Key Takeaways

  • A requisition order is an internal request for approval to purchase goods or services before a purchase order is issued.
  • Contract requisitions and purchase requisitions require clear details such as department, items, quantities, vendor, and price estimates.
  • Approvals typically come from a purchasing department or finance team, ensuring oversight and budget control.
  • Requisition orders help organizations maintain compliance, improve accountability, and manage spending efficiently.
  • Careful review of requisitions and purchase orders prevents errors, ensures contract terms are met, and avoids financial or legal disputes.
  • Requisitions differ from purchase orders: one requests permission to buy, while the other is the binding contract with the vendor.

Contract requisitions and purchase orders are essential to the efficient management and control of acquiring products. This applies both internally and externally so that your business can operate successfully. A purchase requisition is an internal document submitted within an organization to the purchasing department. It outlines which supplies need to be purchased from an outside vendor.

What Information Do Contract Requisitions Need to Include?

Purchase requisitions will vary from business to business, but most generally require certain basic information:

  • Name of the department requesting the item(s)
  • Description and quantity of requested item(s)
  • Expected price of purchase
  • Name of customary vendor used

Benefits of Using a Requisition Order

A requisition order provides more than just a record of requested items. It plays a central role in financial and operational oversight. The benefits include:

  • Budget control: Ensures purchases are pre-approved before money is committed.
  • Audit trail: Creates a paper trail for compliance and financial reporting.
  • Fraud prevention: Reduces unauthorized spending by requiring managerial approval.
  • Standardization: Promotes consistency in how departments request and justify purchases.
  • Workflow efficiency: Streamlines procurement, especially when integrated with software that automates approvals and recordkeeping.

Who Approves or Denies a Contract Requisition Order?

The purchasing department will either approve or deny the contract requisition. While organizations vary in how they make purchases, smaller purchases are often bought directly from retailers using a company credit card, which eliminates the process of requisitioning the purchasing department.

Difference Between Requisition Orders and Purchase Orders

A requisition order is an internal request—it asks for approval to buy something. A purchase order (PO) is an external contract—it authorizes the actual purchase from a vendor.

  • Requisition order: Department → Purchasing/Finance (seeks permission).
  • Purchase order: Purchasing → Vendor (formalizes transaction).

For example, a requisition order may ask to purchase 50 laptops. Once approved, the purchasing department issues a purchase order to the supplier, which becomes legally binding once accepted. This separation ensures spending is controlled internally before obligations to vendors are made.

When Are Contract Requisition Orders Needed?

Standard procedures for many companies require a purchase requisition when a purchase is expected to exceed a set amount. For instance, at Tufts University, when a purchase is expected to exceed $2000, an internal request must be sent to the purchasing department in the form of a purchase requisition for approval and purchase. On the other hand, purchase requisitions are required for all purchases, big or small, at many businesses.

A purchase order is sent to the outside vendor requesting the goods and initiating a sales transaction only after the purchasing department approves the purchase requisition.

Common Types of Requisition Orders

Requisition orders can cover a wide range of needs within an organization. Some common categories include:

  • Purchase requisitions: Requests to buy goods or services from outside vendors.
  • Contract requisitions: Requests to initiate or extend service agreements with providers.
  • Internal requisitions: Requests to transfer supplies or resources between departments.
  • Hire requisitions: Requests to recruit or contract new employees or consultants.

Each type ensures resources are acquired with proper oversight and according to organizational policy.

What Information Does a Purchase Requisition Need to Include?

Just like purchase requisitions, purchase orders will vary from business to business, but will generally require certain basic information:

  • Name of purchasing office
  • Description and quantity of item(s) being purchased
  • Ship to address
  • Payment terms and invoicing instructions
  • Purchase order number

The purchase requisition number will typically share the same number as the purchase order, to assist in record keeping. A purchase order is considered a binding contract between the vendor and the buyer once the vendor has accepted the purchase order. While the majority of the time a purchase order is sent to an outside vendor, there are times that the purchase order may be used internally.

When a department wishes to purchase an item from another department within the same organization, many businesses require an interdepartmental purchase order to be submitted by the purchasing department. Interdepartmental purchase orders can be especially helpful for accounting purposes in large businesses that have separate operating budgets.

Why Should Contract and Purchase Requisitions Be Carefully Reviewed?

It is important that the vendor review all numbers, quantities, and terms of the purchase order. From this point, it then becomes possible to negotiate the terms and conditions if necessary, before accepting the purchase order/contract. In addition, any retainage should be discussed and agreed upon before accepting the contract. Retainage is a portion of the total cost that is withheld until all obligations have been met.

Once received, both parties should examine the contract to ensure that the contract's terms and obligations are clear and as expected. This is especially important if there were negotiations made prior to acceptance.

Most contracts include a large amount of details, but when reviewing the initial contract, a checklist of basic items should be included and reviewed to ensure parties are able to meet the contract terms:

  • Review item(s), quantities and bid proposal to ensure accuracy
  • Review the agreed upon price and review agreed upon retainage
  • Confirm terms of pricing to clarify specific details, such as liquidated damages and fees for permits
  • Confirm schedule terms to clarify specific details, such as weekend, holiday, and evening work, weather delays, etc.
  • Payment terms should reflect when final payment is made

The entirety of the contract should be reviewed and examined carefully, but the above are a few critical items to check upon receiving the contract. Don't forget that getting the job is only half the battle. A well-written contract that is understood by both parties can help eliminate future surprises or disagreements once the contract takes effect.

Once the contract has been fully executed, the next contractual issue that makes a big difference in cash flow is invoicing.

Best Practices for Managing Requisition Orders

To maximize the value of requisition orders, organizations should follow these practices:

  • Use requisition software: Automating approval workflows minimizes delays and errors.
  • Set approval thresholds: Define which purchases require supervisor vs. executive sign-off.
  • Provide training: Ensure employees understand when and how to submit requisitions.
  • Align with budgets: Link requisition approvals to departmental budget allocations.
  • Monitor compliance: Regularly audit requisition and purchase order records to prevent misuse.

These practices ensure requisitions serve as effective control tools rather than bottlenecks.

Frequently Asked Questions

  1. What is a requisition order?
    A requisition order is an internal request asking for approval to purchase goods, services, or contracts before a purchase order is issued.
  2. How does a requisition order differ from a purchase order?
    A requisition order requests approval within the company, while a purchase order is a legally binding contract sent to an external vendor.
  3. Who typically approves a requisition order?
    Usually, the purchasing or finance department reviews and approves requisitions to ensure compliance with budgets and policies.
  4. What types of requisition orders exist?
    They include purchase requisitions, contract requisitions, internal requisitions, and hire requisitions, each serving different organizational needs.
  5. Why are requisition orders important?
    They maintain financial control, prevent unauthorized spending, create an audit trail, and streamline the procurement process.

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