purchase orders

Contractor’s Guide to Construction Purchase Order Terms and Conditions

A Purchase Order (PO) is a formal document sent by a buyer to a seller to confirm a specific purchase of goods or services. It lists the types, quantities, and prices of products or services. In the construction industry, POs are helpful for managing purchases, ensuring that all materials and services are clearly specified, priced, and agreed upon before the start of the project. This clarity helps in organizing the vast array of materials needed for construction projects, from steel and concrete to electrical fixtures and plumbing supplies.

Before we move forward discussing POs terms and conditions, it is essential to understand the differences between a purchase order, a contract, and an invoice. A contract is a comprehensive agreement between the buyer and seller that outlines the scope of work, terms, and conditions of the relationship. Contracts are the main legal document that establishes all conditions and agreements. An invoice reflects the work provided and is sent by the seller to the buyer after the delivery of goods or services in any given project, requesting payment. POs sit in the middle, being the documents that discuss what is required to move forward in any given project.

POs are necessary in construction for several reasons. First, they help in budget management by locking in prices for materials and services, which can fluctuate due to market conditions and seasonal trends. This predictability helps construction industry professionals maintain project budgets and timelines. Secondly, POs serve as a legal record of the purchase agreement, providing a clear and traceable documented trail in case of disputes or for compliance purposes. They also facilitate inventory management, ensuring that materials are ordered, logged, and received, avoiding delays and cost overruns.

What Should a Construction Purchase Order Include?

Header Information. 

The header of a PO outlines key details, including the names of the buying and selling parties, and unique reference numbers like the PO number and project identifiers. This section is vital because it sets the principles for organizing and tracking the order, essential for procurement and project management.

Item Descriptions and Quantity

This section catalogs the various materials or services requested from the supplier. It usually specifies what is needed and in what amounts. Accuracy here is key; it ensures that the construction project has materials and/or services in the correct quantities, avoiding costly mistakes or delays. By clearly listing each item, along with its quantity, construction managers can streamline their procurement process, maintain tight control. Being as specific as possible is generally the best practice for this section.

Item Costs

This section is fairly self explanatory and its success depends on being as specific and detailed as possible. The more you provide clarity on the costs of all items requested from the supplier of any given project the better you will understand its profitability and build a system that allows you to maximize profits down the road. 

Delivery Time

Specifications on the times of delivery for each item is fundamental to improving the quality of your project management in the construction industry. To avoid any delays it is essential to specify delivery time terms and conditions as specifically as possible, including what will happen if the delivery gets delayed. 

Method of Delivery

Getting the items you require on time matters just as much as getting them delivered in a way that makes sense for the project. This section discusses the Terms and conditions as well as the methods that will be used to deliver the materials and services. Be sure to include all related implications in case the delivery method conditions are not met. 

Any Warranty or Guarantee

The construction industry has multiple risks and expenses that can increase the chances of delays and legal disputes. Noting in the PO all warranties and guarantees for the equipment or materials being requested helps safeguard the quality and durability of materials and work. Should any issues arise due to defects or subpar performance, warranties and guarantees provide a clear recourse for repair, replacement, or compensation.

Jurisdiction and the Governing Law

Like all businesses and legal documents required to run them, having clarity on the legal standing of the PO for every project is essential. Mentioning the local governing body and associated laws in the PO will increase the legal value of the document by adding contractual clarity regarding the project.

Additional Terms and Conditions

This section should cover any additional agreements or requirements specific to the PO or the project itself. These could range from delivery deadlines, quality standards, payment terms, to warranty information and return policies. For contractors, being as thorough and explicit as possible in outlining these terms eliminates ambiguity and minimizes the potential for conflict or confusion. By setting clear expectations and obligations for both parties, contractors can safeguard the project’s integrity, ensuring smooth operations and adherence to project timelines and budgets.

Why Should Contractors Always Use Purchase Orders for Materials and Equipment?

While there are multiple reasons for using POs, there are three fundamental aspects that make them stand out in the construction industry. First, this is the document where contractors track expenses accurately, helping to avoid budget overruns by providing a clear outline of costs before any purchases are made. This financial clarity is crucial in the complex budgeting environment of construction projects. 

Secondly, POs serve as a formal agreement between the buyer and seller, detailing the terms of purchase. This reduces the risk of disputes over delivery expectations or payment terms, which could delay project timelines and increase costs. Plus, it helps suppliers and construction companies build a professional and reliable partnership.

Finally, POs are also essential for ensuring order accuracy and vendor accountability, minimizing the risk of receiving incorrect materials or quantities. This level of detail keeps projects on schedule by facilitating easy verification upon delivery. 

Without the use of POs, construction projects face increased risks of financial errors, legal complications and disputes, supply errors, and strained supplier relationships.

eSUB Can Solve Your Purchase Order Problems

eSUB provides contractors with a better, more refined system for managing and tracking purchase orders. Our software allows buyers to create purchase orders and track material costs by labor activity. It also allows the office to track the progress of the project in detail by instantly communicating when products are delivered. 

We have made it possible for many contractors to increase sales volume with less office staff by comparing actual and estimated costs for purchase orders and updating dates of material delivery. With eSUB in place, the elimination of paper documents has driven down the need for manual labor in the office which in turn lowers the chance of error and increases overall efficiency.

On top of that, subcontractors using eSUB software, also have been able to improve collaboration and workflows between different departments of companies. Having a centralized location to store information allows various departments within the office to share information with ease instantly. Clearer communication is also seen among members of the office and the field. Office employees can complete purchase order tracking, receive faster approval, control access permissions, and access real-time payment status which eliminates confusion and allows for greater efficiency in both the office and the field.