ORACLE APPLICATIONS

WHITE PAPER
PROCESSING COMPLEX PURCHASE ORDERS
AND RETAINAGE IN PAYABLES

MARCH 2009

Contributors: Cheryl Riniker, AP Center of Expertise

Versions: 1 – March, 2009

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Contents

Introduction..................................................................................................................................3
Objective...............................................................................................................................3
Scope.....................................................................................................................................3
Background...........................................................................................................................3
Terms.....................................................................................................................................3
Processing Complex Purchase Orders and Retainage in Payables...............................................5
Overview...............................................................................................................................5
Set Up Steps for Complex Purchase Orders and Retainage..................................................5
Additional Required Set-Up Steps for Complex Purchase Orders and Retainage................6
Entering a Complex PO ........................................................................................................6
Entering Advances................................................................................................................9
Entering Progress Payments................................................................................................10
Entering Retainage Release Invoices..................................................................................11
Technical Information................................................................................................................14
Information Sources...................................................................................................................15
How Does An iProcurement User Create Work Confirmation For A Complex Services PO?
[ID 556259.1].............................................................................................................................16

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Introduction

Objective
To provide an overview of the Complex Purchase Order and Retainage feature from the Payables
perspective with the hopes of giving the reader a good understanding of the feature, the setups,
how to enter advances, progress payments, and retainage amounts.
Scope
This paper will cover the functional side of processing complex purchase orders and retainage in
payables and discuss some of the options and their impact.

Background
The ability to enter complex purchase orders and retain portions of the purchase order until a
particular milestone is met is a new feature in R12.

Terms
Advance: Generally a one-time prepayment made before work on the contract begins while
contract financing infuses money to the supplier as work progresses.

Retainage: The common practice of withholding a fixed amount / percentage of payment until all
work under a contract is complete and accepted. The retainage terms are agreed upon by the
buyer and supplier and are intended to make sure that the supplier finishes the work as per the
contract. Retainage is also called “retention” or “contractual withholds”. At the end of the project
or when agreed events have occurred, the supplier will request the amount retained and payment
will be made to release it.

Retainage Rate: Rate applied to Invoices, which determines the fraction of the Invoice amount that
is withheld from payment.

Recoupment: Liquidation of previous financing payments from payments made for the delivery of
services.

Recoupment Rate: Rate applied to Invoices that determines the fraction of the Invoice amount
used towards recoupment of previous financing payments.

Progress Payments: Invoices representing progress are matched to the purchase order, updating
the purchase order with the progress and paying for the work done.

Progress Payment Schedule: Represents a schedule of services and work with associated
payments

Progress Payment Rate: Used on a Cost Reimbursement Contract. This represents the rate at
which costs incurred by the Contractor are reimbursed.

Contract Financing: 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.

Pay Item: Refers to a specific work/service component of the Progress Payment Schedule, and its
associated payment amount

Financing Complex Work Case: In this case, pay items are actually loans given at various stages
that are later recouped when invoices are made. Financing payments are any payments that are

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made before final acceptance of work or products. A Progress Payment Rate is applicable only in
this case. In this case, the total amount of pay Items can be less than or equal to the line amount.
Retainage is not withheld on Progress Invoices Treated as Contract Financing – it is withheld from
the delivery of the goods or services.

Actual Complex Work Case: In this case, pay items are actual invoices. Here, payments are for
accepted supplies or services, including payments for accepted partial deliveries. This type of
contract can have Advances. In this case, the total amount of pay Items should be equal to the
line amount.

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Processing Complex Purchase Orders and Retainage in Payables

Overview
Complex payment terms and conditions for fixed price contracts can be captured during the
procurement contract flow. This includes options for progress payments, advances and contract
financing, and retainage. These terms and conditions are supported in Oracle Payables when
recording invoices and managing payment execution during the lifetime of the contract. Seamless
and real time status of the purchasing contract, progress, financing and advances balances,
retainage and retainage release is provided to both Oracle Payables and Purchasing users.

Set Up Steps for Complex Purchase Orders and Retainage

There are two setups steps that are required if the complex purchase orders and retainage feature
will be used.

1. Create a document style in Oracle Purchasing.

Responsibility: Purchasing
Navigation: / Setup / Purchasing / Document Styles  Create
Define whether the complex PO can include advances, retainage, and progress payments.

Pay Items can be Milestone, Rate, or Lump Sum. For Fixed Price Services, rate based pay
items will be considered quantity based matches and milestone and lumpsum will be
considered amount-based matches when evaluating billed, planned, and tolerances.

Milestone pay items are based on a milestone in the contract or event that needs to be fully
complete before the contractor can claim the associated payment.

Rate pay items are based on a ‘Rate’ of work completion. Payments for these can be claimed
as units of work are completed.

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 Lump Sum pay items, as the name suggests, 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.

If the “Treat Progress Payments as Contract Financing” option is selected, then pay items
entered follow the Financing Complex Work case. If the option is not selected, then pay items
follow the Actual Complex Work case.

Note: The profile option “POR : Amount Based Services Line Type” specifies how services are
to be quantified and ordered on the transaction document. In order to use the Complex
Services functionality, the value for this profile option should be set to ‘Fixed Price Services’,
which means that services will be ordered as an amount. This setup is found performed in the
System Administrator responsibility under System Profiles.

2. Create a retainage account in Financials Options setup.

Responsibility: Payables
Navigation: / Setup / Options / Financials Options
Enter the retainage account to use during accounting.

Note: Historically the prepayment account entered here would default to the supplier site and
be used when creating prepayments for the supplier. However, the new Advances and
Contract Financing prepayments introduced with this solution will use the distribution account
on the Purchase Order and not the supplier site.

Additional Required Set-Up Steps for Complex Purchase Orders and Retainage
In addition to the two set-up steps required to enter a complex purchase order and use the
retainage option, there are three other set-up steps that impact how the PO’s and Invoices are
processed.

1. Define matching tolerances in the Invoice Tolerances Template

2. Specify supplier terms and controls in the supplier setup
3. Define approval rules in Oracle Approvals Management

Entering a Complex PO
Because this document focuses on entering data in Payables, this section will only discuss the
basic steps to enter a complex PO. Complex purchase orders can only be entered through the
Buyer Work Center navigation.

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1. Create a procurement purchase order in Oracle Purchasing.
Responsibility: Purchasing
Navigation: / Buyer Work Center / Orders
Select the complex PO document style in the Create drop down box or select ‘More’ to find the
complex PO document style if it is not listed in the LOV.

2. Enter the Purchase Order header information and enter the line details.

3. After entering the line, select the Update icon to enter the Financing Options

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4. Enter additional the pay items for which a payment should be made.

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 5. Enter the distributions. The advance to be paid will show on distributions.

6. Save and Approve the PO

Entering Advances

Advances can be entered through the invoice workbench or through the quick invoices form as
prepayment type invoices that are matched to a purchase order. Self Service Entry has been
expanded to support searching and selecting Advances and Financing rows when submitting
Matched invoices. This document will show entering an advance through the invoice workbench.

Create a prepayment invoice in Oracle Payables.

Responsibility: Payables
Navigation: / Invoices / Entry / Invoices

1. Select Prepayment type invoice, and enter the PO number.

2. Either enter the Prepayment line directly in the lines tab or use the Matching window to first
review possible choices before selecting one to match to.

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 Once an Advance is approved and paid, the status will be updated to Available. It will be a
combination of this status and the settlement date that will determine when the prepayment is
ready for automatic recoupment on progress invoices.

Entering Progress Payments

Progress payments can be entered through Quick Invoices, Invoice Entry in the Invoice
Workbench, the Pay on Receipt Import process from Purchasing, the Payables Invoice Import
process, or initiated as a payment request from iSupplier. The example in this document will show
entering a progress payment from the invoice workbench.

Create an invoice in Oracle Payables.

Responsibility: Payables
Navigation: / Invoices / Entry / Invoices

1. Select Standard type invoice and enter basic header information, along with the PO to match.
2. Select the Match button, and match to the PO

3. The retainage amount is calculated (in this example, 10% of $3000 or $300).

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 4. On the next progress payment, which is also for $3000.00, the retainage will be only $500
because that was the maximum retainage amount defined in the financing options.

Entering Retainage Release Invoices

Retainage Release invoices can only be entered by the Payables Analyst through the Invoice
Workbench.

Create an invoice in Oracle Payables.

Responsibility: Payables
Navigation: / Invoices / Entry / Invoices

1. Enter invoice type “Retainage Release”

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2. Enter the Release Amount Net of Tax.

3. The retainage account is relieved, and the accrual account is debited the released amount.

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Fixed Price Contract Calculation Example

The recoupment amount used to offset the prepayment made is calculated based on the least
value of either the invoice amount multiplied by the recoupment rate, the invoice amount less the
retainage amount, or the prepayment amount less any other recoupment amounts.

PO Amount: $100.00
Prepayment Amount: $ 40.00
Recoupment Rate: 80%
Retainage Rate: 15%

Invoice Line Amount: $10.00

Retainage: -$1.50 ($10 x 15%)
Recoupment: -$8.00 Least of:
$10.00 x 80% = $ 8.00 – Line Item Amount
$10.00 – 1.50 = $ 8.50 – Amount due after retainage
$40.00 – 0 = $40.00 – Remaining Prepaid Amount
======
$ 0.50

Invoice Line Amount: $60.00

Retainage: -$9.00 ($60 x 15%)
Recoupment: $-32.00 Least of:
$60.00 x 80% = $48.00 – Line Item Amount
$60.00 – $9.00 = $51.00 – Amount due after retainage
$40.00 – $8.00 = $32.00 – Remaining Prepaid Amount
=======
$19.00

Invoice Line Amount: $30.00

Retainage: -$4.50 ($30 x 15%)
Recoupment: -$0.00 Least of:
$30.00 x 80% = $24.00 – Line Item Amount
$30.00 – $9.00 = $25.50 – Amount due after retainage
$40.00 – $40.00 = $ 0.00 – Remaining Prepaid Amount
=======
$25.50

PO Amount: $100.00
Prepayment Amount: $-40.00
Payments – Retainage: $-45.00
=======
Retainage Amount Due: $ 15.00

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Technical Information

The following files are relevant to the Complex PO/Retainage feature.

AP_RETAINAGE_RELEASE_PKG (apcwrelb.pls)

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Information Sources

Oracle® Payables User Guide, Release 12, Part No. B25454-04

- Advances and Progressive Contract Financing

Oracle® Purchasing User Guide, Release 12, Part No. B28669-01

- Entering Complex Work Purchase Order Lines
- Complex Work in the Procurement Suite (Appendix G)

Oracle® iSupplier Portal User Guide, Release 12, Part No. B31601-01

Note 396256.1: FAQ Procurement Services in Release 12

Note 560323.1: How to Setup Document Sequence Category for Retainage Release Type
Invoices

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How Does An iProcurement User Create Work Confirmation For A Complex Services PO? [ID
556259.1]
Applies to:
iProcurement - Version: 12.0.3
Information in this document applies to any platform.

Goal:
How does a user or project manager create a Work Confirmation for a complex services purchase order
(PO) using iProcurement?

Solution

Work Confirmations may be created by Supplier users in iSupplier Portal, by Buyers in the
Buyer Workcenter, or by iProcurement users in iProcurement.

The following conditions should be present to allow an iProcurement user to create a work confirmation
against the complex services Standard PO.

1. The complex services PO was autocreated from a requisition and is linked to the requisition

2. The PO is approved and not cancelled

3. The PO is acknowledged and/or accepted by the supplier if the PO requires acknowledgment or acceptance.

NOTE: It is not necessary for the iProcurement user to be a requester or preparer of the requisition, nor a Buyer.

To create the work confirmation from iProcurement, use the following navigation:

1. Navigate to iProcurement responsibility

2. Select requisition from My Requisitions, or search and select a requisition from requisition search
3. Click on the PO order number

(NOTE: If the PO order number is not clickable, check the conditions above are met. The Order is not in a valid
state for creating Work Confirmation from iProcurement if the order number is not a clickable link)

4. Select Create Work Confirmation from the action LOV and click Go
5. Select Line and Pay Item for which the Work Confirmation is needed and click Next
6. Specify a unique name for the Work Confirmation. Specify or accept the progress value for the pay item, and
click Submit.
- Confirmation - Your Work Confirmation <name> has been submitted.

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