Welcome to the Project Partners’ on-demand webinar series on Oracle Cloud ERP’s benefits for the Engineering and Construction industry.

This industry is no stranger to challenges, whether it’s complex project management needs or stringent budget controls. Amidst these challenges lies an opportunity to revolutionize how projects are planned, executed, and managed. Oracle’s Cloud ERP empowers organizations to unlock efficiency and achieve unprecedented levels of success.

In this interview, our in-house experts, Bruce Maghan, VP of ERP/Project Solutions, and Neeraj Garg, Executive Consultant of Industry Solutions, explore enabling Contract Management in Oracle Fusion Cloud ERP.

Can you briefly explain what contract management is, its importance in the E&C industry, and the key challenges of contract management?

Bruce: Contract management in Oracle Cloud ERP drives how the project is managed from a revenue and invoicing perspective. The functionality allows you to measure reported progress or your completion percentage against a schedule of values to ensure accurate billing per the terms of your contract. The major challenge faced by E&C companies is extremely narrow margins on projects that are very dynamic in nature.

Effective contract management allows these firms to maximize their margins and move to break-even points earlier in the project lifecycle.

How can Oracle Cloud ERP address these challenges and improve contract management processes?

Neeraj: Contract management starts right when the customer has told you that they have selected you to be the contractor of choice to deliver the service. And that is really where your legal department then combines or collects together the appropriate contracting document that they would like to work with the customer on negotiations and finalize from that perspective of moving forward.

Oracle Cloud ERP can have pre-defined contract templates, which the organization can create based on the different types of contracts that it typically works with. And then, use these templates, which combine both the financial aspect of a contract and the terms and conditions aspect of the contract, the Ts and Cs, and use that as a starting point to provide to the customer and work through the entire negotiation process.

The status model in Oracle Cloud ERP contract management also gives you the ability to really track a contract all the way from the initiation of the contract during the opportunity phase all the way down to the execution of the project once you have the contract signed and ready to go, including things like managing amendments and managing functions from that side of the house.

What are the benefits of having a robust schedule of values in contract management?

Neeraj: The schedule of values is the standard way in which most construction is managed between the customer and the contractor, the general contractor, or the subcontractor. A schedule of value states that for a given type of work being performed: what is the total quantity that is agreed to be delivered, and what is the price at which that will be delivered? With Oracle Cloud ERP, the contract management module allows you to define contract lines.

Each line in the contract can then correspond to a line in your schedule of values. It further allows you to collect progress by automatically linking it to the project being executed or manually by entering the progress against the schedule or value line item, the contract line items, thereby allowing you to accurately generate invoices that you would then send to the customer.

You could also use the same progress percentages to do revenue recognition. Note: You can only do revenue recognition in a completely internal policy-based method. The flexibility and the ability to provide both sides of the view, the financial aspects for the schedule of values and how it is managed, as well as the terms and conditions and how that is managed with a comprehensive, really good amendment process to manage changes really, and a status model that allows you to walk through the entire lifecycle. This is really what makes contract management in Oracle Cloud ERP conducive for use in E&C firms.

How does the integration of Oracle Cloud ERP and a PMIS system streamline the execution of construction projects?

Bruce: As we’re talking about the execution of a project, managing a contract, and tracking progress at a schedule of values level to support billing and possibly revenue recognition. When you integrate your PMIS tool, what you’re doing is you’re eliminating the duplicate manual effort.

In your PMIS tool, your project manager is going to execute and manage the execution of the project. Progress will be collected against various tasks at a very granular level. Progress will be generated off the granular level items that get rolled up to a higher-level task to recognize a percentage of completion, then forecast data can be generated from this in your PMIS tool.

This information can then be integrated into Oracle Cloud ERP, allowing you to capture the progress and roll it up to the contract line values in your contract management tool because you can associate your tasks to contract lines associated with your SOV. By doing this, you’re automating the progress from the project manager and the execution tool into your financial system to generate your invoices based on the accurate progress against your SOV, ensuring your billing per your contract terms.

Can you share any success stories where E&C companies have implemented Oracle Cloud ERP with a PMIS for contract management?

Bruce: We can refer to a few companies. One would be WSP, the other CDM Smith, and then Burns & McDonnell. In these cases, project managers are doing the execution functions for the project in the PMIS tool. They’re not bogging down the financial/ ERP system with a lot of granular project tasks that produce additional issues for users downstream. They use this information to generate progress reports and then generate their forecast. They push that over into the Cloud ERP tool to get rolled up progress on the project based upon the physical completions in the field.

Next, they can take that information, apply it against their schedule values on the contract, and then bill their clients or recognize revenue based on the contract terms.

Are there any specific features or functionalities within Oracle Cloud ERP that make it stand out as the preferred solution for E&C companies looking to optimize their contract management processes?

Neeraj: There are multiple features within Oracle Cloud ERP that allow contract management to be a comprehensive function within the applications.

Separation of the terms and conditions with the financial setup of the contract.

The financial setup drives how that contract will drive revenue recognition and invoicing, whereas the terms and conditions are the obligations, functions, and terms that bind the two parties together in the contracting vessel, which is the contract itself.

The separation of these two really provides an easy way to manage both the terms and conditions as well as the financial elements. Now, the financial elements can be modeled very clearly with the schedule of values if it’s a construction project. Or if it is not a construction project, you can actually base it on your deliverables to match the esthetics of six requirements and thereby look at how you can manage your revenue recognition and invoicing based on the deliverables that you have to the customer or ask for the contract that you have just entered into.

So, that is a critical element of the entire contracting process and the contracting module within Oracle Cloud ERP that really assists this function.

Status Model.

The Status Model allows you to take a contract all the way from initiation through the negotiation process, where you have both parties redlining the agreement and agreeing on a final contract. This includes the Ts & Cs and the financial aspects of the contract, then down to the execution of the project once the contract is finalized. The changes can be done based on the status of amendments and things like that that the contract management model provides.

Amendment Management.

Amendment Management is a key element of the product because it allows you to keep the current contract status valid for financial purposes like invoicing and revenue recognition while you continue to work on making amendments based on change orders that are received from the contract opportunities that are agreed to with the appropriate customer. So that way, you can continue to keep the old version of the contract active while you make the changes, get the changes approved, and then incorporate them into your contract, then they become valid from the effective date.

All three of these are really powerful features of contract management, which in Cloud ERP, allow E&C firms to make full use of the application and enable the functionality for their business process.

Stay tuned for our next episode in this series, where we’ll dive into supply chain management.