TITLE: CONTRACT FORMATION
POLICY NO: P-070
SUBMITTED BY: C. CONNER
APPROVED BY: D. SABEL
Effective Date: 06/07
Reviewed: 09/2013
I.
Supersedes No: 06/93
Page No 1 of 3
Purpose
The purpose of this policy is to provide familiarization of contract formation to all
procurement personnel.
II.
Scope
This policy applies to all University personnel.
III.
General
Printed or written forms and documents perform important business functions.
Their correct use assures maximum clarity in communications and provides legal
protection for all parties.
Written documents are usually either standard printed forms for specific
categories or situations, or individually tailored writings designed by authorized
personnel. In many cases suppliers will insist on using their own forms.
Documents must be selected carefully in order to achieve the desired end results
of the total transaction.
Procurement Professionals are responsible for acquainting themselves with the
standard forms. They must be familiar with all conditions printed on University
procurement forms, and on our vendors’ forms as well.
Procurement Professionals may find it desirable to reject vendor presented forms
in favor of Purdue University forms. Procurement Professionals should not
hesitate to amend, correct, strike out, etc., vendor forms to represent the business
interests of Purdue University. Patent and Copyright Indemnity, and
Indemnification are the items most often omitted from vendor presented forms.
Review of the file “PSA templates” located at the following location: (drive S: of
the Purchasing Computer system) S:/BS/Common/Users/PS/Contract
Templates_2012/PSA will provide alternate language, or recommended formats
for dealing with vendor forms.
Questions or doubts about the relationships being created by use of a form, or the
writing on it, should be addressed to the Director of Procurement Services.
TITLE: CONTRACT FORMATION
Effective Date: 06/07
Reviewed: 09/2013
POLICY NO: P-070
SUBMITTED BY: C. CONNER
APPROVED BY: D. SABEL
Supersedes No: 06/93
Page No 2 of 3
Contracting methods commonly require written documents covering some of the
steps of a transaction. Although not all of the writings below are used in a single
transaction, they represent the most common types of writings:
--Purchase Orders
--Letters of Intent from the University
--Formal Contracts and Agreements
--Purchase Order Acknowledgements
--System Contracts
--Purchase Order Change Notices
--Blanket Purchase Orders
IV.
Purchase Orders
A purchase order is a legal document governed by the Law of Contracts and the
Uniform Commercial Code of Law (UCC). (See Policy P-130, Legal
Considerations, for further information on the UCC.)
The purchase order constitutes the final and entire agreement between the vendor
and the University. It may be either an offer to buy, an acceptance of an offer to
sell, or a confirmation of a verbal agreement between the company and a supplier.
Usually it is an instrument in an offer to buy, and when formal acceptance is
received from the vendor it becomes a legal contract. As a legal contract, the
purchase order gives the vendor authority to ship and to invoice the ordered
goods, and thereby, becomes the University’s commitment for the amount and
value of those goods.
When a purchase order is issued as an acceptance of the vendor’s offer, a
contractual relationship arises immediately; otherwise our purchase order
constitutes an offer to create a contractual relationship, which can be completed
either by the vendor’s commencement of performance, or acknowledgement and
acceptance.
V.
Preparation of Purchase Orders
TITLE: CONTRACT FORMATION
Effective Date: 06/07
Reviewed: 09/2013
POLICY NO: P-070
SUBMITTED BY: C. CONNER
APPROVED BY: D. SABEL
Supersedes No: 06/93
Page No 3 of 3
As a major requirement, the purchase order must contain a precise and clear
description of the elements in the order, the terms of the purchase, the time,
manner and place of delivery. All the following information is necessary when
preparing a purchase order:
--Name and address of the vendor
--Name of the ordering department
--The account number
--Date of order
--FOB information and discount terms
--Address (where to ship goods)
--Description of good, quantity per item, price per unit, and extension
--Date goods are required
--Special terms and conditions
--Approval of the order
In preparing a purchase order, the following points require special attention:
A. PRICE: A purchase order should state the price, or refer to a price quotation
or agreement on which the prices are based. There may be certain exceptions
in the case of small items purchased locally, etc.
B. TERMS: The purchase order should show the appropriate discounts and the
payment terms.
C. FOB: The FOB point and freight terms should by stated clearly.
D. DELIVERY REQUIREMENTS: The document should show the date
materials are to be at the destination, and should not use expressions such as
“rush,” “as soon as possible,” or “urgent.”
E. APPROVAL: The appropriate fiscal, commodity, and asset approvals need to
take place in the order they are required.