Contract Requisition: Everything You Need to Know
Contract requisitions and purchase orders are essential to the efficient management and control of acquiring products.3 min read
2. Who Approves or Denies a Contract Requisition Order?
3. When Are Contract Requisition Orders Needed?
4. What Information Does a Purchase Requisition Need to Include?
5. Why Should Contract and Purchase Requisitions Be Carefully Reviewed?
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
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.
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.
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.
If you need help with creating or reviewing a contract requisition, 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.