This contract tip is about deciding how detailed to make a purchase order's product description.
In an ideal world, we would have a signed contract with robust specifications and scopes of work for every purchase. But we don't live in an ideal world. We live in the real world, where companies buy many things just by using purchase orders (POs).
You may think, "Ok then, can we at least get detailed specifications and scopes of work in every PO?" That's not going to happen either. Few companies have the budget and resources to adopt this approach.
The reality is that lawyers and procurement teams must triage and decide which POs get more detailed product descriptions and statements of work.
One easy way to decide is by PO value. With this approach, a company always includes more detailed descriptions when buying goods or services over a particular value.
That's a start, but I recommend you also consider other factors. Here's my approach to that triage:
1. Look at the public information about the product or service. - Does the vendor describe it in detail in its sales documents or on the website? Is there a publicly available warranty that is good enough? When a vendor has the product details on a website or standard product sheet, then I worry less about putting it all in the PO. If there is a dispute, we can use the information that was provided publicly.
2. Look at the vendor - Is this a vendor we know well? I'm less worried about great vendors who consistently make things right regardless of the contract. I require POs with more details for difficult vendors who nickel and dime us.
3. Look at our risk - What happens if this product is terrible? Will people get hurt? Will it interfere with our critical business functions? I prefer to approach procurement issues based on risk rather than just value. There is a lot less risk buying 10,000 office chairs for $200 each at a total cost of $2,000,000 than buying a turbine to power a critical manufacturing location for the same total cost.
What other techniques do you use to decide which purchases have more detailed and robust purchase orders?