Several types of IT contracts exist to allow at least two parties to enter into a legal agreement.

A contract is an agreement between at least two parties that binds them together legally. In many contracts, one of the parties is referred to as the "seller," and the other is referred to as the "buyer." In order for buyers and sellers to maintain positive relationships, a contract is key. Contracts create the framework for how individuals or businesses interact with one another.

What Is a Purchase Order (PO)?

A purchase order is a type of contract commonly used to purchase commodities. For example, the contract might outline an agreement to purchase 10,000 bolts of fabric at a price of $1.00 per bolt.

What Are Procurement and Procurement Management?

Procurement refers to how works, services, or goods are acquired from another source. When the works, services, or goods are appropriate and purchased at a favorable cost, the interaction will help to meet the purchaser's needs in terms of location, time, quantity, and quality.

Companies procuring products can take advantage of benefits, such as:

  • Purchasing necessary goods and services
  • Hiring experts to produce goods
  • Sharing the opportunity for success

Procurement management ensures that the buyer can find the best possible supplier or seller of the goods, works, or services needed, as well as negotiate a contract that works for both parties. Organizations of all sizes need a procurement management process, so just about anyone in the business world will have to deal with it at some time. Additionally, contracts related to procurement are frequently used across many organizations, including matrix, functional, and "projectized" contracts.

Importance of Procurement Management: Sample Case 1

Procurement management is critical to successful procurement of the necessary goods, services, and works. If you are building a new office structure, you might need to hire out the electrical work for the job. The first option is to hire experienced electricians and put them on your payroll. You could also try to do it yourself, or you could contract with an electrical company that has experienced, licensed electricians on its staff.

Choosing to contract with an external company can help you save time and money while eliminating the stress of training staff members or seeking out and hiring electricians for a short period of time. Procurement makes things easier for those working in all areas of an organization. Owners and managers can focus on the business tasks that they excel at while outsourcing the remainder of the work. Organizations no longer have to handle every task. Instead, members of the organization can focus on what they do best and outsource the rest of the job.

Importance of Procurement Management: Sample Case 2

In the early days of the automotive industry, Ford Motors grew its own soy, extracted oil from the plant, and used that oil in the paint used for the exterior of the vehicles it manufactured. Today, an automotive manufacturer would purchase paint from a supplier instead of growing the supplies needed to produce paint. Additionally, many auto companies purchase other components of the vehicles, such as tires, from other suppliers and focus on assembling the vehicles.

If an organization tried to do everything on its own, this would quickly become impractical. Certain processes require expertise, but hiring experts and putting them on the payroll is expensive and time-consuming. The cost associated with hiring an expert could also raise the price of your product while failing to bring in the right people to perform certain tasks could result in a product that is substandard. Both of these scenarios are bad for any organization. Procurement management is critical to ensure proper procurement processes.

Reasons to Require a Procurement Contract

One of the reasons that you might need a procurement contract is if your organization doesn't have staff members with the experience needed to handle a certain task. Procurement contracts are also necessary if you don't have the capacity to handle the project. You can often procure the necessary resource from an external source at a more reasonable price. Procurement may also be necessary if you need to purchase goods from an external company to fulfill the requirements of a job, such as buying tools and hardware from a supplier to take on a construction project.

If you need help with the types of contracts, 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, Stripe, and Twilio.