Is a purchase an order or a contract?

For one time procurement, the term Purchase Order is used. In purchase order, unit price, quantity to be supplied and total purchase order value is clearly mentioned. The supplier delivers the goods or equipment and paid accordingly.

The term Contract is used for repetitive procurement of same materials /parts /equipment /consumables over a period of time (say one year). The unit price, expected total quantity and max. Contract value is mentioned in the long term contract.  Thereafter, an Order or request is issued to contractor based on actual requirement whenever necessary to deliver the goods specifying the required quantity and contracted unit price.

 Similarly, for any regular service requirement (security guard, cleaners) throughout a specific period, say one year, a Long Term or Frame Work contract is issued.  The supplier supplies the specific quantity of services per month at an agreed rate and paid on monthly basis. For control purposes, a maximum limit of contract value is indicated in the contract.

A purchase order is a contract. normally a buyer's terms and conditions would be issued with the order which would form the contract.

 

The advantage of using a purchase order is speed and efficiency.

The disadvantage of using a purchase order is that the terms could be challenged and the supplier is free to issue their own terms and conditions later in the process (for example with their delivery note).

 

The most secure way to enforce the buyer's terms and conditions is to invite the supplier to bid/quote against the buyer's terms and conditions. Make them sign a Form of Agreement when submitting the bid (Offer) and endure the work is awarded to the supplier against the buyer's terms and conditions (Acceptance). The contract is then clearly defined. The disadvantage of this is it can take longer but should be done where the contract is most important or highest risk.

Practically and legally both are the same thing meaning thereby that order for purchase of any goods, services or works is a contract. By definition, a contract is an agreement between two or more parties enforceable by law. So for hiring a sub-contractor we need to have a contract. It does not make any difference by which name we may call it.

Use PO's for low risk, low dollar value, short term purchases of goods. If the items at issue require development or customaization, where the term of relationship is expected to be much longer, where we spend over $250k a year, we will try for a supply contract. It has an added bonus that, if properly drafted, they provide assurance of continuity of supply.

Simply it depends on the purchased items/project value, need, quantity and so so on. We sometimes for example sign a long term contract for two years spare parts. The omf in particular. Or we go with a contact choice if we bring a foreigner expert to work with us temporary. Usually the purchase orders used as the best deal with the competitive market. For limited purchasing mostly.

Can be both depending upon the type of product/service needed.

A purchase order is a contract but it is not a vice versa.

A Purchase order can refer to a previously signed frame agreement (contract) that contains more general terms and conditions which goes inline to the terms and conditions of the purchase orders.

 

I would prefer a Contract since it provides a definitive Agreement between the parties. When purchasing a complex sub-system or a hi-tech piece of equipment then go for a specifically negotiated sub-contract, which should contains definitive terms related to the procurement. If you are purchasing toilet rolls, with a single function to perform then use a Purchase Order.

 

It’s a very nice Question” What determines whether an organization uses a purchase order (with additional terms on the back or separately) when buying goods or services or instead puts all the terms in a contract? A contract is preferred whenever the terms of the agreement seem to exceed the basic terms associated with a Purchase Order.  The general guideline is where there is significant value, there is significant risk.  Also, risk is a factor when considering low value acquisitions that affect major infrastructure - the risk of loss versus the risk of cost.  Large capital equipment purchases are not contracted; low value service work on sensitive assets will typically be contracted as well.

 

Hiring of Contractor or supplier is a subject that require a strict Contract to be signed by the parties to ensure both parties obligations and rights, the Contract can be very simple and basic like Minor Works Contract, it mainly includes the main Contractual Clauses and Attachments/Appendices like Scope of Work, Schedule of Paymemt (including the Contract Value, detailed Schedule of Rates, Payment Terms, and Liquidated Damages in case of delays or poor performance .. etc.), Project Plan and Duration, Contractor's performance in terms of on time delivery, quality, commitment, resources .. etc., so it is a complete and detailed binding documents singed and approved by both parties, and has a Legal weight and value.

Even if the subject is low value, you should still sign a Contract and not to process through a Standard Purchase Order that will not be detailed and will not govern your rights like a Contract.

A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing of products and services from external suppliers.[1] Acceptance of a purchase order by a seller forms a contractbetween the buyer and seller, and no contract exists until the purchase order is accepted. Although a typical purchase order may not contain contract language (in fact most contain little more than a list of the goods or services the buyer desires to purchase, along with price, payment terms, and shipping instructions), the purchase order is a specially regarded instrument regulated by the Uniform Commercial Code or other similar law which establishes a purchase order as a contract by its nature. Yet despite the nature of the Purchase Order as a contract, it is common to accompany the acceptance of a purchase order with a legal document such as the terms & conditions of sale, which establish specific or additional legal conditions of the contract. Creating a purchase order is typically the first step of the purchase to pay process in an ERP system.