TITLE: CONTRACT FORMATION
POLICY NO: P-070
SUBMITTED BY: R. BRADLEY &
APPROVED BY: D. SABEL
Effective Date: 6/07 Supersedes No: 6/93 Page No 1 of 1
The purpose of this policy is to provide familiarization of contract formation to all purchasing personnel.
This policy applies to all University personnel.
Printed or written forms and documents perform important business functions. Their correct use assures maximum clarity in communications and provides legal protection for all parties.
Written documents are usually either standard printed forms for specific categories or situations, or individually tailored writings designed by authorized personnel. In many cases suppliers will insist on using their own forms. Documents must be selected carefully in order to achieve the desired end results of the total transaction.
Procurement Professionals are responsible for acquainting themselves with the standard forms. They must be familiar with all conditions printed on University purchasing forms, and on our vendors forms as well.
Procurement Professionals may find it desirable to reject vendor presented forms in favor of Purdue University forms. Procurement Professionals should not hesitate to amend, correct, strike out, etc., vendor forms to represent the business interests of Purdue University. Patent and Copyright Indemnity, and Indemnification are the items most often omitted from vendor presented forms. Review of the file Standard PSA located on at the following location: (drive S: of the Purchasing Computer system) S:/BS/Common/Users/PS/Forms/UCG/Standard PSA.doc will provide alternate language, or recommended formats for dealing with vendor forms.
Questions or doubts about the relationships being created by use of a form, or the writing on it, should be addressed to the Director of Purchasing.
Contracting methods commonly require written documents covering some of the steps of a transaction. Although not all of the writings below are used in a single transaction, they represent the most common types of writings:
--Letters of Intent from the University
--Formal Contracts and agreements
--Purchase Order Acknowledgements
--Purchase Order Change Notices
--Limit Purchase Orders
IV. Purchase Orders
A purchase order is a legal document governed by the Law of Contracts and the Uniform Commercial Code of Law (UCC). (See Policy P-130, Legal Considerations, for further information on the UCC.)
The purchase order constitutes the final and entire agreement between the vendor and the University. It may be either an offer to buy, an acceptance of an offer to sell, or a confirmation of a verbal agreement between the company and a supplier. Usually it is an instrument in an offer to buy, and when formal acceptance is received from the vendor it becomes a legal contract. As a legal contract, the purchase order gives the vendor authority to ship and to invoice the ordered goods, and thereby, becomes the Universitys commitment for the amount and value of those goods.
When a purchase order is issued as an acceptance of the vendors offer, a contractual relationship arises immediately; otherwise our purchase order constitutes an offer to create a contractual relationship, which can be completed either by the vendors commencement of performance, or acknowledgement and acceptance.
V. Preparation of Purchase Orders
As a major requirement, the purchase order must contain a precise and clear description of the elements in the order, the terms of the purchase, the time, manner and place of delivery. All the following information is necessary when preparing a purchase order:
--Name and address of the vendor
--Name of the ordering department
--The account number
--Date of order
--FOB information and discount terms
--Address (where to ship goods)
--Description of good, quantity per item, price per unit, and extension
--Date goods are required
--Special terms and conditions
--Approval of the order
In preparing a purchase order, the following points require special attention:
A. PRICE: A purchase order should state the price, or refer to a price quotation or agreement on which the prices are based. There may be certain exceptions in the case of small items purchased locally, etc.
B. TERMS: The purchase order should show the appropriate discounts and the payment terms.
C. FOB: The FOB point and freight terms should by stated clearly.
D. DELIVERY REQUIREMENTS: The document should show the date materials are to be at the destination, and should not use expressions such as rush, as soon as possible, or urgent.
E. APPROVAL: The appropriate fiscal, commodity, and asset approvals need to take place in the order they are required.