Key Takeaways

  • A blanket contract is a long-term purchasing agreement that sets pricing, terms, and conditions for recurring purchases without requiring separate negotiations for each order.
  • Best used when buying the same goods or services repeatedly from the same vendor, allowing for consistent pricing, predictable delivery schedules, and reduced administrative work.
  • Risks include over-commitment, price fluctuations, and lack of quality control if agreements are not regularly monitored.
  • Blanket contracts differ from volume purchasing agreements in that they do not require a set quantity to be bought—only a maximum spending or order limit.
  • Well-drafted blanket contracts should detail agreement length, covered items, pricing, maximum quantities, payment terms, and any applicable regulatory requirements.

Blanket contracts, also called blanket orders, standing orders, open orders, or blanket purchase orders (BPOs), represent an agreement between a buyer and seller to purchase goods or services from a specific vendor. Usually developed by a business' purchasing department, blanket contracts are different from regular purchase orders in that they establish an ongoing relationship between a business and its supplier and set time and dollar limits. To make a purchase when you're using a blanket contract, you issue a release against it.

When Should I Use a Blanket Contract?

TAPN advisory consultant Tom Nichols points out that blanket purchase orders are usually in effect for 12 months at a time before they are renegotiated. Maintenance or service agreements are a good example of this type of contract. Often you see this type of document used between universities and their suppliers for short-term contracts.

Documentation related to purchasing decisions must be thorough and well-researched, so purchasing supplies with one of these contracts in place can be a lengthy and complex process. However, blanket contracts can be used as a shortcut in certain circumstances. For example, if you are going to buy the same product from the same vendor repeatedly over time, a BPO can streamline your business, especially for inexpensive goods that you use up quickly. 

A blanket order can also be used in association with a contract that's already in place or with a new agreement once negotiations are complete. Such a document is often used with a purchasing card or a ghost account when it involves purchasing many small, inexpensive items from a single vendor.

Blanket contracts are used most effectively when the buyer:

  • purchases the same item or service repeatedly from the same vendor.
  • makes payment in the same way over the term of the contract, which is usually one year.
  • orders the same materials sent in multiple shipments.
  • gets better pricing by purchasing in volume.

Examples of Industries and Uses for Blanket Contracts

Blanket contracts are common in industries with predictable, repetitive purchasing needs. For example, manufacturers may use them for raw materials, universities for office supplies, and healthcare providers for medical consumables. Government agencies often employ blanket contracts for IT services, security, and maintenance, streamlining vendor relationships and ensuring compliance with procurement regulations. Service-based blanket contracts can also cover routine maintenance or professional services, where ongoing support is required over a set term.

When Should I Avoid Using a Blanket Contract?

BPOs are not a good idea if:

  • The goal is to establish an open line of credit.
  • Prices are not known or fixed.
  • Quality is questionable.

Additional Situations to Avoid Blanket Contracts

Blanket contracts should also be avoided when demand is highly unpredictable, as committing to ongoing terms without clear usage patterns can result in unused commitments and wasted resources. Similarly, if the market for the goods or services is volatile, locking in prices for too long can either disadvantage the buyer during price drops or the seller during price spikes. In projects with short durations or one-time needs, standard purchase orders are more efficient than a long-term blanket agreement.

The Benefits of Blanket Orders

Blanket orders are helpful to sellers and purchasers alike. Suppliers appreciate the opportunity to establish repeat customers. They know that buyers are less likely to explore other sources if a standing contract is already in place.

Buyers enjoy this method of purchasing because it involves less paperwork and time to buy from an already-approved vendor. The customer knows how much they will pay each time, which helps control expenses. They also know what quality to expect from the product or service, and having a BPO in place can help resolve any disputes that may arise.

However, the buyer is still free to shop around for other items since the open order specifies the item to be purchased and the quantity. For example, a company that leases computer monitors could set the price of the devices for the coming year. Since the agreement only applies to monitors, the buyer can still shop around for the best price on other computer components and establish another open order for that.

Operational and Cost-Saving Advantages

Beyond reducing paperwork, blanket contracts can shorten procurement cycles and minimize invoice processing costs by consolidating multiple purchases into a single agreement. Buyers benefit from more predictable budgeting, as the negotiated terms reduce the risk of sudden cost increases. Vendors gain long-term business assurance, allowing them to better forecast production and inventory. In some cases, blanket contracts can improve supplier relationships, resulting in preferential treatment, such as priority production slots or faster delivery windows.

What Should a BPO Include?

A BPO should include:

  • the length of the agreement, usually one year.
  • cancellation terms.
  • the number of the previous agreement if this is a replacement.
  • items covered.
  • the maximum quantity.
  • pricing.
  • payment arrangements.
  • information required by the DEA if regulated or controlled substances are involved.

Key Performance Indicators and Review Clauses

To ensure ongoing success, blanket contracts should include measurable performance indicators such as delivery times, defect rates, or service-level benchmarks. Review clauses can provide opportunities to adjust pricing, quantities, or delivery schedules based on changing business needs. Periodic performance reviews—quarterly or semi-annually—help both parties address issues early and keep the agreement mutually beneficial.

Risks of Using Blanket Purchase Orders

Blanket purchase orders have benefits, but they also carry the risk of being compromised if mistakes are made.  According to Nichols, regular maintenance is critical, since the most common error is a failure to monitor the agreement. If the contract expires or the dollar limit is reached, the terms revert to the standard. To avoid this, Nichols recommends that accounts payable keep copies of all BPOs.

Mitigating Common Risks

Risks can be reduced by implementing controls such as automated alerts when approaching budget limits, requiring approval for large releases under the contract, and conducting periodic supplier evaluations. Maintaining flexibility clauses, like the ability to adjust pricing in response to market changes, can also prevent disputes. Buyers should also ensure they are not overly reliant on one supplier, as this can create supply chain vulnerabilities.

Blanket Contracts Versus Volume Purchasing

Blanket contracts are different from volume purchasing documents. While both types of contracts govern ongoing purchases, volume agreements set a quantity of goods or services that must be purchased or the buyer faces a penalty. 

Even when blank orders include a maximum budget, it's still not a strict limitation. Buyers can purchase up to the limit set in the contract, but they are not required to buy anything at all. The agreement simply lays out the parameters of the relationship between the parties. In order to make a purchase, the buyer contacts the seller to initiate the order during the term of the agreement.

Frequently Asked Questions

1. What is the main difference between a blanket contract and a volume purchasing agreement?

A blanket contract sets maximum spending or order limits without requiring a set quantity, while a volume purchasing agreement mandates buying a specified quantity, often with penalties if unmet.

2. How long does a blanket contract usually last?

Most blanket contracts last 12 months, but terms can vary based on industry, supplier relationships, and negotiated conditions.

3. Can prices in a blanket contract change during the term?

Generally, prices are fixed for the contract term, but some agreements include review clauses allowing price adjustments due to market changes.

4. Are blanket contracts legally binding?

Yes, once signed, they are enforceable agreements outlining the rights and obligations of both parties.

5. How can I ensure a blanket contract remains beneficial over time?

Regularly monitor usage, review performance against KPIs, and renegotiate terms as needed to reflect current market conditions.

If you need help drafting or interpreting a blanket contract, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.