A Basic Guide to Purchase Orders
When do I need to create a Purchase Order?
A Purchase Order is required whenever a need to buy products or services from an external
supplier of any kind is identified and agreed.
There are few exceptions to this requirement.
At what stage in the purchasing process should I create the Purchase Order?
A Purchase Order must be created after all necessary approvals (such as single source
approval if you are seeking to proceed with a purchase where the value exceeds £2.5k
without competition) have been obtained and before any instruction or commitment to
proceed with the supply or provision of products or services is given to any contractor,
consultant or supplier.
The above reflects the requirements of the University as set out in its Financial Rules and
Procedures.
Is a Purchase Order the same as a Requisition?
No. A requisition is a request to buy products or services. It is an internal document which
seeks authority or requests someone to place a Purchase Order for products or services (or
issues products from stores).
A requisition does not give an instruction or make any commitment to an external supplier
and it should not be used for these purposes.
Do I need to create a Purchase Order for purchases from internal suppliers?
Most College or School Stores will have a requisitioning system and process, so purchase
orders are not required in that case.
For other internal suppliers (Fresh Thinking for example) a Purchase Order is created
through the Proactis system. For some other areas manual Purchase Orders are required.
As an organisation cannot contract with itself these Purchase Orders are not legally binding.
What is a Purchase Order?
In legal terms, a Purchase Order generally constitutes a formal offer from the University to a
contractor or supplier to purchase products and services. It should set out the details of the
products or services that you wish to purchase from a supplier and (on the reverse) the
terms and conditions of contract that the University wishes to apply to the transaction.
Exceptions to the general statement above are where Purchase Orders are issued to
University Approved Suppliers having a Framework Agreement with the University or where
the University has negotiated and signed an express contract with a contractor, consultant or
supplier. In these cases the Purchase Order either creates a contract with the supplier
(Framework Agreement) or acts as a mechanism to enable the contractor, consultant or
supplier to be paid (express contracts).
This does, not however, imply that Purchase Orders should not be created.
Why do I need to issue a Purchase Order?
The Purchase Order fulfils a number of purposes because it:
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constitutes a formal offer to buy products and services from a supplier subject to
certain terms and conditions of contract as illustrated above;
sets out the details of the products or services that you want to buy; the quantities;
the unit of measure; the price; the delivery address; when it is to be delivered; any
staged payment details; the VAT that is chargeable and the amount payable at line
item detail and on total;
creates a contract or is part of a contract (see above);
once issued, commits the University to spending an amount of money (as set out in
the Purchase Order) ;
enables the University to know what it has committed to spend overall and it
enables the University and you to know how much money has been committed to
expenditure on bought in products and service;
enables you to check whether you haves sufficient funds available in the account
that you wish to use for the purchase;
enables budgets to be managed more effectively (because you know what you have
committed to spend but not yet spent when reviewing your budget; it enables
products and services to be receipted; and
enables the supplier to be paid, and various other activities.
It is also a requirement of the University’s Financial Rules and Procedures that a Purchase
Order is created before any commitment is made or instruction given to any supplier to
provide products and services for University use or exploitation.
Are there any exceptions to creating a Purchase Order?
Yes. You do not currently need to create a Purchase Order where payment for products
and services is being made using the University Purchasing Card because the purchase
will be recorded using a transaction log. In these cases you will be creating a verbal
contract and commitment to spend money on behalf of the University.
There may be other specific circumstances where a Purchase Order is not required, but in
general if you are spending money with a contractor, consultant or supplier then (as
described above) if nothing else, a Purchase Order is required to enable payment to be
made.
Do I have to use any specific stationery or can I just print a Purchase Order on
normal copier paper?
You need to use the standard Purchase Order paper which has the University’s logo; a
“watermark” image of the University’s crest and the University’s Standard Conditions of
Purchase on the reverse. This paper can be obtained from Printing Services.
What should I include on the Purchase Order? (Essential Information to include on a
Purchase Order)
Some of this is stating the obvious and some of this will be system generated, but:
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The name and address of the supplier;
The delivery address (in sufficient detail so as to enable the delivery to be made:
Contact points at the University and any special instructions;
For purchases with Approved Suppliers against Framework Agreements or
purchases where an express contract is in place – the contract reference number if
you know it;
Quotation reference if necessary – but include this as special instructions – avoid
“as per quotation” in the description of the products or services that you are
purchasing;
Description of the products and services – at line item detail – again please do not
use “Goods as per quotation” or “Services as per quotation”;
Supplier part or catalogue number;
Staged payments if they are applicable (usually for major items of equipment);
Quantity at line item detail;
Unit of measure;
Unit/Item price net of discount;
Delivery Charges;
Delivery date (ideally based on the delivery promise made by the supplier – if there
is an acceptance stage then the delivery date should be stated as the date at which
it is intended that the products/services will be accepted and the contract completed
Total price at line item detail – the system will calculate this and the overall total
price.
Why is this information needed?
The obvious elements of information are not addressed here, but the following should be
considered for specific elements:
Contract reference number – this is required to ensure that the terms and conditions of the
contract or Framework Agreement apply to the Order rather than supplier’s terms or the
Standard Conditions of Purchase. For Orders that are processed through central
Procurement, the contract reference is added before the Order is dispatched.
Description at line item detail – this may be one description setting out the detail of the
products or services concerned but essentially being a single item or may be multiple lines of
individual products or activities that are being ordered. Either way it is essential to describe
what you are purchasing so that the products or services can be properly receipted.
For Orders for products or services that have multiple deliveries of the same thing it worth
noting that it is more flexible to separate out each call off or delivery than to have one line
with a quantity stated against it.
Delivery Charges – if delivery charges are not included at the outset you will have to amend
the Order or receipt an unexpected item which is clearly not efficient.
Delivery Date – the University’s Standard Conditions of Purchase and its express contracts
generally include time of the essence as a condition of contract and also liquidated and
ascertained damages. Using the default 3 days calculation on the Orders is of no use at all if
the delivery date is unrealistic as that will negate the protection given by the inclusion of the
clauses referred above. Ultimately it is for you to decide whether delivery is important
enough to require that a specific, realistic delivery date should be included.
Need further advice or information?
There is some specific advice on what to include on Purchase Orders issued for specific
products or services in the document headed “How to place a Purchase Order for…”
If you require further advice generally please contact Procurement@bham.ac.uk and we will
do our best to help.