Deltek Insight 2010: Everything You Need to Know About Calculating Revenue

GCS-202: Everything You Need to Know About Calculating Revenue

Presented by:

Jeff Dale, NeoSystems Corporation

Copyright © 2010 Deltek, Inc. 2

Important Screen #1 Contract Master File

• The second page of the Contract Master File controls the revenue calculations.

• On FFP and T&M jobs, the Contract Value limits the revenue. On CPFF jobs, the Contract Value does not limit revenue.

• Funding Value is used for informational purposes on job status reports and for billing. It does not play a role in revenue recognition.


Important Screen #2 Summary Budgets and Ceilings

• Powerful functionality that sets budgets for each contract suffix.

• The screen can limit revenue for each suffix.• So if you have a contract that has a travel budget of $5,000,

GCS gives you the ability to limit the revenue and the billings to this amount.

• These budgets show up on the Job Summary Report.


Type of Contracts

• Firm Fixed Price– One price for a service or product

• Cost Plus– Fixed Fee

– Award Fee

– Fee based on hours

• Time and Materials– Based on hours worked

– Can include ODCs


Firm Fixed Price (FFP) Revenue

• FFP Contracts do not recognize revenue beyond the contract value.

• GCS calculates revenue based on the Year to Date for FFP contracts.

• The Revenue Journal can be posted as often as you like during the accounting period and will not double post.

• Revenue can be limited by the ceilings set up in the Summary Budgets and Ceilings screen.


FFP Revenue – Based on Billing

• Revenue will be posted using the total billings in the Current Year Billing Data Screen.

• Advantages– No unbilled receivables will appear on the Balance Sheet.

– Easy to understand.

• Disadvantages– Invoices must be posted before revenue recognition can take place.

– Calculating and posting invoices with future period costs may result in doubling up of revenue.

– If billings are the same amount each month and costs fluctuate, then the contract profit can fluctuate, potentially with losses during some months.


FFP Revenue – Percentage of Completion Methods

• Estimated Cost to Complete (ETC)– Takes the Contract To Date costs and divides by Contract To Date

costs plus Estimated Cost To Complete.

• Estimate at Completion (EAC)– Takes the Contract To Date Cost and divides by the Estimate

At Completion.

• In both instances, the percentage that is derived is multiplied by the Contract Value to calculate the Contract To Date Revenue.



• The beginning budget is generally taken from the Contract Cost Proposal.

• Changes in staffing and resulting pay rates could change the budget.

• At all times during project execution, it is critical to stay in touch with program manager to monitor any anticipated changes in contract cost and include them in a revised budget.

• Using this method, costs drive the revenue, not contract billings.



• Advantages– Contract profit percentages are consistent throughout the life of the

contract. It ensures that there will not be profit swings from month to month.

– This revenue method conforms to Generally Accepted Accounting Principles (GAAP).

– SOP 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.”

• Disadvantages– Harder to understand.

– Must monitor the budget and make adjustments when necessary.

– May not be apply to short term fixed price efforts.


FFP Revenue – Other Methods

• Contract Fee Percentage– Revenue is recognized as costs plus a fee.

– Must be reviewed to ensure it meets the latest cost estimates.

• Costs Only– Conservative method that recognize no profit on the job as it

progresses.


Cost Plus Fixed Fee (CPFF) Revenue

• CPFF jobs will recognize revenue beyond contract value unless it is capped using the “Maximum Revenue” field.

• Revenue is based on the year to date.• The Revenue Journal can be posted any number of times

during the accounting period.• Revenue can be limited using the Summary Budget and

Ceilings screen in the Budget Module.


CPFF Revenue – Contract Fee Percentage Method

• This method applies a fee percentage to both direct and indirect contract costs. It is the most common method for CPFF.

• The “Maximum Revenue” field is often used to prevent revenue over runs.

• Contract fee amounts can also be limited by the contract. In this case, the “Ceiling on Contract Fee” check box should be used.



• Suffixes and indirect costs can be excluded from the fee by using the Summary Budgets & Ceilings screen in the Budgeting module.

• For example, travel may be reimbursable but a fee cannot be invoiced on it. To prevent a fee from being recognized on travel costs, go to that particular suffix and set the Code in the Summary Budget & Ceilings screen to No Fee/No Ceiling or No Fee/Ceiling.



• Advantages– Most widely used method.

– Easy to understand.

• Disadvantages– At Year End, indirect rates are often recognized at actual while the

billings have been computed using budget rates. This would create an unbilled amount that needs to be monitored from year to year and ultimately, billed back to the client.


CPFF – Incentive Fees

• CPFF contracts can be awarded with a base fee and an incentive fee based on performance.

• Incentive fees can be accrued based on historical or expected awards. This would create an unbilled balance until invoiced.

• If only the base fee is included in monthly revenue, then any Incentive Fee becomes a year to date revenue adjustment.


CPFF Revenue – Other Features

• Fee on Hours Worked• Revenue Based on Billing• Revenue based on Costs• Revenue based on Percentage of Completion


Time and Materials (T&M) Revenue

• Revenue will not exceed contract value. – Unless the “Sales may exceed contract value” box is checked and an

amount is specified.

• Revenue is based on the current period. This is in contrast to FFP and CPFF contracts where revenue is based on the year to date.– This means that revenue adjustments are for the current period and

need to zeroed out at the beginning of the next month.

• Revenue can be limited by:– Summary Budgets & Ceilings settings

– Labor hour ceilings in T&M Billing Rates file


T&M Revenue – What to Do About ODCs

• ODCs can be excluded from revenue– Leave “Include ODCs in revenue amount” checkbox blank

• They can be a pass-through• They can have an indirect loading• They can have a fee applied• Or they can have both an indirect loading and a fee applied


T&M Revenue – Excluding Subcontractor Costs

• Subcontractors generally are invoiced at the contract billing rates yet the invoices come through at cost.

• To eliminate double counting, go the Summary Budgets and Ceilings file– Put in zero for Subcontractor suffix

– The code should be No Fee; Ceiling

– This will exclude Subcontractor Cost from the revenue calculation.


T&M Revenue – Excluding Subcontractor Costs

• The problem with zeroing out the Subcontractor budget is that it will show up as zero on the Job Summary Report.

• To override this setting, go to the Alternate Budget File in the Budgets Module. Re-establishing the contract budget in this file will present it on the Job Summary Report.

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Deltek Insight 2010: Everything You Need to Know About Calculating Revenue