When we buy groceries, it’s a fairly straightforward process. We pick what we want, pay for them and leave. No paperwork or conditions required. When buying materials, building components or renting equipment, things are a bit more complicated. It makes sense – there’s not much risk in buying a dozen eggs and a gallon of milk. What’s the worst that can happen? In construction, we must consider schedule, timeframes, payments, scope of work and performance specifications – and that’s just the basics. What is the seller can’t or won’t uphold their end of the deal? What if there’s improper workmanship, poor quality, accidents like fires and floods? Damage during transportation? With so many factors to consider, simply buying materials and riding off into the sunset isn’t an option. This is the purpose of a Purchase Order (P.O.) in construction. What is a construction Purchase Order, exactly? Here are 13 things to always include in a P.O., plus a sample Purchase Order to reference!
Construction Purchase Order Overview
If you’d like to jump to a specific section about construction purchase orders, just click the links below:
- What Is A Construction Purchase Order?
- When Is A Purchase Order Required In Construction?
- 13 Things To Include In A Construction Purchase Order
- Example Of A Construction Purchase Order
- Typical Terms & Conditions
What Is A Construction Purchase Order?
In construction – or any industry, really – purchases can be of considerable size. It’s not uncommon for a transaction to be for tens or hundreds of thousands of dollars, possibly millions of dollars!
In reality, there’s no way that much money is going to be exchanged without a few legal safeguards in place. This is where the Purchase Order comes in.
In it’s essence, a construction Purchase Order is a written, legally-binding document that outlines all of the terms and conditions surrounding a purchase, including price, quantities, specific items purchased, etc. A P.O. document is reviewed, agreed to and signed by both parties prior to the P.O. being valid and official.
As we describe in detail below, there are a variety of terms and conditions outlined in construction Purchase Orders. These terms range from basic info. of the Buyer and Seller, then pricing & quantities, to terms and conditions of payment, performance and quality standards, all the way to legal requirements.
Related Articles:
- How Do You Manage Subcontractors? 7 Essential Tips
- Construction Project Team: Roles And Responsibilities
- How Does Progress Billing Work In Construction? The 8 Essential Steps
- What Is A Daily Report In Construction? 5 Best Practices
When Is A Purchase Order Required?
Often times, a Purchase Order is required at the discretion of the Buyer and/or Seller. Some construction companies require a signed P.O. for a purchase of any kind – whether it be a million dollar deal or office supplies. This is ideal, but not realistic for many companies.
A common way that construction companies make this decision is by dollar value. For example, if a purchase is over $1,000, one companies require a written P.O.
Another variable to consider is the impact of the purchase on schedule and quality requirements. If material or building components must meet a certain performance specification, or if it the transaction must be satisfied by a certain date, the Purchase Order outlines legally-binding terms and conditions related to these requirements.
13 Things To Include In A Construction Purchase Order
- Basic Info. For Buyer & Seller: Company, Individual Person(s), Contact Information & Address
- Purchase Order Number: For Accounting & Organization Purposes
- Dates & Timeframes: Date Material/Equipment Is Ordered & When It’s Expected
- Logistic Info: Is This Material Being Picked Up Or Delivered? What Are The Hours & Conditions For Delivery? Are Shipping Lists Required?
- Payment Terms: How Long Will It Take For The Seller To Receive Payment? Prior To Delivery? Within 30 Days?
- Quantities, Prices & Details: List Specific Components Or Makes/Models Being Bought, Along With The Price & Quantity Of Each
- Applicable Taxes: Largely Dependent On The Project Type & Funding
- Quality & Performance Requirements: The Specific Requirements That The Material Or Equipment Must Meet
- Related Drawings: This Isn’t Always Required, But For Larger Building Component Purchased, Relevant Drawings Should Be Referenced
- Default Clauses: What Happens If Material Doesn’t Meet Requirements Or Is Delivered Contradictory To Instructions?
- Cancellation & Termination Terms: In The Event The Buyer Or Seller Decide To Cancel The Purchase, What Happens?
- Insurance & Liability: Does The Seller Carry Insurance For Their Product? In The Event Of Damage Or Loss, Who & What Is Covered?
- Warranty: What’s Covered By The Seller/Manufacturer & For How Long
A Purchase Order Example
Without a specific example, the Purchase Order concepts in this article are vague and lacking context. Below is an example construction Purchase Order to reference!
As a mandatory legal disclaimer, we aren’t lawyers or attorneys. While this construction Purchase Order example is very similar to what you’ll see on a typical construction project, make sure to consult an attorney or legal counsel before signing any agreements!
In this example, a theoretical contractor is purchasing 80 aluminum-framed windows from a window manufacturer.
Important information related to the purchase can be found on this page. Purchase terms, insurance and taxes are called out specifically.
The P.O. also includes a Schedule Of Values that breaks down the price for each window type, as well as quantities. Drawings are referenced, which in this example show all of the windows on an Architectural elevation drawing.
The quantity and cost of deliveries are also outlined. Of course, there’s a spot where the Buyer and Seller must sign the Agreement to make it valid.
Typical Terms & Conditions
Here are typical terms and conditions to include in a construction purchase order.
This second page of Purchase Order terms and conditions is where the legal clauses come into play.
As you can see, there are terms outlined to address the following information in this Purchase Order:
- Payment terms and taxes.
- Buyer’s rights to make changes.
- Delivery schedule and deadlines.
- Changes to scope of work.
- Liability related to deliveries.
- Relevant drawings, specifications and responsibility of dimensioning in field.
- Terms and conditions related to rejected materials and default.
- Warranty terms.
PROMOTION
These are the most important terms in a P.O. which address all of the reasons why a Purchase Order in construction is required to begin with.
In Summary
If you came here wondering “What is a construction Purchase Order?”, we hope we’ve answered your question in a satisfying and informative manner. In this article, we’ve defined the construction Purchase Order, why they’re used, terms and conditions that all P.O.s should include and lastly, a theoretical Purchase Order for aluminum windows. Have any further questions or want to hear more? Let us know in the comments below! Thanks for reading.
