Purchase Order vs Subcontract

Overview

This page is intended as a general guide in order to determine whether a Purchase Order (PO) or Subcontract Agreement (SC) is the most appropriate for the relevant commitment.

Determining whether to use a Purchase Order or Subcontract Agreement depends on the complexity and risk of the goods or services involved, with POs generally suited for minor, low-risk commitments and SCs required for more complex or high-risk tasks.

The below includes some further explanations and example scenarios; however, this is not intended as an exhaustive list and professional judgement is required. At a high level, the default stance is that a subcontract agreement is required, especially if there is some form of complexity to the arrangement.

IMPORTANT NOTE: If you are engaging the services of a consultant, e.g., a fire engineer or architect, a “short form agreement for consultant engagement” document is required instead of the above options.

If any commitment requires any of the below to be contemplated, a purchase order is not appropriate, and the default document will be a subcontract agreement:

• retentions;
• bonds (performance bonds or bonds in lieu of retentions);
• Multiple stages of works
• Architectural or design services/responsibilities (must be a consultancy agreement)
• As-built documentation

Flowchart

Flowchart Further Explanations

Examples of “low risk” services where a Purchase Order is likely to be appropriate: 

• Blinds/glazing installation
• Small painting jobs
• Furniture orders
• Rubbish removal
• Minor services/installs (e.g. installation of 2-3 power points)

Examples of “high risk” tasks that require a subcontract (at any $ level)

• Demolition
• Carpentry
• Major services/installs (e.g. small office fit-out and above)