November 8, 2022
When it comes to construction projects, both commercial and residential, purchase order (PO) forms often appear straightforward. They typically include basic information like the names of the vendor and purchaser, a description of the items, quantities, prices, and payment terms. While the simplicity of these forms can seem convenient, it is important to recognize the risks that come with relying on such brief documents. A basic purchase order may leave you vulnerable to legal issues that go beyond the terms explicitly stated within it.
The Risks of Using Simple Purchase Orders in Construction
When a purchase order is overly simplistic, it might not cover crucial legal aspects, leaving you exposed to default terms imposed by law. Specifically, if your purchase order does not address certain key issues, the law will step in with default provisions, potentially resulting in terms that do not align with your best interests. These topics include:
- When title and risk of loss transfer
- What constitutes acceptance of the goods
- Applicable warranty terms
These issues are governed by the Uniform Commercial Code (UCC), a set of default legal rules that apply to the sale of goods, but not to service contracts. If these topics are not clearly addressed in the purchase order, the UCC will automatically impose default terms on the transaction.
How the Uniform Commercial Code (UCC) Affects Construction Purchase Orders
The UCC is designed to fill in gaps in contracts where parties fail to specify certain terms, but the terms it imposes might not always be favorable. For example, the UCC may dictate when the warranty on goods begins or expires, or when the risk of loss transfers from the vendor to the purchaser. If you want more control over these aspects, it is crucial to include these terms explicitly in your purchase order, modifying the default rules of the UCC.
Key Terms to Address in a Construction Purchase Order
To avoid the pitfalls of default terms, a well-drafted construction purchase order should include the following:
- Transfer of Title and Risk of Loss: Clearly state when the title to the goods passes from the vendor to the purchaser, as well as when the risk of loss shifts.
- Acceptance of Goods: Define what constitutes acceptance of goods, including inspection and approval processes.
- Warranty Terms: Specify the warranty period and what it covers to avoid disputes over product defects or performance.
By addressing these topics with the correct language in your contract, you gain more control over the transaction and avoid the automatic application of the UCC’s default provisions.
The Statute of Limitations and Statute of Repose in Construction Contracts
It’s important to note that not all legal terms can be modified by agreement. For example, statutes of limitations and statutes of repose, which limit the time a party has to bring a legal claim, are typically not subject to modification. These timeframes are legally defined and vary by jurisdiction, so it’s essential to understand their implications in your contracts.
The AIA Standard Purchase Order Agreement: A Comprehensive Solution
To help address these challenges, AIA Contract Documents has developed a standardized purchase order agreement, A152™-2019, which is designed for situations where a purchaser is buying goods from a vendor. This agreement provides a robust framework that allows the parties to include key terms tailored to their specific needs, rather than relying on the default terms set by the UCC.
The A152™-2019 Purchase Order is versatile and can be used for a wide range of goods, providing a clear, detailed structure for the transaction. It helps to ensure that both parties agree on critical issues like title transfer, risk of loss, and warranties, offering more protection and clarity than a simple purchase order form.
Conclusion
In conclusion, while a basic construction purchase order might seem convenient, it can expose contractors and vendors to risks that go beyond the terms written in the document. By understanding how the UCC affects your agreements and addressing critical issues within the purchase order, you can avoid unfavorable default terms. Utilizing AIA’s standardized purchase order agreement ensures that both parties are on the same page and can tailor the terms to best suit their needs, offering a more secure and transparent transaction.
AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.