Escalating Maintenance Contracts

Escalation is the automatic price increase of a maintenance contract at the contract's anniversary date. Contracts are usually escalated because costs increase. These increases can be attributed to several factors, such as an increase in the cost of parts, materials, subcontracts, travel, or labor. Escalation adjusts the price of a maintenance contract, by cost category, on a predetermined basis (e.g., Consumer Price Index or inflation index).

Step 1: Mark the Contract Escalation Setup Option.

1. Select Microsoft Dynamics GP > Tools > Setup > Service Management > Maintenance Setup > Maintenance Options.
2. Mark the Escalate Contracts checkbox in the Maintenance Options window. The Distribute Amounts by Cost Category checkbox is marked and disabled by default. This allows you to escalate by contract amount or by cost category.
3. Select OK.

Step 2: Set up Escalation Indexes

Escalation indexes are usually set up at the time you set up your system or when your escalation strategy changes. Examples of indexes are CPI (Consumer Price Index) or SPI (Standard Price Index).

1. Select Microsoft Dynamics GP > Tools > Setup > Service Management > Maintenance Setup > Escalation Index.
2. Enter the Escalation Index name and Description.
3. Select Save.

Step 3: Set up Escalation Index Detail

Escalation rates must be set up for each month and year that you will be escalating contracts. You must set up an index detail for each cost category you will be escalating. You can select to escalate by a percentage or an amount, or both. If you escalate using a percentage and an amount, the escalation amount will be a sum of the two. For instance, if your original contract amount is $1,000 and you escalate it 10% and $250, the escalated contract amount is $1,350, or $100 (10% of 1000) + $250 + $1000.

1. Select Microsoft Dynamics GP > Tools > Setup > Service Management > Maintenance Setup > Escalation Detail.
2. Enter an Escalation Index ID. You can select the expansion arrow button in the Escalation Index ID field to open the Escalation Index Detail window, which lists existing escalation index details.
3. Enter a Year and select a Month from the drop-down list. The year and month must fall within the contract dates for escalation to occur. Select ALL for all months.
4. Select the Cost Code or select ALL for all cost codes.
5. Enter a Percentage or Amount to escalate, or both. You can set up to only escalate the first year by setting up the escalation amount on the first year and then setting up zero amounts for the remaining years. If you find that you want to escalate another year, you can change the amounts for the contract for that year. Go through the routine of build escalation each year after you set the amounts for that year's escalation.
6. Select Save.

Step 4: Set up a Maintenance Contract.

1. Select Cards > Service Management > Service Manager.
2. Select a customer and select the Contract button or select Additional > Contract.

3. Set up your maintenance contract as usual. See Creating a Maintenance Contract.

   • The Escalation Frequency field defaults to At Anniversary. The only other option is None. You cannot add to these options. If you select None, your contract will not escalate.

   • The Anniversary Date field defaults with a date 365 days from the contract's start date on contracts spanning more than one year. Contracts less than 365 days have an anniversary date matching the contract's expiration date.

4. Select how much in advance to be notified of a contract escalating by entering the number of days in the Escalation Notification Days field. The Maintenance Contract Escalation Notification report lists those contracts that will escalate based on the contract's escalation date and escalation notification days. For example, if your contract's escalation date is December 31, and you would like to be notified 45 days in advance of the escalation date, the contract would appear on the Maintenance Escalation Notification report for November. The escalation date defaults from the Anniversary Date field.
5. Mark the Automatically Escalate checkbox if you would like the contract to escalate without a salesperson's approval. If you do not mark this option, the contract will not escalate unless the Approved By and Approval Date fields are complete in the Maintenance Contract Escalation window.

Step 5: Assign Escalation Indexes to the Maintenance Contract.

1. In the Maintenance Contract window, select the Escalation button to open the Maintenance Contract Escalation window.
2. The Escalation Notification Date field completes based on the Escalation Notification Days field and the Escalation Date field in the Maintenance Contract window. If changes are made to the Escalation Notification Days field, the Escalation Notification Date field in the Maintenance Contract Escalation window updates to reflect this.
3. Assign an escalation index to each cost category you want to escalate. Not all categories need to have an index assigned. Cost categories not assigned an index will not escalate. If the amount entered in a cost category on a maintenance contract is zero, the cost category still escalates by the amount of the escalation. If you enter an incorrect amount by mistake, mark the checkbox in the Clear Amounts column. If a checkbox is marked and you select the Save button, you will receive a message asking if you want to clear the amounts. If you clear the amounts, you must rebuild the escalation to regenerate the escalation amount(s). Otherwise, the cost category will not be escalated.
4. Select Save and close the Maintenance Contract Escalation window. 

Remember, escalation indexes must be set up with the appropriate information (e.g. year, month, and cost code) for escalation to occur.

Step 6: Enter Estimated Costs

1. In the Maintenance Contract window, select the Revenue/Cost button to open the Revenue/Cost window.
2. Enter amounts in the Estimate column for all cost categories and subcategories. The estimated costs will be escalated. If you don't enter estimate amounts, after building the escalation, the escalation amount defaults in the Estimate column. Percentage amounts will not calculate and will not update the Revenue/Costs window.
3. Select Save and close the window.

Step 7: Build the Escalation 

Perform the monthly process of building the escalation for the contracts that are approaching their escalation date.

1. Select Microsoft Dynamics GP > Tools > Routines > Service Management > Maintenance Contract > Build Escalation.

2. Select the year and month you want to build the escalation for in the Contract Build Escalation window. Ignore the Commit Contracts of Type field.
3. Select Build to perform the escalation calculation. If you entered estimated costs, they will also be escalated. Labor hours do not escalate, but the labor cost and labor billing increase.
4. The Escalation Build report prints when the calculation is complete, displaying the contracts to be escalated.
5. Close the Contract Build Escalation window.

Step 8: Print the Escalation Notification Report

After building the escalation, it is a good idea to print the Maintenance Escalation Notification report. This report has a breakdown of the escalation amounts for each cost category for all the contracts that are to be escalated for a given month, as well as the estimated cost amounts and billing increases. Remember, the contracts appearing on this report are based on the Escalation Notification Date on the maintenance contract.

1. Select Reports > Service Management > Maintenance > Escalation Notification.
2. Enter start and end dates.
3. Select Print.

Step 9: Review/Modify the Escalation and Give Approval

1. Select Escalation in the Maintenance Contract window of a contract that had an escalation calculated. A red circle is present in the column next to any escalation indexes that were set up incorrectly or missing and therefore were not escalated. The original, non-escalated, amount appears in the field. You are still able to commit the escalation even though an escalation index hasn't been defined.
2. You can override the amounts that the system calculated for a specific contract by entering a new value in the Accepted Billing and Accepted Estimated Cost columns. 
3. To enter the Accepted Estimated Cost amount for labor cost categories, select the expansion arrow button to the right of the Labor row. This opens the Accepted Labor Breakdown window. You can enter separate dollar and hour estimates for each labor cost category. Select OK to return to the Maintenance Contract Escalation window. Your changes display in the appropriate fields (Accepted Estimated Cost and/or Labor Hours).
4. If you did not mark the checkbox in the Maintenance Contract window to automatically escalate the contract, you must enter a salesperson's name in the Approved By field and enter an approval date.
5. Select Save.

If you need to make a correction, you can rebuild a period that's already been calculated.

Step 10: (Optional) Rebuild the Escalation

You can rebuild the escalation if you've made any changes to the Escalation Index Details or the Estimated Costs. You can also rebuild to only update the approval status without running the calculations.

If you rebuild the escalation after making manual edits and before posting those modified escalation amounts, the escalation amounts will be recalculated and your edits will be overwritten.

1. Select Microsoft Dynamics GP > Tools > Routines > Service Management > Maintenance Contract > Build Escalation.

2. Select the year and month you want to build the escalation for in the Contract Build Escalation window. Ignore the Commit Contracts of Type field.
3. Select Build.
4. In the window that pops up, you have the following options:

   • Rebuild/Calc
     Select to run the contract escalate calculation process again as well as checking the approval validation. This will overwrite the existing build.

   • Rebuild Only
     Select to only re-run the validation of the approval. The escalation is not recalculated. A contract shows as Approved if the approved user and date are entered in the Maintenance Contract Escalation window or if you've marked the Automatically Escalate checkbox in the Maintenance Contract window.
   • Cancel
     The pop-up window closes and you are returned to the Contract Build Escalation window.
5. The Escalation Build report prints when the Rebuild is complete, displaying the contracts to be escalated.

Step 11: Commit the Escalation

When you have verified the new amounts are correct, you can commit the escalated values to your contracts. Committing the escalation will update the Posted flag to Yes and will update the escalation rows in the escalation work table to POSTED. Those records are not used again if the same period is rebuilt for escalation at a later date and time.

If you are using global filtering, the user committing the escalation must only be assigned to the same branch as the contracts that are being escalated. For example, if the contracts are assigned to the New York branch, the user must only be assigned to the New York branch. A user assigned to a different branch or a user with no branch settings will not be able to commit the escalation.

1. Select Microsoft Dynamics GP > Tools > Routines > Service Management > Maintenance Contract > Build Escalation.
2. Enter a year and month to commit.
3. Select to commit either maintenance contract escalations, master contract escalations, or both.
4. Select Process and select Yes to verify that you are committing the contract escalations. 
5. In the Process Contracts window, review the contracts to be committed. 
6. You can filter the display to show all the contracts, contracts that have the yellow triangle caution symbol or invalid contracts.
   
   • Caution - Indicates that the contract has open calls, is not 100% billed, and/or is not 100% revenue recognized. 
   • Invalid - The contract is not valid. 
7. Select the contracts to escalate and then select Commit. This causes the contracts to be escalated at the new amount. You may receive a warning message if the escalations for the year and month contain errors; however, you are still able to commit the escalation.

Effects of Contract Escalation on Multi-Year and Annual Maintenance Contracts

Multi-Year Maintenance Contracts

Once a maintenance contract completes the commit process, the:

• The Billing Amount of the contract is immediately updated. This causes a recalculation of the remaining unposted Billing and Revenue Recognition schedule rows.

• The Renewal Value of the contract is updated.

• You may now perform the routine to Process Multi-Year Contracts.

Annual Maintenance Contracts

Once an annual maintenance contract completes the commit process:

• Only the Renewal Value of the contract is updated.

• The remaining values (Escalated Billing and Costs) are updated during the maintenance contract renewal process.

During the annual contract renewal:

• Renewal Value defaults into the Contract Renewal window.
• Escalation settings default into the Contract Renewal window.
• Escalated Costs default into the Estimated Costs fields. 
• Escalated Costs are replicated in the Forecasted Costs fields.
• When you save this new contract, the new record is created in the SV00533 table for the new sequence # of this contract. 
• When the contract is renewed, the escalation record is moved to history.

Effects of Master Contract Escalation on Maintenance Contracts

If you are using master contracts, escalation information from the master contract rolls down to the attached maintenance contracts. The following information defaults from a master contract to assigned maintenance contracts.

• Maintenance contract window information
  If a maintenance contract is assigned to a master contract, the escalation fields in the Maintenance Contract window will be driven by the master contract. The Escalation Frequency, Escalation Notification Days, and Date fields and the Automatically Escalate checkbox default from the master contract record. The Escalation Frequency and Escalation Date fields are locked in the Maintenance Contract window, and can only be changed in the Master Contract window. Changes to the Escalation Notification Days field and the Automatically Escalate checkbox can still be made in the Maintenance Contract window for individual contracts.
• Maintenance contract escalation window information
  If a maintenance contract is assigned to a master contract, the Escalation Indexes, Notification Date, Approval, and Approval Date default from the master contract record. These values can be changed at the maintenance contract level.
• Contract build escalation information
  When you commit an escalation build in the Contract Build Escalation window, you can mark the checkbox to commit master contracts, maintenance contracts, or both. The build process itself does not change. If you have the Master checkbox marked and you select Commit, the system checks the validity of the assigned maintenance contracts and displays them in the Process Master Contract window.