Can anyone tell me why inventory is not shown as being allocated on any reports, when it is being used on sales contracts?

Have you set up a delivery schedule?

Hi Flip,
My sales team tell me that they do not set up a schedule because the customers cannot give one due to the nature of their work.

The problem is that the stock can not be allocated unless you have specified a date of delivery. With a sales contract the delivery is open over a time period. For planning you need to be specific on the delivery date. Planning will see the delivery schedule linked to a sales contract as there are specific dates and qty specified.
Option could be - Sales forecast for planning

Thanks for that Flip. it gives food for thought.

We use Sales Quotations, and plan these in MRP if their success percentage is >=90%. This works pretty well, and the Quotations can be directly converted into Orders.