Contracting Guidelines - When is A PO alone sufficient, when is contract required?
Procurement is currently working with our Legal team to develop a 'Contracting Playbook'; one of the areas to be covered is addressing the question we often hear, especially within the Services commodity areas, 'When do I Need A Contract'? Procurement Policy dictates that a PO is required for any goods and/or service purchase, but we have never been able to define when solely a PO will suffice and when a contract is additionally required - we understand it is not something that can be a 'hard and fast' rule, and cannot be determined by category or spend level alone; risk is a large factor to be considered. We are trying to put together general guidance.
Has anyone developed any type of guidelines addressing contracting for the Indirects spend areas?
I greatly appreciate any assistance/recommendations. Thanks very much in advance for your input!
PO is same as Contract. Please note that PO is one type of contract. Most of the organization use different terminology to term the contract.
As you rightly said, PO/Contract is required for any purchase of Goods/Services.
The key criteria for classifications of contracts are;
1. Risk – Associated with impact of your organization status, brand and business.
2. Spend – High or Low
3. Frequency of purchase/annum – High r Low
PO is more used for low risk, spend and frequency of purchase.
Master Agreements/Master Contracts are used when the risk, spend and frequency of purchase is high.
I have a matrix that was put together by Supply Chain, legal and insurance. Feel free to email me and I'll explain how we determined which terms to use and what can/can't be procured with a pcard. email@example.com
You may also consider splitting our POs and Contracts based on coverage of the UCC. That is, limit purchase orders only to items which will be classified as products for UCC coverage. Even though the two instruments are esentially the same - at least by splitting this way- you will help users and buyers remember they will not be covered by UCC when using a contract. Now that more actions are international, this may not be a complete solutions. Another option, would be to limit POs to those things that can be 'received' by someone other than the end user. If a 3rd party can verify receipt and liability for payment, then a PO.
PO when to use
Use a PO for transactional type purchases.
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