Utilizing Contract Hierarchy

Objective

After completing this lesson, you will be able to articulate the steps involved in developing a contract hierarchy strategy for a given organization.

Choose Contract Level (Supplier/Catalog/Commodity/Item)

When setting up a contract, you will need to select the appropriate Contract Type.

There are three types of contracts to choose from:

This type of contract	Can have this type of child contract
Supplier Level	Supplier, Commodity, Catalog, Item
Commodity Level	Commodity, Catalog, Item
Catalog Level	Catalog, Item
Item Level	Item

It's important to note that each individual contract applies to only one supplier. However, you have the option to aggregate multiple contracts into a hierarchy. In this hierarchy, the terms of a parent contract apply to its child contracts, and each child contract can be associated with a different supplier.

A contract hierarchy is a set of related contracts that can share accumulated amounts and discounts. When you create a contract, you specify whether or not it belongs to a hierarchy.

The diagram represents a flowchart illustrating various levels of agreements and contracts. At the top, there's a ‘Master Agreement’, which leads down to a ‘Supplier level contract.’ Below this, there are two branches: one leading to a ‘Subagreement’ labeled as ‘Item level contract,’ and another leading to a ‘Subagreement’ labeled as ‘Commodity level contract.’ The latter then leads further down to another ‘Subagreement,’ again labeled as ‘Item level contract.’ This flowchart outlines the hierarchy and types of agreements within a contractual business environment, indicating how master agreements can be broken down into more specific sub-agreements based on items or commodities.

Create a Subagreement – Hierarchies

Subagreement is a term used to describe a contract that is associated with a parent contract in a hierarchical structure. In this structure, the parent contract can be either a master agreement or another subagreement. Each subagreement can have only one parent, but it can have multiple children.

Hierarchical Type: The first dropdown menu field is labeled “Hierarchical Type” and currently has “Subagreement” selected. This refers to the type or level of agreement within a contract hierarchy. Parent Agreement: The second dropdown menu field is labeled “Parent Agreement” and currently displays “(no value).” The asterisk next to it suggests that this field is required.

A parent contract must be of the same level or of a higher level than its child. For example, a supplier level contract can be a parent to any other contract, but an item level contract can be a parent to only another item level contract. The following table lists the possible parent-child relationships in a contract hierarchy:

Supplier Level Contract: This type of contract can have child contracts at the Supplier level, Commodity level, or Item level. Commodity Level Contract: This type of contract can have child contracts at the Commodity level or Item level. Item Level Contract: This type of contract can only have child contracts at the Item level. Overall, this table illustrates how different levels of contracts are related to each other in terms of their scope and specificity

Create a Master Agreement

A master agreement serves as the highest-level contract in a hierarchy, allowing for the organization of subagreements. It's designed to group together subagreements and provide a comprehensive overview of the contractual relationships within a business or organization. Subagreements can be associated with a master agreement as long as the master agreement has a contract status of Processed or Open. This hierarchical structure helps streamline and organize contractual processes, making it easier to manage and track various agreements within a larger framework.

Hierarchical Type: The first dropdown menu field is labeled “Hierarchical Type” and currently has “Master Agreement” selected. This refers to the type or level of agreement within a contract hierarchy

Create a Standalone Agreement

A standalone agreement refers to a contract that exists independently, without being part of a larger hierarchy or framework. In other words, it is a separate and self-contained legal document. If you intend to incorporate a standalone agreement into a hierarchy or a larger contractual structure, you'll need to convert it into either a master agreement or a subagreement before the contract request is approved. This ensures that the agreement aligns with the overall structure and requirements of the contract.

Hierarchical Type: The first dropdown menu field is labeled “Hierarchical Type” and currently has “Standalone Agreement” selected. This refers to the type or level of agreement within a contract hierarchy

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