Purchase Order

The drafting of a purchase order, sometimes called a purchase agreement, takes place after supplier selection is complete. Purchasing must take great care when wording a purchase agreement because it is a legally binding document. Almost all purchase orders include on the reverse side of the agreement the standard legal conditions that the order (i.e., the contract) is subject to. The purchase order details critical information about the purchase: quantity, material specification, quality requirements, price, delivery date, method of delivery, ship-to address, purchase order number, and order due date. This information, plus the name and address of the purchasing company, appears on the front side of the order. Exhibit 2.5 presents an example of a purchase order, and Exhibit 2.6 illustrates a typical set of conditions and instructions.

Companies with an older paper system have a cumbersome process (see Exhibit 2.3). Approximately seven to nine copies typically accompany the purchase order. In computerized environments, a file containing a copy of the PO is sent to each department’s computer mailbox. The supplier receives the original copy of the purchase order along with a file copy. The supplier signs the original and sends it back to the buyer. This acknowledges that the supplier has received the purchase order and agrees with its contents. In legal terms, the transmittal of the purchase order constitutes a contractual offer, whereas the acknowledgment by the supplier constitutes a contractual acceptance. Offer and acceptance are two critical elements of a legally binding agreement.

Purchasing forwards a copy of the purchase order (either electronically or manually) to accounting (accounts payable), the requesting department, receiving, and traffic. Purchasing usually keeps several copies for its records. There are good reasons for allowing other departments to view purchase orders and incoming receipts:

• The accounting department gains visibility to future accounts payable obligations. It also has an order against which to match a receipt for payment when the material arrives.
• The purchase order provides the requesting department with an order number to include in its records.
• The requestor can refer to the purchase order number when inquiring into the status of an order.
• Receiving has a record of the order to match against the receipt of the material. Receiving also can use outstanding purchase orders to help forecast its inbound workload.
• Traffic becomes aware of inbound delivery requirements and can make arrangements with carriers or use the company’s own vehicles to schedule material delivery.
• Purchasing uses their copies of the purchase order for follow-up and monitoring open orders.
• Orders remain active in all departments until the buying company acknowledges receipt of the order and agrees that it meets quantity and quality requirements.

Note that firms are increasingly using computerized databases to perform these processes and are moving toward a paperless office.

Exhibit 2.6 A Typical Set of Conditions and Instructions for a Purchase Order

1. Any different or additional terms or conditions in Seller’s (Contractor’s) acknowledgment of this order are not binding unless accepted in writing by Buyer.
2. Seller shall comply with all applicable state, federal, and local laws, rules, and regulations.
3. Seller expressly covenants that all goods and services supplied will conform to Buyer’s order; will be merchantable, fit, and sufficient for the particular purpose intended; and will be free from defects, liens, and patent infringements. Seller agrees to protect and hold harmless Buyer from any loss or claim arising out of the failure of Seller to comply with the above, and Buyer may inspect and reject nonconforming goods and may, at Buyer’s option, either return such rejected goods at Seller’s expense, or hold them pending Seller’s reasonable instructions.
4. The obligation of Seller to meet the delivery dates, specifications, and quantities, as set forth herein, is of the essence of this order, and Buyer may cancel this order and Seller shall be responsible for any loss to or claim against Buyer arising out of Seller’s failure to meet the same.
5. Buyer reserves the right to cancel all or any part of this order which has not actually been shipped by Seller, in the event Buyer’s business is interrupted because of strikes, labor disturbances, lockout, riot, fire, act of God or the public enemy, or any other cause, whether like or unlike the foregoing, if beyond the reasonable efforts of the Buyer to control.
6. The remedies herein reserved shall be cumulative, and additional to any other or further remedies provided in law or equity. No waiver of a breach of any provision of this contract shall constitute a waiver of any other breach, or of such provisions.
7. The provisions of this purchase order shall be construed in accordance with the Uniform Commercial Code as enacted in the State of Georgia.
8. Government Regulations:

(1) Seller’s and Buyer’s obligations hereunder shall be subject to all applicable governmental laws, rules, regulations, executive orders, priorities, ordinances, and restrictions now or hereafter in force, including but not limited to (a) the Fair Labor Standards Act of 1938, as amended; (b) Title VII of the Civil Rights Act of 1964, as amended; (c) the Age Discrimination in Employment Act of 1967; (d) Section 503 of the Rehabilitation Act of 1973; (e) Executive Order 11246; (f) the Vietnam Era Veteran’s Readjustment Assistance Act of 1974; and the rules, regulations, and orders pertaining to the above.

(2) Seller agrees that (a) the Equal Opportunity Clause; (b) the Certification of Nonsegregated Facilities required by Paragraph (7) of Executive Order 11246; (c) the Utilization of Minority Business Enterprises and the Minority Business Enterprises Subcontracting Program Clauses; (d) the Affirmative Action for Handicapped Worker’s Clause; and (e) the Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era Clause are, by this reference, incorporated herein and made a part hereof.

(3) Seller agrees (a) to file annually a complete, timely, and accurate report on Standard Form 100 (EEO–1) and (b) to develop and maintain for each of its establishments a written affirmative action compliance program which fulfills the requirements of 41 C.F.R. 60–1.40 and Revised Order No. 4 (41 C.F.R. 60–2.1 et seq.).