Procurement as a transaction that involves acquisition of goods and services from the right sources and in the right quality, quantity and time needs well defined contracts that are necessary to govern the relationship between the buyer and supplier. The element of purchasing goods and services of good quality, calls for good contracts that are able to stand the test of collapse depending on the contract terms. Issues on procurement contracts delve on quality and performance of the suppliers. The ability of both buyers and suppliers to honor the terms of the contracts is deemed paramount for its success.
Contracts are needed in procurement activities to ensure that the buyer is able to purchase the goods and service that match specifications on the purchasing requisition. The contracts enable the organization to work with the best suppliers through successful business relationships that are necessary for the survival of the contracts. In most cases, the nature of goods and services to be procured will force the buyer to enter into a contract, for instance if the buying organization is purchasing goods that needs to supplied regularly such as raw materials used in the production plant, the organization would be required to enter into a contract with the supplier to ensure that the business activity takes place continuously. In such a scenario, the organization should evaluate all the potential suppliers of raw materials and select the best that can supply the materials that meet the needs of the purchasing requisition.
The supplier on the other side of the coin needs the contract to establish a strong business relationship with the buyer. Contract stage in procurement is characterized by controversies especially on the provisions of the contract. In some cases the buyer or the seller may fail to honor the various requirements of the contract.
Verbal contracts in procurement pose difficulties in business relations as there provisions may not be honored by the parties most parties in the contract fail to remember the provision since they are not stated in writing. Contracts are necessary for the business to uphold the morals and ethics that are associated with the business, for instance in procurement it is prohibited to give contracts to relatives and friends.