Explaining the different Contract Types

Objectives

After completing this lesson, you will be able to:

  • Contrast the different contract types

Contract Type Scenarios

Chris has survived his first week in the Finance and Real Estate department. He got to know his colleague Maria, and she explained a great deal of valuable information to him. He is now looking forward to the new week and the new topics that he will focus on. In the following video, Chris welcomes you to the second week and summarizes his learnings so far.

Select the play button to see how the journey of Chris continues with Contractual Relationships.

In the following Maria and Chris are talking to each other. Maria mentions that this week they will focus in more detail on the specific contract types.

Select the play button to learn more about contract types and the processes behind.

Contract Types

In the previous course Maria introduced Chris to the different contract types. He learned that the contract type is an important attribute of the contract.

Rental contracts, service contracts, or leasing contracts are different types of contracts and similar in content, although they differ from each other in important ways. In a classic contract for renting an apartment, for example, you’ll find a monthly tax-free rent field, as well as operating costs as advance payments. This type of contract is usually open-ended and includes a termination clause for both parties.

In a leasing contract, on the other hand, you will find a leasing rate including VAT and a limited term field. The leasing contract often includes renewal options. Thus, the contracts are similar depending on the type, and completely different in other respects.

Due to these distinctions and to simplify the management of contracts, different contract types are used to group the individual contract situations that occur. These contract types are stored in the Customizing area.

In the Customizing area it can be defined how many assignments will be done, and which fields are mandatory for contract creation. You can even define pre-sets of recurring values in contracts to simplify the contract creation process.

The essential question for a contract is from which direction the contract will be closed:

  • Are you the tenant or the landlord of the contract object?
  • Do you use the object?
  • Or, do you grant using rights to someone?

To make it clearer, imagine that Chris’ company is renting another office. This indicates that the company needs to pay rent to a landlord. The contract partner in this case would be the landlord who would be represented in accounting as the vendor/creditor.

This means that contract management distinguishes between credit and debit contracts, depending on the role of your company's company code. In a credit-side contract, your company is the user and the contract partner is the vendor. On the other hand, if your company has the role of landlord, your contract partner will pay the rent and is the tenant. In this case, the tenant is the debtor for accounting purposes.

Examples:

  • Your company wants to sublet unused office space. In this scenario, we are talking about a lease-out (sublease) situation. Your company is the provider (landlord). Your contract partner, who is leasing/renting the unused office area is the tenant and in the account is known as the debtor. The lease-out contract is a debtor contract.
  • Your company is leasing some notebooks and PCs. In this scenario, your company is the user, and the leasing provider is the vendor. The lease-in contract is a creditor contract.
  • Your company commissions a facility company to clean the offices. In this scenario your company receives services. The company is the user, and the contract partner is the creditor, this service contract is known as a creditor contract.

When a new contract is created the first step is to select the contract type. Based on the contract type selected, the role of your company in the contract, provider, or user, as well as different functions in the contract dialog will be defined.

The contract type determines:

  • If your company is a provider or a user.
  • Which data can be maintained or needs to be maintained.
  • Assignment of a contract number.
  • If and how some fields will be pre-set.
  • The processes that can be performed in the system with this contract.

The definition of contract types includes the following:

  • the contract category (external, internal, or G/L account)
  • the offerer or user indicator, which determines:
    • if the company code is the "offerer" of the object or service, then the main contractual partner is a partner with a customer account (aka a debit contract).
    • if the company code is the "user" of the object or service, then the main contractual partner is a partner with a vendor account (aka a credit contract).
    • in the case of internal contracts, a cost center, internal order, or project (WBS element) takes over the role of the external contract partner.
    • the contract reference (e.g., objects) are leased-in or lease-out.
    • the screen sequence (which defines the layout of the application dialog).
    • the condition group (a grouping of condition types).
    • up to two partner roles for the main contract partners.
    • a default notice procedure for each contract type (which can be overwritten in the application dialog).
    • a number interval for contract numbers.

Besides the main contract partner roles, you can define further partner roles for each contract type in the configuration.

Number ranges of contracts

You can specify the number assignment rules for contracts. The number assignment is defined by the company code. And you can assign number range intervals to individual contract types according to the following rules:

  • For external number assignments, you can specify a number range for the contract.
  • For internal number assignments, the system counts upwards sequentially starting from the number defined in the field "Number Range Level".
  • You can also use a BAdI implementation to define customer-specific contract numbers (e.g., based on contract object). If you want to use this option, you must set the number assignment to "internal".

Contract Attributes

You can define industry systems and industries to use these attributes to differentiate contracts.

You can also specify which measurement types can be used as measurements in the "Differing Measurements" tab of the contract (e.g. room capacity in persons for offices, number of persons for apartments).

General Settings for master data and contracts

In the configuration you can define settings such as resubmission and reminder rules, authorization groups, user status and document management settings, and categories for additional text.

Contract Number Assignment

Chris wants to understand how the number assignments for his real estate contracts works. He discovers there are two ways to define the contract number (either external or internal):

  • When using the external number assignment, the user must enter the contract manually. The SAP system checks whether the given contract number already exists so that no duplicates occur.
  • If using the internal number assignment, you can choose between two variants:
    1. Automatic number assignment, where the consecutive numbers are managed by the SAP system.
    2. Customer-specific rules for number assignment, using BAdI technology. To define customer-specific rules, you use an enhancement implementation and realize the required number assignment in the method GET_NUMBER.

In this scenario, Chris has learned that there are two ways to define the contract number. Now, he asks Maria what they have chosen for their number assignment:

Business Scenarios

In the previous lesson, the main contract types were introduced. Now, Chris would like to get a deeper understanding of each contract type and the business scenario behind it. Therefore, Chris gathers a couple of business scenarios and now needs to understand how to replicate the scenarios in the system.

Chris receives the following e-mail from his colleague. He is reading through the mail and realizes that some information is missing which is mandatory for the creation of the contract. Therefore, he goes through the email again with Maria.

Together they define which contract type to choose and what information is missing.

Chris and Maria are going through the email together. Maria asks Chris to first make an attempt on his own about the contract type and if mandatory information is missing.

Select the play button to see which additional information Maria is providing to Chris.

While Maria was explaining the steps, Chris was writing and summarizing this in a contract checklist:

Lease-In

Chris has made a note of the contract checklist. He reads through the first example again:

Select the play button to learn about a lease-in scenario and how to map this in the SAP system.

Lease-Out

The first example demonstrated that Chris is already quite confident when it comes to the selection of contract types. He also knows that a contract needs to have a start and end date or terms to renew or to give notice. Maria furthermore gave him some additional items to ask about the contractual partner, object, and conditions, which he turned into a helpful checklist.

Now, Chris continues with a second example:

Select the play button to learn about a lease-out scenario and how to map this in the SAP system.

Internal

The second example showed that Chris was able to apply Maria's feedback directly. He selected the right contract type and learned to take the missing information from the existing contract.

Chris continues with the third example:

Select the play button to investigate the internal scenario and how to map this in the SAP system.

Service Contract

Chris is becoming an expert in creating contracts! He was even able to directly implement the example for the internal contract.

Chris continues with the final example:

Select the play button to critique a service scenario and how to map this in the SAP system.

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