Lecture 7 - Purchase Orders

Question 1

a sale of materials for the contractor to use at the project site.

Answer 1

purchase order

Question 2

When can a purchase order be issued?

Answer 2

any time after the contractor is awarded the contract, which is before the actual contract is signed.

Question 3

is defined as a contractor under the prime contractor who does a portion of the work ______

Answer 3

Subcontractor, onsite

Question 4

usually involves offsite work, with the finished product being delivered to the site and incorporated into the project

Answer 4

Fabrication

Question 5

If the fabricator merely constructs the fabrication offsite and a different contractor installs it, then the fabricator is a

Answer 5

material supplier

Question 6

If the fabricator installs the fabrication onsite, then it would be a

Answer 6

subcontractor

Question 7

if significant amounts of onsite labor are required, use a ________. Otherwise, use a ______

Answer 7

subcontract, purchase order

Question 8

T/F A purchase order for continuing supplies may be open ended and should have an approximate quantity or maximum quantity in the purchase order.

Answer 8

True

Question 9

a _____ will depend on the quantity estimated and may be subject to adjustment if the amount actually ordered differs

Answer 9

quote

Question 10

should have an approximate quantity or maximum quantity

Answer 10

purchase order for continuing supplies

Question 11

T/F You should use “boilerplate language” (A contractor’s purchase order form should specifically state the purchase order provisions control no matter what the quotation provisions are)

Answer 11

True

Question 12

T/F A copy of the contractor’s contract should be provided with the purchase order to the material supplier, with language that the contract is incorporated by reference

Answer 12

True

Question 13

Necessary identification information: The purchase order should have

Answer 13

(1) a description of the project,
(2) the owner,
(3) the designer,
(4) the owner’s field representative,
(5) the contractor, and
(6) the material supplier.

Question 14

Description of goods being purchased: The purchase order should contain either

Answer 14

(1) a complete description or

2) reference to the contract section that adequately describes the materials (flow-down language

Question 15

Shipping instructions: The purchase order should identify the

Answer 15

(1) receiving party and address (if a receiving area different the front gate for the project is used, it needs to be identified),
(2) how the materials are to be marked and packaged (very important for prefabricated materials).

Question 16

Pricing and basis for quantity measurement: The purchase order should differentiate between

Answer 16

lump-sum materials versus unit price materials.

The materials need to be purchased on the same basis, unit-by-unit, as provided in the contract (flow-down language).

Question 17

2/10 net 30

Answer 17

This means that if the contractor pays within ten days of delivery, the price will be discounted by two percent, but that in any event the full amount is due in 30 days.

Question 18

T/F Provided that the contractor can afford it (paying the supplier before being paid by the owner), it should always pay early and get the discount.

Answer 18

True

Question 19

then the payment received from the owner is a condition precedent that must be met or the contractor never owes the supplier.

Answer 19

“Conditions Precedent”

Question 20

T/F If the project site has plenty of room to store the materials, the contractor may decide to receive delivery of the materials far in advance of when they may be needed.

Answer 20

True

Question 21

T/F The completion of the purchase order contract is delivery of the materials to the contractor.

Answer 21

True

Question 22

“FOB” stands for_______ and is used to determine the delivery location.

Answer 22

free on board

Question 23

means that the material supplier delivers the materials to the site, at which time the contract is completed and payment is due in accordance with the purchase order contract.
The material supplier is responsible for loading the materials onto a truck, properly marked and packaged, and delivering them to the construction site, where they are off-loaded by the contractor.
As they are off-loaded the contractor should be examining the materials as to quality and quantity. Any defective materials should be re-loaded and returned to the supplier.

Answer 23

“FOB construction site”

Question 24

means that the contractor provides for the transportation of the materials. At the supply house, the contractor inspects the materials as to quality and quantity and loads its own truck, or a third-party hauler, and delivery and off-loading at the construction site (or wherever the materials are to be stored until needed).
The sale of the materials is completed at the supply house.

Answer 24

“FOB supply house”

Question 25

If the sale is completed at the construction site, the______ is responsible for damage to the materials during transport.

Answer 25

supplier

Question 26

If the sale is completed at the supply house, the ______ is responsible for damage to the materials during transport.

Answer 26

contractor

Question 27

If a third-party hauler is used, then damages to the materials during transport would be owed by _________

Answer 27

the party responsible for the transport (who would then involve the third-party hauler).

Question 28

T/F If sales taxes are applicable (and in many states there are no sales taxes on materials being incorporated into an immovable object), then be sure to have the material supplier include them in the quote so that the contractor includes them in the estimate and bid.

Answer 28

True

Question 29

Provision in a purchase order

Answer 29

(1) dispute resolution, (2) changes (remember that the owner can change things freely and such changes can and do affect the materials to be used), (3) termination provisions (similar effect to changes), (4) provisions regarding late delivery, (5) insurance and bond requirements, if any, (6) indemnification (in case it is the materials that somehow damage the owner and representatives, and (7) escalation.

Question 30

T/F: Most contractors have their own purchase order forms

Answer 30

True

Question 31

If a supplier refuses a contractor’s form what do you do?

Answer 31

Use one of the AGC forms