Chapter 5: Project Contracts and Pricing

In the previous chapter, we learned how to create project opportunities through the business process flow and about various other capabilities of the system that will guide an account manager through the processes of selling.

In this chapter, we are going to follow an opportunity through to the contracts and contract types that will drive the billing and revenue recognition of the project we are selling.

This chapter will show you how to set up contracts that will represent the types of work your firm does and build pricing models to support all levels of pricing. Whether your client projects are easy to set up or complex, with mixed line-item types and multidimensional client-pricing models, this chapter will cover it.

In this chapter, you will learn about the following concepts:

• Understanding the workflow from opportunity to project contract
• Implementing project contracts and contract lines
• Contract types (time and...

Technical requirements

To perform the tasks in this chapter, you will need the following:

• An Microsoft 365 account and an Azure Active Directory (Azure AD) login
• A Microsoft Dynamics 365 Project Operations Customer Relationship Management (CRM) license
• A Microsoft Project Plan license

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Understanding the workflow from opportunity to project contract

As we saw previously in Chapter 4, The Account Manager – Project Selling, our opportunity in the Customer Engagement (CE) system resulted in a quote and quote lines that mirrored this opportunity. The quote was produced and sent to the customer in Portable Document Format (PDF) format while simultaneously storing the quote on the timeline so that others who might pick up somewhere in the middle of the process would still be able to see what had been done, each step of the way.

At this point, it is important to talk through the process flow as it relates to the Project Operations system. In the Dynamics 365 CE – Sales system, when we are selling a product, we have a process that is very similar to ours in which we are producing a quote, then a quote becomes an order, and an order becomes an invoice.

The Project Operations process is different—it is a quote to contract invoice(s), meaning multiple...

Implementing project contracts and contract lines

We now have a project contract in the system that relates to the quote and opportunity we worked with previously. In Figure 5.1, you'll notice that these previous documents are easily accessed with a hyperlink click, thus keeping everything front and center for your benefit.

The project contract

The project contract is a grouping of project contract lines, milestones, and roles that result in the financial impact of a project on a firm. Therefore, as shown in the following screenshot, this project contract drives all further financial activity in the system:

Figure 5.1 – The project contract header showing key fields

There are a lot of additional details that you may want to complete. Remember that you can add fields through customizations and configuration, or update existing field definitions as per your business requirements.

Project contract lines

Project contract lines are used to...

Developing price lists and custom price lists

Multidimensional pricing is a feature of Project Operations that provides a professional services firm with the functionality it require to meet the firm's—and the client's—needs. Professional services firms typically have rates they have defined for roles within a firm. There are typically two rate types: selling and costing. Let's have a quick rundown on each.

Selling rates

Selling rates are most typically spoken of as a rate card, coming from the historical, physically printed rate card that was carried by partners of a firm to communicate the hourly price of a particular role within the firm. As you may expect, though, clients expect preferential pricing, especially if they are larger clients of a firm. Furthermore, if a preferential client is taking on a large project, they might even expect further price concessions.

A firm is typically going to protect its rates at various levels as much as possible...

Exploring roles and role types to control pricing

In Project Operations, we now have the ability to perform task-level chargeability, as we saw in our contract lines setup section. This flexibility gives you the best ability to meet the needs of your clients, as well as account for those needs organizationally.

We will now discuss how to set up roles that, when combined with all the project contract lines, will provide the necessary pricing structure for your clients.

Non-chargeable roles

We will create a contract administration that needs to be added to the project. We can do so in the contract lines, as shown in the following screenshot:

Figure 5.16 – Tasks list showing the Admin – Non Chargeable tasks

However, there are also times where a particular role within a firm is always non-chargeable. An example of this may be a pre-sales role.

This scenario sometimes plays out where a firm may want to have a deep understanding of its sales...

Summary

In this chapter, we followed the sales process from the opportunity through to the project contracts and associated price lists. We took a quote and turned it into a project contract. The project contract has the line-level detail that sets up the billing types and allows you to link to a task level within a project.

We set up an example project that has a fixed-fee contract line and a time and material line. The time and material line was set up with a not-to-exceed contract limit. The skills learned here will provide you with the ability to meet the contractual needs of the client and the company.

The sales price lists are important to all of this, specifically when working with time and material contracts, since the price list will drive the hourly rate that factors out to the billable amount. The cost price lists are important to all other aspects of a contract, since all the costs associated with a team member and their role will factor into the costs of the project...

Questions

1. In the Project Operations system, what is a record called when it changes from a quote to won?
2. True or False: The Project Operations system only allows one invoice per project.
3. What type of billing can be used to set up billing on a periodic basis?
4. True or False: You can relate multiple contract lines to a contract.
5. True or False: Contract lines can only be of one type per project/contract combination.
6. What function does the Invoice Frequency setting perform?
7. Selling rates or billable rates are applicable to which type of contract: fixed-price or time and materials?
8. What are the three levels of multidimensional pricing?
9. True or False: Labor cost rates only apply to time and materials contracts.
10. True or False: Project costing is simply a matter of populating the labor cost rate tables and assigning them to the appropriate roles.