Purchasing and Contracting

This section provides guidance for following the University’s purchasing and contracting policies, procedures, and restrictions related to a department’s procurement activities. These policies apply to the acquisition of goods or services from outside vendors or individuals and from other University departments. You should also refer to supplemental policies at your campus or institute.

Laws, Regulations, and Policies Affecting Procurement

The University is a state-supported institution; therefore, it must conduct its purchasing activities in accordance with all pertinent state laws and regulations. These laws and regulations include the Tennessee Small Business and Minority-Owned Business Purchasing and Contracting Act and the Tennessee Prompt Payment Act of 1985. Also, the University’s policies must accord with the State Board of Standards’ policies. Many federal laws and regulations also affect the University’s procurement practices.

The University is exempt from paying federal excise tax and state sales tax to vendors. A copy of the University’s tax exempt certificate should be presented at the time of purchase. The certificate in Policy F10405 can be photocopied for this purpose.

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Purchasing

Primary Policy: FI0405 – Procurement

Effective purchasing controls and processes can help the University reduce costs, maintain quality, and manage the levels of risk to its supply chain. Waste, needless expense, and dangerous levels of risk exposure can result without them.

Note: Employees who fail to follow purchasing and contracting policies may be subject to disciplinary action.

Basic Guidelines

  • Be aware of “prohibited practices”—no personal purchases with University funds and no acceptance of gifts, gratuities, or kickbacks.
  • Only procurement officers are authorized to issue purchase orders.

Types of Purchase Orders

The procurement department issues the following types of purchase orders:

  • Standard Purchase Order: This order for goods or services for a fixed amount. Generally, this applies to one-time purchases.
  • Framework Order: A framework order covers purchases made during a specific time period and may be issued to cover a variety of purchases. Generally, framework orders are issued for the following types of purchases:
    • Maximum Fixed-dollar Purchases – These framework orders permit the purchase of specific items up to a fixed dollar limit from one vendor within a specified time period.
    • Purchases for Specific Item(s) Based on Bids – These framework orders permit the purchase of an estimated quantity to be purchased during a given time period. The maximum dollar limit is estimated and not fixed.

Procurement Methods

  • Purchase through existing resources or agreements if possible. These primarily include:
    • Campus service centers (storerooms, print shop)
    • UT Market Place
      • UT Market Place allows users to order supplies from certain companies (Staples, American Paper and Twine, Grainger, Home Depot, and more) using a single sign-in and shopping cart.
      • All employees can sign in and place needed supplies in a shopping cart, but only those approved to make departmental purchases can complete orders.
    • Existing Procurement Agreements (can be viewed in IRIS Portal).
  • If the methods noted above are not available, purchases of less than $10,000 per vendor, per year can be made at the discretion of authorized individuals in the department without a purchase requisition.
  • All purchases of $10,000 or more must be awarded through a campus procurement department after obtaining bids. (NOTE: Exceptions to the bidding process are covered in section 6B of the procurement policy.)
  • All purchase orders between $10,000 and $49,999 will be awarded by the procurement department based on the solicitation of competitive price quotations from at least three sources.
    • Departments are encouraged to solicit at least three bids in writing from vendors and attach them to the purchasing requisitions. Be aware of prohibitions regarding conflicts of interest issues, splitting bids and communication results to vendors.
  • The procurement department is solely responsible for all purchases of $50,000 and higher, and they are generally procured through a formal bid process.

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Department’s Role in Formal Bid Process

NOTE: The Procurement Department’s formal bid process is covered at length in section 7 of the Procurement Policy (FI0405). The summary below addresses the requesting department’s
  • Requisition – Prepare an electronic purchasing requisition containing appropriate specifications, route for approval(s), and submit to the applicable procurement department.
    • Specifications for goods and services must be worded to permit open and competitive bidding but detailed enough so that vendors can provide an appropriate bid response. Reference to brand names and numbers must be considered descriptive (not restrictive) unless specified otherwise.
    • Policy provides additional detail regarding requisitions for IT solutions, capital leases, sponsored project grants/contracts and trade-in of used equipment.

Internal Controls for Department’s Role in the Purchasing Process

  • Ensure that all staff who approve invoices are authorized approvers according to the requirements of University policy.
  • Ensure that appropriate specifications are developed for goods and services to be bid.
  • Review and approve the requisition for purchase and the vendor’s invoice.
  • Ensure that procedures are in place for designated employee(s) to review the quality of goods or services received and to review all documentation for accuracy, e.g., requisitions, POs, invoices.
  • Ensure that, whenever possible, duties are separated between staff who order items, staff who receive and verify quantity of goods, and invoice approval. (See next section “Segregation of Duties for Small Departments.”)
  • Approve invoices and ensure they are processed promptly in accordance with applicable discounts and state law.

Segregation of Duties for Small Departments

Best practices indicate different people should handle:

  • Purchase requisitions approval.
  • Receiving goods.
  • Invoice payment approvals

When the size of the department prohibits this segregation of duties, other controls should be put in place. Examples include:

  • Review of reports that could highlight unusual or unexpected activity. Examples include purchases by vendor and reports comparing budgeted to actual expenses.
  • Ledger Reconciliation – an employee who has no responsibility for requisitioning, receiving, or entering invoices in the accounting system should reconcile the department’s accounts payable documentation to the departmental ledgers each month.
  • Ledger approval – The authorized approver for the department must review the reconciled ledgers and document their approval (manually or electronically in IRIS.)  See Policy FI0115 – Reconciling and Reviewing Departmental Ledgers for additional guidance.

 

Lesson Learned

An employee purchased a present for her son and submitted the invoice to the University for payment. The invoice did not adequately describe the purchase and was processed. 

A request for further documentation and/or explanation may have prevented this action.

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Contracts

Primary Policy:  FI0420 – Contracts

A contract is any agreement between the University and another party that creates an obligation, right, or liability. Contract management is the process of managing contract creation, execution, and analysis to maximize operational and financial performance at the University, all while reducing financial risk.

General Points to Remember:

  • All contracts must comply with the University’s Conflict of Interests policy. (See GE0002 {formerly FI0125} – Conflicts of Interest and Commitment for additional information.)
  • Department heads are NOT authorized to sign UT contracts.
    •  A contract can only be signed by an authorized official of the University. (A list of individuals authorized to sign on behalf of the University is posted on the System Administration Procurement Service’s website.)
  • Contracts must be reviewed by the appropriate campus or institute contract office, and when appropriate, the System Procurement Services Office, before being signed on behalf of the University by an authorized official.

Department’s Role in the Contracting Process

  • Determine if the services can be obtained from internal University resources before contracting with vendors to procure services.
  • If contracting is determined to be appropriate, draft a contract using the University’s standard contract documents whenever possible (See Appendix A of Contracts Policy.)
  • Submit the contract through the appropriate review and approval process.
  • If the proposed contract is with an individual who is providing a service, ensure that the individual qualifies as an independent contractor and not as an employee. (See Appendix C of Contracts Policy.)
  • Monitor activities, services, etc., being performed under the contract and maintain adequate records.
  • Ensure that services have been performed satisfactorily before approving a request for payment.
  • Approve contractual payments as appropriate.

 

For more information on purchasing and contracting, contact your campus/institute business office or purchasing department.

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