Here the term purchase order includes not only the traditional piece of paper sent out by post. It may be an order placed electronically using, for example, a supplier's, on-line, web-based shopping basket and paid for using an institutional procurement card or more automated using an e-procurement system. Remember also that a verbal order is binding, so placing an order over the telephone will result in a contract between the institution and the supplier.
What do you want to buy?
When the time comes to purchase the selected goods or services it will be necessary to communicate what is required to the selected supplier. The supplier, product, price and other factors will have been determined via an appropriate process. Depending on value, this could be from published price lists, a special agreed price list, a quotation or tender exercise.
The description on the purchase order should provide all the information to ensure that you receive the correct quantity of product, to the correct location at the correct time. For example, what do you mean by 2 boxes – is it a box of 2 items or a box of 10 cartons of 10 items? When using suppliers’ product codes make sure your write them accurately. If you want a particular colour or configuration, make it clear on the order.
The order is therefore a very important document and should be filled out in a clear and unambiguous way. Make the descriptions clear, stating pack sizes, colours etc. Don't assume that just because you always get the blue folders the supplier will know and deliver the blue ones this time. Likewise, the price quoted should be accurate. If it's an estimate, state this. Similarly, if the order is to call off, for example, stationery over a period of time, state the period covered and a maximum value. When the stated value or end date is reached, the order should end and, if necessary, a new one created.
Remember the supplier is receiving lots of orders from many customers and will probably not be in position to recall particular requirements that you may have.
Goods Received Documentation
Whenever a supplier delivers goods there will be a delivery note that details what has been delivered. Someone within the institution or department will, normally, be asked to sign for the goods. The signature is confirming that the goods delivered are correct and in good condition. If there is no opportunity to check the delivery the delivery note should be signed ‘Received but not checked by [name of recipient]’. The delivery should then be checked as soon as possible and any discrepancies or other problems notified to the supplier immediately.
Any problems should, normally, be advised within 3 days. The delivery docket will usually state the number of days and give details of where to notify any problems. The longer you delay advising of any discrepancies, the more difficulty you may have getting the problem sorted out.
Delivery dockets should be retained as they form part of the audit trail for the goods or services purchased and they may be required if there is a problem later.
A signed delivery docket is proof that the goods or services were delivered to the institution and that the supplier has fulfilled its obligations under the contract. If, for example, the goods were to be mislaid after they have been signed for, the institution will be liable for their cost as the supplier will be deemed to have fulfilled the contract. There may be some protection, therefore, in stating that the goods are to be delivered to a named person especially if delivery is not into an institution's a named Store or its central Post Room.
Payment of Invoices
Each institution will have its own policy for paying invoices and this will normally only be after the receipt of the correct goods and services. There is a legal requirement, under both the Public Contract Regulations 2015 and the Late Payment of Commercial Debts Regulations 2013 to pay suppliers within 30 days of valid and undisputed invoices. The supplier is entitled to charge interest on outstanding amounts due beyond the 30 day payment period as set out in the Late Payment legislation.
There may be circumstances in which it may be advantageous to make an earlier payment of part of the amount due.
Making advance payments (for example, a 20% payment with order) can put the institution's funds at risk and there is often very little chance of recovering the money if the supplier becomes subject to receivership or liquidation. Here there is no linkage with performance or potential transfer of ownership rights on making the payment. The best protection for the institution is to ask for a Banker's Guarantee to cover the requested amount. The guarantee will remain valid until the supply of the goods or services has been completed and will ensure a full refund of monies paid in the event of non-performance of the contract.
Progress related or stage payments
Alternatively, it may be advantageous to make progress related payments that are linked to pre-determined milestones within, for example, larger projects such as building contracts. Here payment is tied to the demonstrable achievement of agreed milestones. These should be truly representative of progress being made by the supplier and the amounts agreed against the milestones should be a genuine reflection of the supplier's expenditure to the relevant point in the programme. The milestone descriptions and amounts should be agreed prior to awarding the contract. A Banker's Guarantee, in the form of a performance bond, can be demanded against each payment or a 'Certificate of Vesting' required which, under the official seal of the supplier, vests the property of the work carried out by the supplier to the ownership of the institution.
In some procurement exercises, it is standard practice to hold back a sum (a retention) to maintain at least some incentive to ensure the contract’s completion. The value of the retention should be a significant amount (usually in the region of 10 - 15%) and held back until the end the buyer is satisfied with the goods or services provided.