Subcontract purchase orders overview

Applies To: Project Operations Integrated with ERP.

This article provides an overview of the subcontracting feature in Microsoft Dynamics 365 Project Operations that's integrated with Dynamics 365 Finance. By using this feature, you can create subcontracts and record timesheets, expenses, and other information that subcontractors provide in Microsoft Dataverse. For each subcontract in Dataverse, the system automatically creates purchase orders in Finance. For each timesheet or expense recorded in Dataverse, the system creates product receipts in Finance. When a subcontractor submits an invoice in Finance, the accounts payable (AP) clerk can access all recorded timesheets and expenses that are associated with the subcontract. The AP clerk can perform a three-way matching process and book the invoice in Finance.

Prerequisites

To use this functionality, activate the following features:

• Enable Subcontract actuals processing with Project Operations for resource based/non-stocked scenarios
• Enable Project purchase orders on Project Operations for resource based/non-stocked scenarios
• Enable Subcontract purchase orders on Project Operations for resource based/non-stocked scenarios

Minimum versions required

To use this feature for Project Operations Integrated with ERP, you must have the following versions:

• Project Operations Dataverse version 4.91.0.0 or later
• Dynamics 365 Finance version 10.0.39 or later

Set up default procurement categories and project categories for subcontract lines

To generate purchase order lines in Finance for each subcontract line that you create in Dataverse, you must configure default procurement categories and project categories. Base this configuration on the roles or expense details that you specify on the subcontract line.

To set up the default procurement categories and project categories, follow these steps:

1. In Finance, go to Project management and accounting > Setup > Categories > Project subcontract categories.

2. Select New to create a record.

3. In the Subcontract transaction type field, select Hour for time or Expense for expenses.

4. (Optional) Select Role ID for time or Transaction category for expenses.

   Note

   This step is required only if you need to set up a specific transaction category or role ID.

5. Select the procurement category for the mapping.

6. Select the project category for the mapping.

Set up a number sequence for product receipts

When you log timesheet entries or expenses in Dataverse, Finance automatically generates and posts the product receipt for the subcontract purchase order through the Generate Subcontract Product Receipt and Post Subcontract Product Receipt periodic processes. To facilitate the automatic generation of product receipts, you must configure a number sequence.

To set up the number sequence for subcontract product receipts, follow these steps:

1. In Finance, go to Project management and accounting > Project management and accounting parameters.
2. On the Number sequence tab, select the Product receipt reference, and then select the number sequence for subcontract product receipts.

Set up dual-write maps

Before you can automatically generate purchase orders and purchase order lines in Finance for each subcontract in Dataverse, set the following dual-write maps to the running stage.

Create and manage subcontracts

When you create a subcontract in Dataverse, the system generates a corresponding purchase order in Finance. For every subcontract line in Dataverse, the system creates a purchase order line. The system uses the project subcontract category mapping that you set up earlier to identify the procurement category and project category for each purchase order line.

When you confirm the subcontract in Dataverse, the system automatically confirms the purchase orders in Finance. If you change the subcontract or its lines in Dataverse, the system updates the purchase orders in Finance. Therefore, the purchase order status in Finance reflects any changes.

For information about how to create and manage subcontracts in Dataverse, see Subcontract management in Project Operations.

To view the list of subcontract purchase orders in Finance, follow these steps:

1. In Finance, go to Project management and accounting > Item tasks > Subcontract purchase orders.

2. Select the purchase order to view its details. You can't edit any of the fields.

3. Select the Header tab of the purchase order.

   The General tab shows the details of the subcontract, such as the subcontract ID, name, date, and status.

4. Select the Lines tab of the purchase order.

   The Lines tab lists the purchase order lines that the system created for each subcontract line. The system generates a purchase order line in Finance for every subcontract line in Dataverse.

   • Transaction lines of the Expense and Time types use procurement categories. These categories come from the project subcontract mapping. The system takes default item sales tax groups from the procurement categories setup.
   • Transaction lines of the Material type use released products. A site and a warehouse are assigned from the default order settings. Additionally, default project categories and item sales tax groups come from the released products page.

   The Project tab shows the details of the subcontract line, such as the subcontract line ID, type, and role ID.

5. On the Action Pane, select Receipt.

   The Journal section lists the product receipts that the system posted for the purchase order. The system automatically posts product receipts for subcontract purchase orders based on timesheets and expenses that are recorded in Dataverse. You can't manually create product receipts for subcontract purchase orders.

Generate product receipts for subcontracts

When you log timesheet entries or expenses in Dataverse, Finance automatically generates and posts the product receipt for the subcontract purchase order through the Generate Subcontract Product Receipt and Post Subcontract Product Receipt periodic processes.

To generate product receipts for timesheets and expenses that subcontractor resources record or subcontractors share in Dataverse, follow these steps:

1. In Finance, go to Project management and accounting > Periodic > Subcontracts > Generate product receipt for subcontracts.

2. Select Generate product receipt for subcontracts to generate the product receipt. You can use a batch process to perform this activity on a periodic basis. Run this process in batch mode every day.

   Finance uses the timesheet, expenses, material usage, or journal entries to consider all the timesheet entries, expenses, and materials that you approved in Dataverse for the subcontract.

   After the system posts the Project integration journal for all entries, it generates product receipts for subcontract purchase orders. During the product receipt generation process, the system considers each accounting date that's used for journals. If you post multiple entries through the Project integration journal but they have different accounting dates, the system generates multiple product receipts. Each product receipt corresponds to the appropriate accounting date.

3. In Finance, go to Project management and accounting > Sub contracts > Project subcontracts product receipts to view the list of product receipts together with the posted status.

Post product receipts for subcontracts

To post the subcontract product receipts, follow one of these steps in Finance.

• Go to Project management and accounting > Periodic > Subcontracts > Post product receipt for subcontracts, and select Post product receipt for subcontracts to post the product receipt. Use a batch process to perform this activity on a periodic basis. Run this process in batch mode every day.
• Go to Project management and accounting > Sub contracts > Project subcontracts product receipts to view the list of product receipts together with the posted status. Select the product receipt, and then select Post to post it.

In both cases, if you configure product receipt accrual for procurement categories, the system generates the product receipt financial voucher in accordance with the purchasing policy.

Create and post subcontract vendor invoices

When an accounts payable clerk receives an invoice from the subcontractor, they create a new invoice in Finance.

To create and post subcontract vendor invoices, follow these steps:

1. In Finance, go to Accounts payables > Purchase orders > All purchase orders.
2. On the Action Pane, on the Invoice tab, select Invoice to create a vendor invoice for the subcontract purchase order.
3. On the Action Pane, on the Default from tab, select Product receipt quantity as an option. You see the purchase order lines together with the product receipt quantity.
4. Enter the invoice number and invoice date.
5. Select Post to post the vendor invoice.

Three-way matching for subcontract vendor invoice lines

Because product receipts come from timesheet entries, expenses, and material usage recorded against subcontracts in Project Operations, you need to 3‑way match vendor invoices recorded in Finance against these original actuals.

To support this process, the Match actuals functionality is available on each vendor invoice line that links to a subcontract. This functionality enables comparison between the invoice, product receipt, and the underlying actuals.

Prerequisites

To use the Match Actuals feature for Project Operations Integrated with ERP, use the following versions:

• Finance version 10.0.48 or later

To use the functionality, activate the following feature:

• Enable subcontractor vendor invoice matching to actuals for Project Operations integrated with ERP.

After you enable this feature, the Match actuals button is available on invoice lines. Select this option to see all actuals generated from timesheet entries, expenses, and material usage that link to the corresponding product receipts.

To perform three‑way matching with actuals, follow these steps:

1. In Finance, go to Accounts payables > Purchase orders > All purchase orders.
2. On the Action Pane, on the Invoice tab, select Invoice to create a vendor invoice for the subcontract purchase order.
3. Enter the invoice number and invoice date.
4. On the Action Pane, on the Default from tab, select Product receipt quantity as an option. You see the purchase order lines together with the product receipt quantity.
5. On the vendor invoice lines, select Match actuals. It displays the list of actuals linked with the product receipts for the vendor invoice.
6. Select the actuals that aren't included in the invoice details you received from the subcontractor, and then select Un‑match actuals.
7. Go to the Un‑matched actuals tab, select the actuals that you want to include for invoicing, and select Match actuals. By default, all the actuals are selected for matching for the product receipts linked with the invoice.
8. After three‑way matching is completed, select Update product receipt. This action updates the product receipt quantity based on the actuals selected for matching.
9. Select Post to post the vendor invoice. There might be cases where the quantity of actuals selected for matching doesn't align with the invoice quantity. In such scenarios, during invoice posting, the system displays a message indicating that the actuals quantity doesn't match the invoice quantity. The invoice posting process continues if you select OK.

When you post the vendor invoice, synchronization with Dataverse occurs, and an automatic confirmation happens for the vendor invoices in Dataverse. In Dataverse, the system initiates an automatic matching process for vendor invoice lines and the original timesheet or expense entries that are associated with subcontracts. This matching process involves generating a reversal entry for the original record and then creating a new entry for the vendor invoice line in the Actual entity.