Pricing Government Contracts

This chapter provides overviews of pricing government contracts and discusses how to:

Price amount-based contract lines.
Price rate-based contract lines.

Understanding Pricing Government Contracts

Pricing government contracts is the process of allocating fixed amounts to amount-based contract lines and associating rates to rate-based contract lines. Before a contract can be activated, you must allocate any fixed amount defined for a contract across all amount-based contract lines. Before you can bill or recognize revenue for rate-based contract lines, you must first define your rate and fee structure and associate it to your rate-based contract lines to enable the system to generate appropriate billable and revenue amounts for processing.

This section discusses:

Amount-based pricing.
Rate-based pricing.
Contract line changes on a pending contract.

Amount-Based Pricing

After you define your government contract and add the products that make up your contract, the next step is to allocate the contract's fixed price amount across any eligible amount-based contract lines. A contract cannot be set to an active processing status until the fixed price amount has been properly allocated and the allocation option on the Amount Allocation page has been set to Complete. The contract must have a processing status of Active to bill and recognize revenue for your contract lines.

To allocate your amount-based contract line amounts, you use the Amount Allocation page. Both amount-based and rate-based contract lines appear on this page, but amount allocation only applies to amount-based contract lines. Rate-based contract lines appear as display only. If your contract only contains rate-based contract lines, amount allocation is not required, and you do not need to perform this step to activate your contract.

After the amount allocation is complete, the allocation option is set to Complete, and the Amount Allocation page is saved, the summarized fixed price total is displayed on the Contract-General page in the Fixed Price field. Any changes to this value must be completed using the amount allocation page, if the contract is in a pending processing status. After the contract is in an active processing status, any changes to the fixed price amount must be completed using amendment processing.

See Amending a Contract.

Rate-Based Pricing

This section discusses:

Defining rate sets for rate-based contract lines.
Defining rate sets and rate plans for cost-plus contract lines.

You do not allocate amounts for rate-based contract lines or rate-based contract lines associated with a fee type (cost-plus). Rate-based contract lines are priced using Project Costing rate sets and rate plans. Rate sets and rate plans can be defined for general use or for a specific contract. Once defined, you assign the rate set or rate plan to the rate-based contract using the Related Projects page.

Only one rate set or rate plan can be assigned to a single rate-based contract line at any particular point in time. Rate sets enable you to define how specific contract line-related transactions are priced for costing, billing, and revenue recognition. Rate plans enable you to combine multiple rate sets together to perform more complex pricing scenarios.

When defining a rate set, you assign a rate definition type of Cost, Billing, or Revenue. This determines the type of pricing that is performed for the contract line transactions. Depending on whether your contract contains rate-based (no fee), cost-plus contract lines, or some combination of both, determines the types of rate sets and rate plans that must be defined.

Defining Rate Sets for Rate-Based Contract Lines

Rate-based contract lines that are assigned a fee type of None require a rate set with a Billing rate definition type. After you define the rate set, you assign the rate set to the contract line on the Related Projects page. After the contract is active and transactions are priced for this contract line, the system creates billable rows based on the criteria defined in the rate set.

The billable rows are stored in Project Costing, and passed to Billing by Contracts when the Contracts/Billing Interface (CA_BI_INTFC) process is run. Once finalized, the billed data is passed back to Contracts and Project Costing. These same transaction rows are also used for revenue recognition when the As-Incurred Revenue (PSA_ACCTGGL) process is run.

Defining Rate Sets and Rate Plans for Cost-Plus Contracts Lines

Rate-based contract lines that are assigned a fee type of Fixed, Award, Incentive or Other are cost-plus contract lines, and often require a more complex rate structure. Because cost-plus contract lines frequently require you to calculate indirect costs and may also require separate rates for billing and revenue pricing, you may need to define rate sets with rate definition types of Cost, Billing and Revenue.

Because you can assign only one rate set to a contract line, you must first define your rate sets, and then combine them onto a rate plan. The order that the rate sets are entered onto the rate plan is the same order that the system uses to perform pricing, enabling you to create rate stacking in situations where it is needed. The rate plan is assigned to the contract line on the Related Projects page, and enables you to implement as complex a pricing structure as you require.

When transactions are priced, indirect costs are calculated using the costing rate set, billable rows are created using the billing rate set, and if separate revenue rates are defined, then revenue rows are created using the revenue rate set.

Contract Line Changes on a Pending Contract

After creating your contract, adding your contract lines, and assigning rate sets or rate plans to your rate-based contract lines, or performing amount allocation across your amount based contract lines, any changes that you need to make to the pricing structure is controlled by the processing status of the contract.

If the contract is in a Pending processing status, you can change your fixed amount contract totals, delete or add contract lines, and reallocate any amount changes across the amount-based contract lines. If different rate sets or rate plans are needed for your rate-based contract lines, you can update the Related Projects page with any changes that you need.

However, once the contract is in an Active processing status, any changes made to the pricing structure for amount-based contract lines must be made using amendment processing. If billing or revenue recognition has occurred against the contract lines impacted by the needed changes, then potentially, you may also need to cancel contract lines, or reverse billing or revenue when applying your pricing changes. Changes to the pricing structure for rate-based contract lines can be made outside of amendment processing.

See Managing Government Contracts.

Pricing Amount-Based Contract Lines

This section discusses how to allocate amounts.

Page Used to Price Amount-Based Contract Lines

Page Name	Object Name	Navigation	Usage
Amount Allocation	CA_PRICING_PNL	Customer Contracts, Create and Amend, General Information Click the Amount Allocation link on the General page. Customer Contracts, Determine Price and Terms, Amount Allocation	Allocate fixed contract amounts across amount-based contract lines.

Allocating Amounts

Access the Amount Allocation page.

Fixed Price

Enter the sum total of all amount-based contract lines associated with this contract. This amount may display by default using the total of the Extended Price associated with the amount-based contract lines. When allocating the total fixed price contract amount across all amount-based contract lines, you must balance to the amount listed in this field.

Net Amount

Displays the total fixed price amount for the contract. For government contracts, this field displays the Fixed Price total.

Unallocated Amount

Displays the fixed amount that has yet to be allocated across eligible amount-based contract lines. This amount must equal zero before you can set the allocation option to Complete.

Inclusive Prepaids

Displays any prepaid amounts defined for the contract. Prepaid amounts are defined using the Prepaids component (CA_PPD_BY_CONTRACT). Prepaid amounts can be inclusive or non-inclusive. Only inclusive prepaid amounts display on the Amount Allocation page and are included in the overall fixed price amount of the contract.

Allocation

Select the status of amount allocations. Values include:

Incomplete: This value appears by default and indicates that amount allocation has not been completely performed for entered or amended amounts for amount-based contract lines.

Complete: Select this value once you have allocated any contract line amount changes across all eligible amount-based contract lines.

Government contracts that contain amount-based contract lines must have the fixed amount for the contract completely allocated across any amount-based contract lines assigned to the contract and have the Allocation option set to Complete before the contract can be activated.

Recalculate

Click to update the Allocated Amount field with the amounts that have been allocated across amount-based contract lines. This button also automatically updates the allocation status to Complete when the unallocated amount equals zero.

Contract Line Pricing

Line # (line number)	Displays the contract line number assigned to the contract line when it was added to the contract.
Product	Displays the product identifier associated with the product when it was defined on the Product Definition page.
Price Type	Displays the price type associated with the product. For government contracts the only options that apply are the price types of Rate and Amount.
Line Status	Displays the status of the contract line. Only active amount-based contract lines are included in amount allocation.
Quantity	Displays the quantity associated with amount-based contract lines.
Extended Price	Displays the list price associated with amount-based contract lines.
Fixed Price	Enter the fixed amount total to be allocated to the amount-based contract line.
Net Amount	Displays the total allocated amount for the amount-based contract line.

Line Totals

Fixed Price	Displays the total allocated amount for all amount-based contract lines for the contract.
Recalculate	Click this button to recalculate any unallocated amounts, the net amount, line totals, fixed price amount and automatically update the allocation status to Complete when the unallocated amount is equal to zero.

Pricing Rate-Based Contract Lines

This section discusses how to:

Define rate sets.
Define rate set targets.
Define rate plans.

Pages Used to Price Rate-Based Contracts

Page Name	Object Name	Navigation	Usage
Rate Sets	PC_RATE_DTL	Customer Contracts, Contracts Center, Definitions, Rate Sets Setup Financials/Supply Chain, Product Related, Project Costing, Pricing Structure, Rate Sets	Define the source criteria that is used to select the transactions from feeder systems to which the defined rate pricing structure will be applied.
Rate Sets - Target	PC_RATE_DTL_LN	Customer Contracts, Contracts Center, Definitions, Rate Sets, Target Setup Financials/Supply Chain, Product Related, Project Costing, Pricing Structure, Rate Sets, Target	Define target data for rate set source rows.
Rate Plans	PC_RATE_PLANS	Customer Contracts, Contracts Center, Definitions, Rate Plans Setup Financials/Supply Chain, Product Related, Project Costing, Pricing Structure, Rate Plans	Create any combination of cost, billing, and revenue rate sets together to perform complex pricing scenarios.

Defining Rate Sets

Access the Rate Sets page.

Business Unit

Displays the Project Costing business unit. This is a required field and must be entered when creating a new rate set.

Rate Set Type

Displays the type of rate set. Values include:

Standard: When defining a rate set, select Standard for the rate set type to make this rate set generally available for pricing all contract types.
Contract: When defining a rate set, select Contract to limit the rate set for use in pricing a specific contract line.

Rate Definition Type

Identify the types of rates in a rate set by entering the rate definition type. Rate definition types indicate to the system to use the rate set to create indirect costs from direct costs, price transactions for billing, or price transactions for revenue. Rate definition types are used to stack rate sets for more complex pricing scenarios. Select from one of the following rate definition types:

Cost: Select the Cost rate definition type for rates that are used to track and calculate contract, project, and indirect costs. You must define a costing rate set to calculate indirect costs for cost-plus contract lines.
Billing: Select the Billing rate definition type to calculate billable rows to pass to Billing for invoice generation.
Revenue: Select the Revenue rate definition type to calculate revenue recognition rows to pass to General Ledger. This rate definition type is only available if the Separate Billing and Revenue check box is selected on the Installation Options - Contracts page. Otherwise, this field value is hidden. This option is only used with cost-plus contact lines.

Note. After a rate set is created and saved, the rate definition type cannot be changed. To modify a rate definition type on a rate set, create a new rate set and assign the appropriate rate definition type.

See Defining Standard or Contract-Specific Source Rows.

Defining Rate Set Targets

Access the Rate Sets - Target page.

The Rate Sets - Target page enables you to enter the target definitions for the source rows that you defined on the Rate Sets page. One source transaction row can have multiple target definition rows associated with it to enable you to track costs, indirect costs, billable rows, and so on depending on the type of rate set that you are defining.

See Defining Rate Set Target Rows.

Defining Rate Plans

Access the Rate Plans page.

See Defining Standard or Contract-Specific Rate Plans.

Fixed Price	Enter the sum total of all amount-based contract lines associated with this contract. This amount may display by default using the total of the Extended Price associated with the amount-based contract lines. When allocating the total fixed price contract amount across all amount-based contract lines, you must balance to the amount listed in this field.
Net Amount	Displays the total fixed price amount for the contract. For government contracts, this field displays the Fixed Price total.
Unallocated Amount	Displays the fixed amount that has yet to be allocated across eligible amount-based contract lines. This amount must equal zero before you can set the allocation option to Complete.
Inclusive Prepaids	Displays any prepaid amounts defined for the contract. Prepaid amounts are defined using the Prepaids component (CA_PPD_BY_CONTRACT). Prepaid amounts can be inclusive or non-inclusive. Only inclusive prepaid amounts display on the Amount Allocation page and are included in the overall fixed price amount of the contract.
Allocation	Select the status of amount allocations. Values include: Incomplete: This value appears by default and indicates that amount allocation has not been completely performed for entered or amended amounts for amount-based contract lines. Complete: Select this value once you have allocated any contract line amount changes across all eligible amount-based contract lines. Government contracts that contain amount-based contract lines must have the fixed amount for the contract completely allocated across any amount-based contract lines assigned to the contract and have the Allocation option set to Complete before the contract can be activated.
Recalculate	Click to update the Allocated Amount field with the amounts that have been allocated across amount-based contract lines. This button also automatically updates the allocation status to Complete when the unallocated amount equals zero.