Integrating with Contracts for Government Contracting

The Government Contracting feature enables contractors to effectively manage government contracts in accordance with governmental rules and regulations. The Government Contracting system uses project, activity, and transaction data stored in Project Costing to calculate costs and fees for billing, and to create accounting entries for revenue recognition for rate-based products or services. Transactions that the Government Contracting feature creates, such as fees and withholding transactions, are sent back to Project Costing for analysis purposes.

This chapter provides an overview of the Project Costing and Government Contracting integration and discusses how to:

Set up variance pricing for Project Costing.
Create pricing variances.

Understanding Project Costing and Government Contracting Integration

This section discusses:

Terminology that is relevant to the integration between Project Costing and the Government Contracting feature.
Cost-plus contract lines.
Government contract pricing.
Government contract limits processing.
Government contract withholding.
Government contract progress payments
Government contract variance pricing.

Terminology

This table describes terms that are relevant to the integration between Project Costing and the Government Contracting feature:

Term	Description
Applied over/under asset account	A type of account that is associated with a specific cost pool and is used to store the difference between provisional (burden) expenses and actual indirect expenses. Cost rows that are generated from variance pricing typically reduce the balance of this account to zero.
Burden	Indirect costs that are created in Project Costing by applying indirect rates, such as provisional rates and forward pricing rates.
Burden rate	A rate that is associated with each defined cost pool and is typically approved by government auditors. Burden rates are subject to change based on a periodic assessment of actual indirect expenses. Changes to burden rates require adjustments to burden costs by using variance pricing.
Cost-plus contract line	The term used in Contracts and Project Costing to identify a rate-based contract line on a government contract with a fee type of fixed, award, incentive, or other. For cost-plus contract lines, direct costs are billed and revenue is booked at cost, with no mark up. Typically profit is based on a prenegotiated fee.
Direct costs	Direct costs are defined by the source systems, such as Payables, Expenses, Time and Labor, and third-party applications. In cost-reimbursement pricing arrangements, such as a cost-plus contract, government contractors typically bill the government for the direct costs, and recognize revenue with no markup for these costs.
Fee	In cost-reimbursement pricing arrangements, fees are the profit that is negotiated and documented in the contract. Fees can be fixed at the outset of performance, as in cost-plus-fixed-fee arrangements, or may vary, as in a cost-plus-incentive fee arrangement. In Government Contracting, a contract can include one or more of these fee types: fixed, award, incentive, and other. Each contract line, however, can contain only one fee type.
Forward pricing rates	Rates that are used to calculate revenue recognition based on indirect costs. Forward pricing rates are determined by the government contractor, and can be different from provisional rates. Forward pricing rates represent the best estimate of the government contractor's overhead costs as a percentage of direct costs. They can also include a calculation against nonbillable costs. Forward pricing rates can be submitted by the contractor to the government for negotiation to bid on future or multiyear contracts. When the contractor and government reach an agreement, typically the rates are documented in a forward pricing rate agreement and are used to calculate indirect costs for revenue recognition.
Indirect costs	Additional costs that are applied as a percentage of direct costs. Examples of indirect costs are overhead costs, general and administrative expenses, fringe, and cost of money. These types of costs are captured in indirect cost pools.
Provisional rates	Estimates of the cost of overhead as a percentage of direct costs, specified by the government. Government contractors calculate and bill the government for indirect costs based on provisional rates.
Variance pricing	Retroactive rate adjustments that are used periodically to book variances to billing and revenue rows. The system tracks the sum of a project’s revenue and billing transactions. Upon final settlement or as required during the project, the government determines the required rate variance adjustment.

Cost Plus Contract Lines

After you establish a cost-plus contract line in a government contract, and you create the billing and revenue plans to process billing and revenue for cost-plus fees, you link the contract line to a project and activity. This enables the system to appropriately allocate direct and indirect costs by using a standard or contract-specific rate set or rate plan that you create in Project Costing.

See Also

Defining Rate Sets and Plans

Creating Cost-Plus Government Contract Lines

Government Contract Pricing

You can create rate sets with a rate definition type of cost, billing, or revenue, for use on cost-plus contract lines. Rate sets with the revenue rate definition type are available for government contracts if you select the Separate Billing and Revenue option on the Installation Options - Contracts page. The system separates the billing and revenue accounting rules because the amounts that are used for billing a government contract may be different than the amount and timing of revenue that is recognized and sent to the general ledger. You can run the Pricing Application Engine process (PC_PRICING) to process all contract lines, or run the process separately for cost, billing, or revenue transactions.

Cost and billing rate definition types are always available for rate sets.

Note. Government contracts are not eligible for organizational sharing or quantity-based tiered pricing.

See Also

Pricing Project Costs

Pricing Government Contracts

Government Contract Limits Processing

Costs are subject to transaction and contract line level limits. The system applies transaction limits before contract line level limits. Transaction limits are based on limits that you establish by contract line and transaction identifier, and are comprised of combinations of transaction sources, categories, and subcategories. The system applies the transaction and contract line limits against corresponding direct and indirect cost transactions, excluding the transactions that are outside of the period of performance if the Control Limits and Billing option is selected for the contract line on the Contract Amounts page. The system creates billable transactions (with an analysis type of BIL) and revenue-recognizable transactions (with an analysis type of REV) for cost transactions that completely pass limit checking. The system creates over-the-limit billing transactions (with an analysis type of OLT) and over-the-limit revenue transactions (with an analysis type of ROL) for cost transactions that exceed any applicable limit. The system splits a cost transaction into separate billable and over-the-limit billing transactions and separate revenue-recognizable and over-the-limit revenue transactions in the amount of the remaining limit and excess, respectively, if the Split to Match Limit Exactly option is selected on the Installation Options - Contracts page. The system excludes OLT and ROL rows from billing and revenue processing, and from the costs to be used for the fee calculation, when OLT and ROL analysis types are excluded from the analysis groups in the BIL Analysis Group and REV Analysis Group fields that are specified in the Calculation Basis group box on the Contracts Definition - Fee Definitions page for the business unit.

See Also

Creating and Managing Limits

Government Contract Withholding

The government can require contractors to retain a percentage of rate-based contract lines as an incentive to complete the contract by a specified date. The Contracts Billing Interface Application Engine process (CA_BI_INTFC) generates withholding transactions. During the billing cycle, the Billing Worksheet and the Project Costing-Contracts Interface Application Interface process (BIPCC000) send withholding transactions to the Project Transaction Temporary Billing table (PROJ_RES_TMP_BI). Then the Billing to Project Costing Application Engine process (PC_BI_TO_PC), which updates the Project Transaction table with results from Contracts and Billing processes, inserts rows into the Project Transaction table for staged withholding transactions. Withholding transactions are designated with these analysis types:

Withholding (WTH)
Withholding Adjustment (WAJ)
Withholding Release (WRL)
Withholding Release Adjustment (WRJ)
Withholding Write-off (WWO)

See Also

Understanding the Billing Process Flow

Processing Transactions Using Accounting Rules

Setting Up and Processing Withholding

Government Contract Progress Payments

The government can issue progress payments to the contractor prior to contract completion. The payments are based on an approved progress payment rate that can be included as terms in a government contract. The contractor issues progress payment requests to the government as costs are incurred. The requests can be issued based on a regular schedule or work progress.

Progress payments are applied to a specific contract, project, or set of project transactions. Use the Projects and Activities page in Contracts to associate a project and activity to progress payment terms on a contract. The system uses the specified projects and activities to calculate inception to date and estimated costs. Transaction rows that are eligible for progress payments are stored in the Project Transaction table (PROJ_RESOURCE) with analysis types that are associated with the PeopleSoft Inception to Date (PSITD) or PeopleSoft Estimated Cost to Complete (PSECC) analysis groups. The Accumulate Progress Payment Costs Application Engine process (CA_PGP_CALC) in Contracts retrieves the eligible costs from the Project Transaction table.

Projects and activities that are associated with contract lines are not included in progress payment cost calculations.

Progress payments are applicable only to amount-based contract lines for government contracts.

See Also

Establishing Progress Payments

Government Contract Variance Pricing

Government contractors typically use provisional rates for billing, because provisional rates are the government-approved rates. They use forward pricing rates for revenue recognition, because forward pricing rates represent a more accurate estimate of overhead costs. You may be required to change provisional rates based on a rate review by the government, or you may want to calculate new forward pricing rates based on an internal audit. The adjustments can impact rates and require billing adjustments.

Retroactive rate adjustments, or variance pricing, are required when the government contractor retroactively applies new rates to unprocessed and previously processed transactions. The system applies the difference in rates against historical costs in a specified date range, and creates new transactions for the incremental difference between the old and new rates.

For example, assume that since January 1, the overhead rate has been 40 percent. On July 1, the rate changed to 45 percent, retroactive to the beginning of the year. The variance rate, which is the difference of 5 percent, is applied to all costs year-to-date, using standard rate source matching. The system processes the new transaction rows. As part of the Variance Pricing process, the delta rows are priced for revenue and billing based on the rate set or rate plan.

By using the Variance Pricing Application Engine process (PC_VAR_PRICE), you can:

Process rates that are attached to contract lines or project activities.
Capture the date and name of the person who made the change.
Run variance pricing for one or many burden rate types, such as fringe benefits and overhead.
Run variance pricing on existing rate sets for a specific contract line or project.
Capture and process variance pricing for a particular effective dated set of rates.

Note. You can capture and process variance pricing only against costing rate definition types.

See Also

Performing Variance Pricing

Setting Up Variance Pricing for Project Costing

To set up variance pricing for Project Costing, use the Rates Sets component (PC_RATE).

This section discusses how to:

Enable variance pricing.
Define rate set target rows.

See Also

Defining Rate Sets and Plans

Pages Used to Set Up Variance Pricing

Page Name	Object Name	Navigation	Usage
Rate Sets	PC_RATE_DTL	Setup Financials/Supply Chain, Product Related, Project Costing, Pricing Structure, Rate Sets, Rate Sets Customer Contracts, Contracts Center, Definitions, Rate Sets, Rate Sets	Define source criteria to identify cost transactions from feeder systems, and enable users to enter rate variances on the Rate Sets - Target page.
Rate Sets - Target	PC_RATE_DTL_LN	Click Target on the Rate Sets page.	Define rate template target criteria for creating billing rows, and access the Variance Rate History page to define variance rates for costing rate sets.

Enabling Variance Pricing

Access the Rate Sets page.

Select the Enable Variance option to enter rate variances on the Rate Variance History page for target rows on the rate set and indicate that this costing rate set is eligible for variance pricing. The Enable Variance option appears if you select a rate definition type of Cost. The default value is inactivated (cleared).

You can activate or inactivate the Enable Variance option until you enter a variance rate on the Rate Sets - Target page.

Defining Rate Set Target Rows

Access the Rate Sets - Target page.

For variance pricing, on the Rate Sets - Target page you define the target rates that the system uses to calculate indirect costs, and access the Rate Variance History page to enter new rates for the target rows. The rate that appears the most current, active rate that is used to price the target row. You maintain variance pricing rates on the Rate Variance History page.

The Sequence Number and History columns appear in the Define Target Rows grid when you activate the Enable Variance option on the Rate Sets page.

Sequence Number

Displays the sequential rate target number assigned by the system from the Rate Variance History page. This value uniquely identifies the target sequence row and is updated incrementally each time a new active rate is added. The active target sequence and associated rate appears on this page.

History

Click the link to access the Rate Variance History page for the target row, based on your security access, to enter new variance rates. This link appears when you enable variance pricing for the rate set.

You cannot edit a rate amount on the Rate Variance History page for target rows with a rate option of Bill at Cost (NON), Activity Bill Rate (ABI), or Activity Cost Rate (ACO).

Creating Pricing Variances

This section discusses how to:

Enter pricing variances.
Apply pricing variances.

Pages Used to Create Pricing Variances

Page Name	Object Name	Navigation	Usage
Rate Variance History	PC_VP_HISTORY	Setup Financials/Supply Chain, Product Related, Project Costing, Pricing Structure, Rate Sets, Target Click the History link on the Rate Sets - Target page.	View and enter variance pricing rates.
Variance Pricing	PC_VAR_PRICING	Project Costing, Utilities, Variance Pricing, Variance Pricing	Run the Variance Pricing process on selected rate sets.

Page Name

Object Name

Navigation

Usage

Rate Variance History

PC_VP_HISTORY

Setup Financials/Supply Chain, Product Related, Project Costing, Pricing Structure, Rate Sets, Target

Click the History link on the Rate Sets - Target page.

View and enter variance pricing rates.

Variance Pricing

PC_VAR_PRICING

Project Costing, Utilities, Variance Pricing, Variance Pricing

Run the Variance Pricing process on selected rate sets.

Entering Pricing Variances

Access the Rate Variance History page.

Defined Target

The Defined Target region displays the rate definition, source, and target information. You can view information on one target row at a time.

Defined Variance Rates

When you access this page for the first time for a particular target, one row appears in this grid—the original target rate amount with an active status.

Status	Displays the system-generated status of variance pricing rows. Values are: Pending: The system assigns this status when you add a new row. Only one row can be in a pending status in the grid. In this status, the value in the Rate Amount field is editable, pricing processes do not use the rate, and the rate does not appear on the Rate Sets - Target page. Active: The Variance Pricing process changes the pending row to the active row. Only one row can be in an active status in the grid. The rate amount field is not editable, standard and variance pricing processes use the rate amount in this row, and the rate is displayed on the Rate Sets - Target page. The system changes the status of this row Inactive when you add a new row. Inactive: Rows that are maintained for history. Variance pricing uses historical rows to calculate old and new rate differences. There can be multiple inactive rows per target. The rate amount field is not editable, pricing processes do not use inactive rates, and inactive rates do not appear on the Rate Sets - Target page.
Sequence Number	Displays a concatenation of the target row sequence number and the variance rate sequence number. The system assigns the variance rate sequence number beginning with zero, and increments by one each time you enter a new rate. You cannot delete variance rate rows on this page.
Rate Option	Displays the rate option that is specified on the target row on the Rate Sets - Target page. The rate option specifies how the system derives the rates for the corresponding target row. See Defining Rate Set Target Rows.
Rate Amount	Add a new row and enter the new variance rate. You cannot edit the rate amount on the original row—the row with sequence number zero. You can correct a rate amount in a row that is still in a pending status. After you enter the first variance rate and save the page, you can no longer edit the rate amount on the Rate Sets - Target page for this target, regardless of the status at the target sequence level. You must use the Rate Variance Page to edit or add variance rates for this specific target.
Description	Enter a reason for the change. The system uses this description on new transaction rows that the Variance Pricing process creates for a run control if there is no description in the Output Options group box on the Variance Pricing run control page.
User and Change Date	Displays the user name, date, and time of the new or changed rate.
Processed Date and Process Instance	Displays the date, time, and process instance of the Variance Pricing process run.
Apply	Click to save the changes to the database, and remain on the page.
Apply and Return	Click to save the changes, and return to the Rate Sets - Target page.
Cancel	Click to return to the Rate Sets - Target page without saving changes.

After you save the page, standard pricing processes will continue to use the active rate until you run the Variance Pricing process, which changes the status of the pending row to active.

Note. Variance pricing applies only to the rate amount. It does not evaluate changes that you make to other fields.

Do not change the analysis type on the Rate Sets - Target page and then apply variance pricing to the target row. When the Variance Pricing process applies the difference between old and new rates, it does not evaluate the analysis type to determine if it changed since the row was originally priced.

Applying Pricing Variances

Access the Variance Pricing page.

Use this page to run the Variance Pricing process for:

Rate sets with a costing rate definition type.
Target variance rate amounts with a pending status.
Contracts with an open or pending processing status.
Contracts, projects, and activities that use the rate definition on this run control page.

Rate Set	Select the rate set for which you want to run variance pricing. The system will evaluate transactions from all open contracts, projects, and activities that are associated with the selected rate set. Only rate sets with a costing rate definition type appear for selection.
Effective Date	Select the effective date of the rate set. Available options are based on the effective dated rows for this rate set that are defined on the Rate Sets page. The Variance Pricing process uses the rate amounts from the selected effective date of the rate set, regardless of the source transaction date. You can select an effective date of an active or inactive rate set. As an example of when you may want to select an inactive rate set, assume that you have an active rate set with an effective date of January 1. On October 1 you create a new rate set, and inactivate the previous rate set. You may still need to run the Variance Pricing process by using the rate set is active on 1/1/2004.
Accounting Date	Select the accounting date to apply to transactions that the Variance Pricing process creates. Options are: System Date: Select to use the run date as the accounting date on the new transaction rows. Specify Date: Select and enter a date to use as the accounting date on the new transaction rows.
Description	Enter a description to apply to the new transaction rows that the Variance Pricing process creates for this run control. Leave the field blank to use the rate target description. If you do not enter a description in this field, and there is no rate target description, no description will appear on the new row created in the Project Transaction table for this run control.

The Variance Pricing process completes these steps:

Updates the target variance rate sequence row to active.
Reprices rows eligible for repricing based on the new rate amount.
Triggers the Pricing process to price any new, unbilled, or unbooked transactions using the new rate.
Prices rows eligible for variance pricing based on the new rate amount.
Stamps the user ID from the run control, the process instance, and system date of this process, on the target variance rate sequence row.
Updates the rate amount and sequence number on the Rate Sets - Target page with the new active target variance row.
Creates new transaction rows with a system source of Variance Pricing Output (PRV).
When you change a rate on an eligible costing rate set that is associated with a rate plan, after the Variance Pricing process creates the new transaction row, the system prices the new row using any applicable remaining rate sets contained in the rate plan.

For example, if you have a rate plan that contains 4 rate sets and you run the Variance Pricing process on rate set 1, the output rows from rate set 1 are eligible to be priced for rate sets 2, 3, and 4, in sequential order, if the rows meet the eligibility criteria for those rate sets.

Repricing cannot occur on any transaction rows that are created as a result of the Variance Pricing process.