There is a common practice amongst subcontractors of putting in a quote, receiving a purchase order and then going you beauty
and starting work on site as fast and hard as possible to get the job done.
The trauma starts when the builder advises that it was a condition of submitting a tender that no payments would be made until the subcontractor has signed a large detailed contract that contains many provisions that are very adverse to the interests of the subcontractor.
The subcontractor has to proceed because the builder has them by the throat because the subcontractor desperately needs to get paid for the work done and materials supplied on the basis of the purchase order.
Even if the builder does not attempt to substitute a substantial contract in place of the purchase order the subcontractor can find that the purchase order has left it high and dry.
The main element to the subcontractor’s problems is that there is nothing special or magic about the words Purchase Order
.
They are merely a step in the offer and acceptance process.
The next issue with purchase orders is that they are in fact a tool most commonly used with the purchase of small commercial items such as……plant pots.
They have no use with respect to the supply and installation of building materials and the associated scope of works.
The reason that subcontractors are so ecstatic when they receive a purchase order is that they are often on one page and do not seem to have all of the additional stuff
that seems so terrifying. The reality is that purchase orders are a trap.
The reason is that purchase orders, where they do have terms and conditions, relate to the purchase of small commercial items. They do not have any of the additional material that provides protection for the subcontractor.
The issue is that contracts for the sale of plant pots do not have to deal with all of the additional issues that relate to construction projects such a practical completion, Final completion, delays, variations, acceleration and so on.
Now most people would say that is a good thing because they do not understand all of that stuff and all they want to do is build and get paid.
The reality is that if clauses geared to construction issues are not included in the contract documents the common law will apply.
For example, if the contract does not specifically provided for progress payments you will not be entitled to be paid until the end of the job. Note very carefully that the courts will not treat you with kindness in order to make sure you are treated in what you perceive to be a fair
manner. Instead, they will apply the cold hard law. If you do not have the protection of a proper contract that you have negotiated and know how to administer you could suffer significant losses or experience significant costs in attempting to recover monies due to you.
The outcome is that:
| 1) | Those of you depending on purchase orders as an apparently simple and easy way of life are dreadfully exposed and vulnerable; and |
| 2) | Anyone starting work on the basis of a purchase order with a contract to follow is putting their neck in a noose. |
The reality is that the only things you should be dealing with are contracts that deal with all matters relevant to the activities of a subcontractor. Purchase orders do not do that.