Purchase Orders and Supply Contracts

Purchase orders and supply contracts are often the last contracts signed, and material suppliers are usually the last parties to be contacted on a construction project. However, suppliers are a very important aspect of any construction operation, as they provide the materials needed to complete the desired work. Even if the contractor is top-rated in its specific field and subcontracts with other top professionals, a construction project can be impaired by materials that are inferior or that do not match the specifications of the work expected.

Top quality materials may also adversely affect the profits of a contractor. If the contractor plans to use top-quality material but fails to lock in a price when bidding on the job, the contractor may see disappearing profits when it attempts to provide top-quality materials at prices which exceed those provided in the bid. Therefore, purchase orders and supply contracts are extremely important aspect of any construction project, and should be discussed and defined as fully as the subcontracts and prime contract on the project.

Through an understanding of the applicable law and detailed focus on supply contracts, a contractor or subcontractor may be able to learn how to lock in favorable prices and purchase terms, how to work with material suppliers, whether it should accept materials that are not up to standard or expected according to the contract terms, and remedies that are available and how to pursue them in the even that a breach occurs by a material supplier.

In New York, public owners are required to establish procurement policies that encourage the participation of New York business by requiring bidders to document their attempts to attract subcontractors and suppliers based in New York as conditional on being awarded the contract. Under Public Authorities Law § 2879, procurement contracts are defined as any written agreement for the acquisition of goods or services of any kind in an estimated amount of $5,000 or more. Furthermore, any payment arrangements made with suppliers through a conditioned procurement contract must comply with the Prompt Payment Act.

New York General Business Law § 756-758, which produce the Prompt Payment Act, states that the following provisions of construction contracts are void and unenforceable: 1) a provision, which makes the contract subject to the laws of another state or that requires litigation, arbitration or other dispute resolution proceedings arising from the contract to be conducted in another state; and 2) a provision stating that a party  to the contract cannot suspend performance under the contract if another party to the contract fails to make payments when they are due under the contract. The Prompt Payment Act generally addresses payment of the amounts invoiced for work done under a construction contract, and applies to contracts entered into on or after January 14, 2003.

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