The project/contract manager negotiates the terms and conditions of the subcontract, which often contains a Pay when Paid clause in the Engineering and Construction industry.
As work is performed, the subcontractor organization submits applications for payment, which are processed and passed through an appropriate approval process. The applications for payment often go to the project manager who reviews them against the progress and quality of the work done by the subcontractor.
The approved work confirmations are placed on hold in line with the Pay when Paid subcontract clause. As well as reviewing the applications for payment on hold, the project manager is also responsible for reviewing all costs related to the project, along with owner invoices, etc.
The project accountant/billing administrator distributes and adjusts costs, reviews expenditures, milestones and deliverables for billing eligibility, then generates the owner invoices and revenue.
In some cases, a link between the subcontractor applications for payment, and the corresponding owner invoices, may be made. This can assist with the subsequent removal of the Pay when Paid holds, when the owner receipt comes in.
The owner organization processes the invoice and pays the general contractor. Upon receipt of the payment, the billing administrator applies the amounts to the owner invoices.
The project manager reviews the payment applied to the owner invoice and determines the list of subcontractor applications for payment to be removed from hold, and approves them. A variety of other checks may also be carried out before agreeing to pay the application for payment.
There may also be one or more additional levels of approval after the project manager approval. For example, there is often a review carried out by the accounting staff, which may wish to review the payment being made to the subcontractor from an overall cash flow perspective.
The Payables organization can now process the subcontractor invoices that have been released and issue payment to the subcontractor as appropriate.
In the Engineering and Construction industry, subcontracts frequently require subcontractors to maintain specified insurance coverage or work-related certifications. The subcontractor must submit all of the subcontractor requirements, and submittals must be tracked and managed for each project. Proof of insurance, lien waivers and other certificates are also often required before payment is made, for example, insurance certificates should be checked for expiration before payment. If the subcontractor allows documents such as insurance certificates to expire without renewal, invoices may need to be placed on hold automatically. The Project/Contract Manager is responsible for reviewing individual sub-contractor invoices for processing and payment, against these pre-determined contract criteria, and for managing the holds that result when the subcontractors documents are not compliant.
Subcontractor requirements may be one-time requirements, such as a bond, which requires approval once only; alternatively, they may be iterative requirements, which require periodic renewal through the life of the project/contract. In some instances, submissions of requirements lower down in the subcontractor chain need to be tracked. An example would be the case where the general contractor's subcontractor has further subcontracted out their portion of the work. In this scenario, the general contractor may need to track and ensure that the subcontractor's subcontractor has submitted lien waivers, before the general contractor pays their subcontractor.
The term Pay When Paid refers to the situation when the Project Manager would be able to pay subcontractor only when paid by customer.
A Pay when Paid LOV is seeded in Purchase Orders in Oracle Purchasing. The LOV is available on standard purchase orders as well as procurement contracts. The profile option PA: Pay When Paid is used to control the display of the payment term on purchasing documents. The Project Manager sets the value of the profile option in Oracle Projects. The profile option supports site level and Operating Unit level values. The default value is Disabled. When the profile option is Enabled, the Pay when Paid LOV is displayed on complex work purchase orders for the given site or operating unit. When the Pay When Paid LOV is selected as Yes, all invoices matched to the purchase order will be placed on payment hold by the invoice validation routine. The buyer can set the Pay When Paid LOV to Yes.
Oracle Purchasing displays the Pay When Paid LOV in the Terms region, with a default value of No. This LOV displays only if the profile option PA: Pay When Paid in Oracle Projects is enabled. When you select Yes then all Payables invoices created with a reference to this contract would be put on a Pay when Paid hold. Once the order has been completed and approved the users should not be able to update the value of the LOV. This LOV is available for Standard Purchase Orders and with the document style, which uses Complex work details like Progress payments, Contract financing etc.
Initiate Payment Holds
During invoice validation, the purchase order is matched with the invoice. The PO program is called to check the value of the Pay When Paid LOV. If the value of the Pay When Paid LOV is Yes, then a hold is applied to the invoice.
The OKC (Contracts) program is called when the Pay When Paid LOV has a value of Yes. The OKC program provides the information of the hold to be applied to Purchasing. Purchasing passes this hold information to the Payables module. The deliverable hold is applied to the invoice.
The region Initiate Payment Holds is displayed when the Pay when Paid LOV is selected as Yes for this complex work purchase order. The region Initiate Payment Holds on the Deliverables Page has five new attributes as shown in the figure:
Prior to Due Date
Value (text field)
Choice field with seeded values of Days, Weeks, Months and Years
Deliverable Overdue checkbox
Initiate Holds - System type Look up code with 2 seeded values - All Invoices and new Invoices
If the Prior to Due date check box is checked you need to provide a value in the field next to it (Days, Weeks, Months or Years) and also choose a UOM for time. Only one option should be active at a single point of time. If you have checked Prior to due date or Deliverable Overdue checkbox , only then can you select a value from the Apply Holds LOV.
Projects Workbench enables you to track and monitor subcontract deliverables. In case of non-compliance of subcontract deliverables, automatic holds could be placed on the subcontract invoices. The Project Manager can also view a check list of all subcontract deliverables that assists in evaluating the subcontractor status prior to releasing monthly Progress payments.
Using the Projects Workbench, Project Managers with the appropriate security privileges can update existing deliverables or define new deliverables to track future subcontractor obligations. Project Managers can directly update the Contract Deliverables, Deliverable Status, add notes and attachments without having to go through the Purchasing re-approval process.
Project Managers can also perform the following: creating a new deliverable or creating a new repeating deliverable, removing a deliverable, updating Deliverable Name, Deliverable Description, Requestor, Supplier Contact, Internal Contact Deliverable, Deliverable Due Date, repeating attributes, initiate payment hold.
In project-centric industries such as Engineering and Construction, buyers are usually assigned to projects, rather than to commodities or item categories. Buyers only have the authority to transact on behalf of the projects to which they are assigned. To help enforce this business rule, project level security is implemented in Oracle Purchasing. If a user has access to a project, he also has access to the POs associated with that project.
Buyers and suppliers can track and view the progress of the Work Confirmation (of the complex work order) using the Work Confirmation page in iSupplier Portal. They can enter and view the absolute and percentage values for both incremental and cumulative progress. For more information on the Work Confirmation page, please refer to the iSupplier Portal User's Guide.