What is Contract in SAP?

A contract is a longer-term agreement with a vendor (one of the two forms of “outline agreement” in the SAP system) to supply a material or provide a service for a certain period of time. A number of different terms may be used for this concept in purchasing literature, including “blanket order”, “blanket contract”, “systems contract” and “period contract”. The contract in sap does not contain specific delivery dates or the individual delivery quantities. These are specified subsequently in release orders issued against the contract.

Contract types
When creating a contract, you can choose between the following contract types:

Value : The contract is regarded as fulfilled when release orders totaling a given value have been issued. Use this contract type in sap when the total value of all release orders should not exceed a certain amount.

Quantity: The contract is regarded as fulfilled when release orders totaling a given quantity have been issued. Use this contract type when the total quantity to order over the duration of the contract is known.

Ways of creating contracts,
You can create a contract in one of the following ways:

1), Manually, You enter all the contract data manually.

2) By using the referencing technique,  You can create a contract by referencing purchase requisitions RFQs/quotations other contracts

You can also mix the two methods: you can create a contract by referencing an existing one, and then change or enter some items manually.

Also See: SD Master Contract Structure and How its Configured?