Contracts are agreements between your organization and the customer. The contract does not contain any schedule line, delivery quantity or delivery dates. It is valid for a certain period of time with a start date and end date. Generally, no restrictions apply to the different contract forms.

There are actually 2 types of contracts.

1. Quantity Contract
2. Value Contract

Quantity Contract

Quantity contracts are agreements between the customer and your company to order specific quantities of a product in a given period. The customer does not provide information on delivery dates, only the start date and end date of the contract. A number of contracts are generally agreed to discount the total price.

A quantity contract is completed when the customer places an order against him in the contract period. However, they are automatically standard reference customer and reduce the amount of contract remaining amount of the product to be ordered under the contract.

If the customer provides delivery dates of supplies for the product, then it is preferable to use a scheduled agreement, instead of a quantity contract.

To create a quantity contract, use the following path: Logistics –> Sales and Distribution –> Sales –>Contract –>Create
(The contracts are created using transaction VA41)

So what kind of orders are created with reference to contracts? Release orders. Release orders created with reference to a contract. Schedule lines are created in the release order when it is placed. You can choose materials directly or by exploding an assortment module. i.e. a list of valid materials from the master data of the product.

When release orders are created with reference to a contract, It generates a document flow record that allows you to updated release quantities and values in the contract. In copy control, you can decide which types of sales documents can be used as release orders from a contract. You can crate release order in any currently and the total value is updated in the currency of the contract.

Value Contract

A value contract defines that your customer agrees to purchase a fixed total value of goods and services during the defined period. The value of the release order is compared with value still open in the contract and you can define as to how the system responds when this value is exceeded.

By default when it comes to partner functions you can have the partner function defined as AA as an optional sold to party and AQ as an optional ship to the part in the standard system and finally, the contract date is maintained at both the header and the item level of the sales document.

If you assign a contract profile to the sales document type, the system automatically determines default values specific to the contract. These could be the rules for determining the start date and the end date of the contract or the duration category