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Global Sponsor Effective Management of Subcontracting in Engineering and Construction Industry September 29 th, 2014 11:45 AM – 12:30 PM.

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Presentation on theme: "Global Sponsor Effective Management of Subcontracting in Engineering and Construction Industry September 29 th, 2014 11:45 AM – 12:30 PM."— Presentation transcript:

1 Global Sponsor Effective Management of Subcontracting in Engineering and Construction Industry September 29 th, :45 AM – 12:30 PM

2 2Copyright © 2014 Deloitte Development LLC. All rights reserved. Contents ‏ Introduction ‏ Overview of Procurement in E&C Industry ‏ Why Subcontracting? ‏ Subcontracting Challenges ‏ Enhancements to Subcontracting Process ‏ Business Benefits ‏ Business Process ‏ High level Solution ‏ Integration Details ‏ Q&A ‏

3 3Copyright © 2014 Deloitte Development LLC. All rights reserved. Introduction ‏ In today's competitive environment, organizations are trying to develop their competitive edge by concentrating on specifics rather than trying to master all the skills. This has led to sub-contracting. When the organizations engage a contractor to complete the project, contracting firms face the challenges in providing the resources with required expertise in all the areas. So they will subcontract part of the project work to another contracting firm. Subcontracting involves complex payment terms. ‏ This session discusses the integration between Oracle Purchasing, Payables and Projects, and an approach to enable the complex payment terms for effective management of sub-contractors. ‏ This presentation should not be interpreted as a representation about or endorsement of any third party products, including Oracle software.

4 4Copyright © 2014 Deloitte Development LLC. All rights reserved. Kalyan Bendapudi Consultant Deloitte Consulting LLP Deloitte Consulting practitioner with close to 10 years of consulting, implementation and support experience in EBS. Certified Oracle Projects Implementation Specialist. Kuldeep Sharma Specialist Master Deloitte Consulting LLP Deloitte Consulting practitioner with 10 years of consulting, implementation and support experience. Certified Project Management Professional. Craig Larson E&C Industry Leader Oracle Corporation Civil Engineer with over 15 years of industry experience and has been with Oracle for over 17 years supporting the Engineering and Construction industry. Team

5 5Copyright © 2014 Deloitte Development LLC. All rights reserved. Overview of Procurement in the E&C Industry Common procurement application platform for multiple purchase types Bulk Commodities such as Rebar, Concrete, Lumber etc. Engineered Equipment such as Compressors, Pumps, Boilers etc. Catalogue items such as flanges, brackets, bolts etc. Subcontract Services such as Consulting, Electrical Work, Piping work etc. Rentals such as Cranes, Containers, Bulldozers etc.

6 6Copyright © 2014 Deloitte Development LLC. All rights reserved. Why Subcontracting? Specialized Services In today’s world, engineering and construction projects are so specialized in terms of technology, size, specifications and complexity that no one firm can deliver the complete project. Therefore, contractors subcontract work to subcontracting firms with specialization in niche areas to deliver the projects. Cost Reduction In many situations it is more beneficial to subcontract the work because of uncertainty and fluctuations in workload, and higher administrative overhead costs. Business Model In some situations, the business model of the company is subcontracting. These organizations always use subcontractors to deliver the contractual work. Improved Efficiency Subcontracting the work to a specialized firm may also result in gain in efficiency due to expertise of subcontracting firm in executing similar projects again and again. Risk Sharing Depending on type of contract and work involved, it may make more sense to subcontract the work and share the risk related to delivery of project.

7 7Copyright © 2014 Deloitte Development LLC. All rights reserved. Typical Subcontracting Process flow Typically used for construction or related services Involves a lot of collaboration between all parties Complex contractual terms and conditions Complex payment controls Vendor Prequalifications RFQ Bid Analysis/ Award Payment Application Payment Controls Payables Accounting Reporting Change/Document Management Customer Invoices

8 8Copyright © 2014 Deloitte Development LLC. All rights reserved. Subcontracting Challenges Quality of Work Schedule Management Supplier Payment Controls Technology Constraints Subcontractor Qualification The work may not be executed at the level of quality which principal company wants the subcontracting firm to do. Controlling the project timelines and scope of work between subcontractors may be a challenge for the principal company. Control the payment to suppliers based on deliverables from subcontractor and payment from customer. Existing technology may not be able to support the integrated process between purchasing, payables and projects. Verifying and tracking subcontractor qualification may be a challenge due to geography, skills and work assignments.

9 9Copyright © 2014 Deloitte Development LLC. All rights reserved. Enhancements to Subcontracting Process Put your supplier invoices automatically on hold until related customer invoices get paid. This can prevent payment to subcontractor without payment from customer. Pay When Paid Put payment automatically on hold for overdue deliverables. This can prevent overpayment to suppliers resulting from payment before project deliverables are received. Payment on hold Provide control to project managers to record receipt of contractual deliverables manually to control disbursement to contractors. Improved Supplier Payment PayableReceivable Purchasing Centralized Project Controls

10 10Copyright © 2014 Deloitte Development LLC. All rights reserved. Business Benefits  One integrated process from purchasing to payables to projects and receivables provide project managers with information and tools to manage subcontractors in an efficient way.  Pay when paid enhancement provide necessary controls on supplier payments and integrate it with customer payments automatically.  Payments can be put on hold automatically for overdue deliverables. This will prevent overpayment to suppliers resulting from payments before project deliverables are received.  Improved Supplier Payment Controls provide project managers to record receipt of contractual deliverables manually to control disbursement to contractors.  Project manager can put invoices on hold as well as release invoices manually. One integrated process Pay when paid enhancement Improved supplier payment controls Centralized project controls

11 11Copyright © 2014 Deloitte Development LLC. All rights reserved. Business Benefits – Contd.. Lower cost for the client and higher profits for the contractor Protects contractors’ profit margin, improving quality of the project deliverables Reduce occurrences of contractual disputes Improves project schedule and budget management Improves overall client satisfaction

12 12Copyright © 2014 Deloitte Development LLC. All rights reserved. Business Process  The project/contract manager negotiates the terms and conditions of the subcontract.  As work is performed, the subcontractor organization submits applications for payment  The approved work confirmations are placed on hold in line with the Pay when Paid subcontract clause.  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.  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.  The Payables organization can now process the subcontractor invoices that have been released and issue payment to the subcontractor as appropriate. Project Manager One Integrated Process BuyerSubcontractorSupplierCustomer

13 13Copyright © 2014 Deloitte Development LLC. All rights reserved. High level Solution Project Manager ProjectsReceivablesPurchasingPayables Negotiate and create contract with pay when paid terms Payments to Invoices Receive notification when payment application is done Buyer Payables Manager Project Manager Billing Administrator Apply cash receipts to receivable invoices Place invoices on hold for overdue deliverables System Interface contractor invoices to projects Generate draft receivables invoice Interface draft invoices to receivables Release hold from contractor invoices ‏ Add/ update deliverables ‏ Mark deliverables as complete or overdue ‏ Put invoices on hold ‏ Release invoice holds

14 14Copyright © 2014 Deloitte Development LLC. All rights reserved. Integration Details Create Contract ‏ Purchasing Generate Owner Invoices Release Supplier Invoice Hold ‏ Projects Apply Cash Receipts to Customer Invoices ‏ Receivables Interface Supplier Invoices to Projects Place Work Confirmations on Hold Issue Payment ‏ Payables Submit Application for Payment ‏ iSupplier Portal Negotiate terms and conditions of contract ‏ Sourcing

15 15Copyright © 2014 Deloitte Development LLC. All rights reserved. Implementation Considerations Pay When Paid LOV is displayed on PO for given site or operating unit based on PA: Pay When Paid profile option.

16 16Copyright © 2014 Deloitte Development LLC. All rights reserved. Implementation Considerations Automatic release of Pay When Paid invoices enables to release ‘Pay When Paid’ hold on vendor invoices when the customer invoices are paid.

17 17Copyright © 2014 Deloitte Development LLC. All rights reserved. Implementation Considerations Pay When Paid invoices will be automatically released when customer invoices are paid.

18 18Copyright © 2014 Deloitte Development LLC. All rights reserved. Manage Complex Terms and Conditions Select Pay When Paid as ‘Yes’ to create automatic hold on PO matched invoices.

19 19Copyright © 2014 Deloitte Development LLC. All rights reserved. Pay Item for Subcontractor

20 20Copyright © 2014 Deloitte Development LLC. All rights reserved. Collaborate with Subcontractor

21 21Copyright © 2014 Deloitte Development LLC. All rights reserved. Invoice on hold with Pay When Paid Subcontractor can not be paid until the customer pays.

22 22Copyright © 2014 Deloitte Development LLC. All rights reserved. Invoices on Pay When Paid hold

23 23Copyright © 2014 Deloitte Development LLC. All rights reserved. Customer Invoices

24 24Copyright © 2014 Deloitte Development LLC. All rights reserved. Receipt Application for Customer Invoice

25 25Copyright © 2014 Deloitte Development LLC. All rights reserved. Customer Invoices and Vendor Invoices

26 26Copyright © 2014 Deloitte Development LLC. All rights reserved. Vendor Invoices with Hold being Released

27 27Copyright © 2014 Deloitte Development LLC. All rights reserved. Paid Vendor Invoices

28 28Copyright © 2014 Deloitte Development LLC. All rights reserved.

29 About Deloitte This publication contains general information only, and none of the member firms of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collective, the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication. As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.


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