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Contracts Overview

A contract identifies that a formal pricing agreement exists between your organization and a supplier. Each contract includes purchasing information for one or more resources. The contract identifies the prices, terms and conditions for the purchases of those resources during the effective period of the contract.

This topic explains concepts related to creating and working with contracts in APM.

Contract Life Cycle

The following graphic illustrates the life cycle of a contract:

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Information Included on a Contract

The contract information is divided between the contract summary information and the resources covered by the contract.

At the summary level, you can enter the following settings:

•	Contract number, title, and description

•	Estimated value

•	Supplier information

•	Buyer, site, and contract type

•	FOB point, freight terms, payment terms, and shipment method

•	Effective and expiration dates

•	Supplier resource default settings

•	Rules for supplier resources and prices

For each contracted resource, you can enter the pricing information and any resource-specific terms or conditions.

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Terms and Conditions

A standard set of purchasing terms and conditions can be defined on the contract. The contract’s terms and conditions consist of the FOB point, freight terms, shipping method, and payment terms. The contract’s values are defaulted to all purchase orders created for the contract.

You can set a rule on the contract indicating whether the terms and conditions are guidelines only or fixed values. Fixed values are not normally changed on the contract’s purchase orders. To handle situations where the terms and conditions have to be changed for a rush order or similar exception, you can change the values from the contract on a purchase order.

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Fixed Prices

Contracts typically represent a firm agreement between the customer and supplier to supply the resources at the agreed-upon prices, terms, and conditions. If the contract information is fixed, it should not be changed on requests or purchase orders.

You can indicate whether or not the contract’s prices and terms are fixed. Information that is fixed cannot be changed on purchase demands or purchase order lines that reference one of the contract’s prices. As with the terms and conditions, you can change the prices in special cases.

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Supplier Resource Defaults

The contract’s supplier resource information rule controls whether the contract’s supplier resource values can be changed on supplier resource records or not. These values are pricing agreement effective and expiration dates, discount percentage, extra charges, primary supplier setting, and the replenishment rule. If the values are fixed, they cannot be changed on the supplier resource. Any changes to the contract’s values are automatically applied to the supplier resources.

If the contract’s information varies on the supplier resources, choose the “information is default values only” setting. The contract’s information is defaulted onto new supplier resources where it can be changed. Changes to the contract’s information are not applied to the supplier resources.

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Combining Purchasing and Supplier Resource Rules

The purchasing rules and supplier resource rule may seem similar, but they serve different purposes:

•	The supplier resource rule controls whether or not the contract’s information can be changed on its supplier resources.

•	The purchasing rules control whether or not the contract and supplier resource information can be changed on a purchase order.

Depending upon the circumstances, the following situations may be valid:

Pricing Information Rule	Terms and Conditions Rule	Supplier Resource Information Rule	Used When
Fixed	Fixed	Default	The information defined on the contract does not apply to all of the resources covered by the contract. Therefore the supplier resource rule is set to allow changes. However, the prices and information defined on the contract are fixed and cannot be changed on purchase orders.
Estimate	Fixed	Fixed	The same lead-time, extra charges, etc. apply to all of the contract’s resources, therefore the supplier resource information is fixed. This simplifies the maintenance of these records. The contract's terms (freight, FOB, etc.) are also fixed and cannot be changed. The actual prices are only an estimate and therefore can be changed when an order is placed.
Estimate	Guideline	Fixed	Same as above except in this case the terms and conditions can also be changed on purchase orders.

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Multiple Pricing Agreements

Two types of contracts exist with respect to pricing agreements. The first, and more common, is a contract where both the contract and the pricing agreement have the same effective period. In effect, the contract has one pricing agreement. The pricing agreement (i.e. prices) is in effect for the length of the contract.

With the second type of contract, multiple pricing agreements exist over the life of the contract. For example, you may have a 5-year contract with a supplier. While the general contract runs for the full 5 years, the prices are renewed every year.

Renewing a contract’s pricing agreement is different than renewing the contract. When a contract is renewed, an RFQ is created to manage the bid process. Multiple suppliers are asked to bid on the new contract.

Renewing a contract’s pricing agreement does not involve an RFQ. No other suppliers are asked to bid. Only the contract supplier’s new pricing information is entered. When you renew a pricing agreement you can:

•	Update all of the contract’s prices by a set percentage. For example, all prices have increased by 1% or decreased by 2%

•	Change the discount rate for the contract

•	Enter the supplier’s new lead time for the resources

If necessary, you can edit individual new prices after they have been created.

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Replenishing Contracted Resources

Contracted resources do not typically require review before being replenished. The existence of the contracted price indicates that the supplier selection is correct.

If necessary, you can set a rule on the contract to indicate that replenishment review is required. If replenishment review is not required, the resource is immediately ordered.

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Contracts vs. Blanket Orders

Contracts and blanket orders are similar documents. They have many of the same features, but there are differences:

•	Both represent an agreement between the customer and a supplier.

•	Both cover a defined list of resources.

•	Both identify an agreed upon price and set of terms and conditions.

•	A contract specifies effective and expiry dates; blanket orders do not.

•	A blanket order includes the quantity covered by the order and supports releases; a contract does not.

•	You can create a blanket order to order from a contract. You cannot create a contract from a blanket order.

For more information on blanket orders, please see Blanket Orders and Releases.

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Checking for Expiring Contracts

A contract’s expiration notification and expiry dates indicate when a contract’s expiration notification should be issued (if notification is being used) and when the contract is expired.

Setting a contract to the expired status prevents new purchase orders from being issued against the contract. When the contract is expired, the system re-evaluates the primary supplier setting for all of the contract’s resources.

In order for notification and expiry to work, the Check for Expiring Contracts method should be run daily. When you run this method, the system reviews each open contract’s expiry dates, as well as the expiry dates for the contract’s pricing agreements. Your system administrator can schedule this method for the site. You can also run the Check for Expiring Contracts method manually from the site’s Tools menu.

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Expiration Notifications

Once the expiration notification has been issued, you can proceed in a number of ways. If the notification was prior to the contract expiration:

•	Initiate the renewal process (that is, create a renewal RFQ).

•	Do nothing for now. You can initiate the renewal process at the appropriate time. You might want to keep the contract book-marked as a reminder.

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If the notification was issued too soon or you are not ready to initiate the renewal process, you can re-open the contract. To avoid having the notification issued again on the next day, you can change the notification lead-time or the contract’s expiry date. For example, if the original notification was issued 45 days prior to the expiry date, you could reset the notification to occur 30 or 20 days prior to the expiry date.

If you received the notification prior to the pricing agreement expiration:

•	Enter the supplier’s new prices (that is, create a new pricing agreement).

•	Do nothing for now. You can enter the new pricing agreement when you have the information

•	Change the pricing agreement dates if the same prices are being rolled over.

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Renewing a Contract

The process of renewing a contract normally starts with the issuing of the expiration notification. If you are not using expiration notification on the contract, you can simply start the renewal process at the appropriate time.

To renew a contract, simply create a renewal RFQ. The system can automatically generate the renewal RFQ as part of the expiration notification, or you can create one manually. You can also create an RFQ from a contract that has already expired. The following information is copied from the contract to the renewal RFQ:

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Buyer

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Supplier

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Title

•	Suppliers: If the current contract originated from a RFQ, the suppliers from originating RFQ are added to the renewal RFQ

•	Resources: An RFQ resource is created for each resource supplied on the contract

•	RFQ dates: The system calculates the RFQ's supply “from” and “to” dates:

•	The RFQ supply from date is set to the contract’s expiration date plus one day

•	The RFQ supply end date is calculated as the from date plus the contract’s effective period.

Once the RFQ is created, you can review and update it as required. For example, you may need to add or remove resources or bidding suppliers. Once the RFQ is ready, you can follow the normal RFQ process. After you have received and analyzed the bid, you can create a new contract for the winning supplier.

The existing contract can continue to be used until it expires. After the contract has expired, the contract’s supplier prices will no longer be valid.

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Multi-site Considerations

A purchasing contract can be used to create purchase orders:

•	At the same site as the contract

•	At a site below the contract’s site in the hierarchy. For example, you might create a purchase order at a plant site (the lower-level site) that references a contract created at an administrative, central site (a higher-level site).

Both the contract and the supplier resources referenced on the contract must be at the same site.

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