order Tolerance
Setup Change Order Tolerance
Auto-approval tolerances can be specified for buyer initiated changes on the

Progress Payment Schedule. A tolerance can be specified based on a percentage of
pay item price, quantity and amount. If the requested change falls within the limits
defined by this band, it is automatically approved and the contract is updated.
Figure 36: Setup Change Order Tolerance
Page 28
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.
Figure 37: Setup Financial Options
Setup Invoice Tolerance Template

The tolerance between amount being invoiced and the amount planned on the
Services Procurement contract or the work to date represented by the approved
Work confirmations can be defined in the Invoice Tolerance Template window.
The variance can be defined as either percentagebased or amountbased
tolerances or both. The tolerance templates can be defined for goods or services
and the most appropriate templates will be assigned to the supplier sites. This
allows the users to manage tolerance values centrally yet assign the policies at the
trading partner location.
Figure 38: Setup Invoice Tolerance Template
Page 29
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
contractors history. Thus when a contract is created with this supplier site, the
retainage rate defined here will default onto the contract.
Figure 39: Setup Supplier Site
Setup Approval Rules

Oracle Approvals Management is a common module that provides users the ability
to configure rules that determine the approvers within the enterprise for business
transactions or activities.
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.
The Payables Invoice Approval transaction type allows rule configuration to
support line level and document level approvals plus optional rules that enable
users to forgo invoice approval if the invoice is matched to a purchase order.
Page 30
Graphical view approval chains

a) Parallel Approvals
b) Position Hierarchy support
c) Maintaining key stakeholders engagement and
Oversight
Figure 40: Setup Approval Rules
Setup Tax Regimes
Tax regime is the system of regulations for the determination and administration of
one or more taxes. Tax regime definition is used to identify the taxes that need to
be applied on the purchase order document.
Figure 41: Setup Tax Regimes
Setup Tax
A Tax is a distinct charge imposed by a government through a fiscal or tax

authority. Every tax in Oracle E-Business Tax is defined under a tax regime.
Figure 42: Setup Tax
Page 31
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.
Figure 43: Setup Tax Status
Setup Tax Jurisdictions
The incidence of a tax on a specific geographic area is called a Tax Jurisdiction. A

tax jurisdiction is limited by a geographical boundary that encloses a contiguous
political or administrative area, most commonly the borders of a country.
Figure 44: Setup Tax Jurisdictions
Setup Tax Recovery rates
A recoverable tax is a tax that allows full or partial recovery of taxes paid on
purchases, either as a recoverable payment or as an offset against taxes owed.
Figure 45: Setup Tax Recovery rate
Page 32
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.
Figure 46: Setup Tax Recovery rate
Setup Tax Rules
In Oracle E-Business Tax, a tax rule is a set of conditions that is used to determine
the tax for a specific transaction.
Figure 47: Setup Tax Rules
Page 33
APPENDIX: GLOSSARY
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
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
Used on Cost Reimbursement Contract. Represents the rate at which costs
incurred by the Contractor are reimbursed
Contract Financing
Contract financing is 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
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.
Page 34
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
Copyright 2006, Oracle. All rights reserved.
This document is provided for information purposes only and the contents hereof are subject to change without notice.
This document is not warranted to be error-free, nor subject to any other warranties or conditions, whether expressed orally or implied
in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. We specifically disclaim any
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Managing Services Procurement:

A step towards better visibility and

Managing Services Procurement: A Step towards

- Indirect Procurement Study, 2010: A.T. Kearney

Enterprises spend a significant portion of their corporate budget on the acquisition

Managing and controlling services spend

Services Spend Management:

lack of visibility and lack of control over services spend

inability to initiate and sustain end-user compliance

overbilling and inability to track supplier performance

increased cycle time

There is a real and valid requirement for an integrated services procurement

Services Spend averages $1.8 billion for a

Source: CAPS Research

maximize preferred supplier savings with better control through master

b) eliminate over billing and overruns by using deliverable tracking and

Source: Direct Vs Indirect Procurement

Procurement of services accounts for 40% to 80% of a project or enterprise

Procurement of bulk commodities

b) Procurement of engineered equipment

Figure 1: Example for procurement categories

For the E&C Industry

Figure 2: High level business flow for procurement of complex services

Procurement of complex services is used in construction or related services such as

between project managers, buyers and suppliers. Complex service procurement

As a part of Oracles Procure to pay solution,

Retainage Management: Retainage management is the process of releasing or

managing services of all kind.

Some operational challenges that occur frequently in procuring complex services

managing contracts and settlement

Dealings and relationships with a diverse group of suppliers that

b) Large volume of procurement contracts where each one is different

Large volume of documents, deliverables and changes

Oracle Services Procurement is part of Oracle E-Business Suite, Advanced

SERVICES PROCUREMENT AT A GLANCE

Services Procurement is usually characterized as high value contracts with longer

Industries of interest for Services Procurement

Figure 3: Services Procurement and the Integrated Products

Oracle Services Procurement provides the following benefits:

Ensure compliance with 360 visibility to all aspects of the contract

Reduce acquisition costs using seamless collaboration with key

Minimize acquisition risks by using negotiated payment terms

Ensure fiscal compliance

Improve compliance and

Enhanced Capabilities: Services Procurement Vs Oracle Purchasing

Oracle Services Procurement offers enhanced capability over Oracle Purchasing in

Ability to source and negotiate payment terms and progress payment

Ability to incorporate payment terms and progress payment schedule

Ability to track and report progress based on schedule

Ability to track deliverables and payments to suppliers based on

Ability to track commitment costs against the project

Ability to release progress payments

Ability to release and recoup advances

Ability to apply retainage on invoices

Ability to release retained funds

Oracles approach to Complex Work Procurement

In this section, Oracles approach towards complex work procurement is explained

The project manager creates service request for Parking Lot