Hydrocarbon Processing - November 2021 - 33
Engineering
and Construction
J. BERG, ShureLine Construction, Kenton, Delaware;
A. PARMAR, COIM USA, Cherry Hill, New Jersey;
C. RENTSCHLER, Consultant, Lititz, Pennsylvania;
and G. SHAHANI, Allentown, Pennsylvania
Purchase order, contract or purchase agreement:
Which is best for your procurement strategy?
Procuring equipment, materials and
services are very important to a project's financial
success. Extensive effort is focused
on achieving quality purchases in a timely
fashion at the best possible price. Most
major companies procure materials and
services globally. Therefore, a broad spectrum
of sellers and external factors must
be considered. To ensure that the supplies
of products and services are consistent
with what has been agreed to, purchase orders
(POs), contracts and purchase agreements
are widely used in the procurement
process. Each of these approaches has
its benefits and challenges. Sometimes a
combination of these documents is used.
This article describes each document type
and highlights key differences and major
factors influencing document selection.
The task of procuring equipment, materials
and services generally represents
one of the most influential responsibilities
on a project regarding the team's ability
to financially stay on track. Minimizing
financial risk is at the heart of executing
projects, so there is a large procurement
focus on having safeguards in place to
limit exposure. All of this creates a lot of
attention on choosing the best and most
comprehensive procurement documents
when making project purchases.
POs, contracts and purchase agreements,
both at the local site and at the
global level, are the document options
most often considered in executing the
procurement process. Project
success
requires tight controls on purchases to
maintain quality, budget and schedule.
Using the proper procurement documents
and the related processes can
ensure that these goals are met. Project
specifics should be considered in determining
the right document for the application
to avoid overkill and to also
provide adequate risk protection. In the
end, utilizing the right procurement document
and the appropriate process will
go a long way to achieve project success.
Definitions.
Before
discussing which
document is the optimum choice for procuring
goods or services, it is best to understand
each. Following are definitions of
each document type.
PO. This is a commercial document
that usually originates, with a purchase
requisition, outside of the procurement
department. A person outside of the procurement
department, who is often in
engineering or project management, has
a request for materials, equipment or services
to support a project and, therefore,
completes a requisition. The process is
generally supported through an enterprise
resource planning (ERP) platform. To
adequately depict the item(s) being purchased,
the requisitioner includes drawings
and/or specifications and may also recommend
preferred vendors. Sometimes,
early in a project, a prequalification phase
is conducted, and, for these projects, only
" accepted " vendors are considered. The
PO needs to include specifications, descriptions,
quantities, prices and estimated
receipt dates. The ideal PO includes payment
terms and conditions, as well. Many
companies have their own standard terms
and conditions with clauses that cover
such items as confidentiality, guarantees,
termination, dispute resolution, liabilities,
insurance and consequential damages.
The PO can also refer to additional terms
and conditions specific to equipment, materials
or services, which can make it as
detailed as a purchase agreement. A PO is
issued before there is agreement between
parties. A PO is accepted when the seller
accepts the terms of procurement by signing
the PO or otherwise by acknowledging
acceptance in writing. Another way a PO
becomes a binding contract is by the seller
providing the ordered goods.
Contract. This is a legal document
that details the materials, equipment or
services being sold or purchased. Contracts
set the agreed-upon prices, define
the scope of work and detail the terms and
conditions of the purchase. Details may
also be displayed as addenda or exhibits at
the end of the document. The terms and
conditions are typically more specific in
contracts than in POs. With a contract,
the parties have worked out their agreement,
and both parties must sign it before
it is issued. A contract will typically contain
all the information that would be in a
PO, but this document is often longer and
more detailed. These documents are often
developed and reviewed by the company's
lawyers or by external lawyers. Typically,
a contract will contain contract sums,
change order processes (i.e., changes in the
work and depicting the manner in which
they will be handled), payment terms,
billing terms, general provisions, dispute
resolutions and insurance requirements.
POs become contracts once the vendor
Hydrocarbon Processing | NOVEMBER 2021 33
Hydrocarbon Processing - November 2021
Table of Contents for the Digital Edition of Hydrocarbon Processing - November 2021
Contents
Hydrocarbon Processing - November 2021 - Intro
Hydrocarbon Processing - November 2021 - Cover1
Hydrocarbon Processing - November 2021 - Cover2
Hydrocarbon Processing - November 2021 - Contents
Hydrocarbon Processing - November 2021 - 4
Hydrocarbon Processing - November 2021 - 5
Hydrocarbon Processing - November 2021 - 6
Hydrocarbon Processing - November 2021 - 7
Hydrocarbon Processing - November 2021 - 8
Hydrocarbon Processing - November 2021 - 9
Hydrocarbon Processing - November 2021 - 10
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Hydrocarbon Processing - November 2021 - Cover3
Hydrocarbon Processing - November 2021 - Cover4
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https://www.nxtbook.com/nxtbooks/gulfpub/hp_202007
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https://www.nxtbook.com/nxtbooks/gulfpub/hp_201901
https://www.nxtbook.com/nxtbooks/gulfpub/petrochemical_2018_v2
https://www.nxtbook.com/nxtbooks/gulfpub/petrochemical_2018
https://www.nxtbook.com/nxtbooks/gulfpub/hp_201812
https://www.nxtbook.com/nxtbooks/gulfpub/hpimarket_2019_v2
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https://www.nxtbook.com/nxtbooks/gulfpub/hp_201811
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