There are two primary contract billing processes used by engineering construction and operations industries, the first is the Lump-Sum Contract with Milestone Billing, the second is the Unit Price Contract with Service Entry Sheet.
Lump-Sum Contract with Milestone Billing
This scenario deals with selling services where owner and general contractor have agreed on a lump sum for the execution of the contract on a billing plan with dates depending on the progress of the work.
A lump sum contract is more and more used in the construction industry. Owner and general contractor agree on a lump sum for the execution of the contract. Aside from the lump sum, the owner and general contractor agree on a billing plan with dates depending on the progress of the work. For example, this means that 10% of the lump sum is paid when the contract is signed, 40% when the building shell is finished, and 40% when the interior fittings have finally been performed. The remaining 10% is paid once the entire work is done, that means after the acceptance procedure.
A Bill of Services is a quantitative and qualitative description of the services to be performed – for example, to build a new building. In case of lump sum contracts, it is used only for internal purposes, as a tool to do the internal cost estimation and to measure the progress of the construction site. But nevertheless it is also the communication structure for all business partners involved in the process (general contractor, subcontractors, and so on). But in contrast to the unit price contract the settlement is done using a billing plan and not with the service entry sheets. Service entry sheets are the internal measure to valuate the constructions site and to determine its progress.
The scenario focuses on the following activities:
- Creating a Customer Inquiry (optional)
- Creating a PS Project
- Creating a Customer Quotation (Optional)
- Creating a Customer Order with Billing Plan
- Confirmation of Milestone
- Creating a Billing Document and Accounting Document
- Post Payment
- Repeat the steps 5 to 7 until the Final Invoice has been reached
- Technical closure of the Project
Unit Price Contract with Service Entry Sheet
This scenario deals with selling services to a customer where owner and the general contractor agree on a price for one unit of the service to be performed. A unit price contract can be used in the construction industry. A Bill of Services is a quantitative and qualitative description of the services to be performed – for example, to build a new building. It is the communication structure for all business partners involved in the process (owner, general contractor, subcontractors, and so on) and used, for example, to measure the progress and bill the services performed so far.
Unit price means that the owner and the general contractor agree on a price for one unit of the service to be performed. The price is determined by means of cost estimation and the sales pricing, a subcontractor quotation or entered manually. To measure the progress for the services to be performed a service entry sheet is created. A service entry sheet is a quantitative confirmation for the services performed so far. The billing (down payment request or invoice) is based on the service entry sheet (quantities performed) and the bill of services (prices).
The scenario focuses on the following activities:
- Creating a Customer Inquiry (optional)
- Creating a PS Project
- Creating a Customer Quotation (Optional)
- Creating a Customer Order
- Create a Service Entry Sheet
- Release Service Entry Sheet
- Creating a Billing Document and Accounting Document (for example Down Payment Request or Debit Memo)
- Post Down Payment or Payment
- Repeat the steps 5 to 8 until the Final Invoice has been reached
- Technical closure of the Project
The Building Block 447 Contract Billing for Engineering & Construction of SAP Best Practices for Engineering, Construction and Operations may help you to get more details:
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