The construction industry is facing problems such as a labor shortage due to a declining birthrate and aging population, and the worsening of long working hours. The government is promoting work style reform to solve these issues in the construction industry.
How to write an order form in the construction industry and what is required | Points to note when creating it
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In the construction industry, various documents are exchanged between the client and the recipient of the work. Typical examples include estimates, orders, order confirmations, construction contracts, and invoices. In order to communicate smoothly with business partners in the construction industry, it is necessary to understand the role of each document and how to create them.
In this article, we will explain the basics of purchase orders in the construction industry, the differences between purchase orders and order confirmations, the necessary items, and points to note when creating them. We will also introduce solutions to streamline purchase order management, so please use this as a reference.
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What is a purchase order in the construction industry?
What role does the purchase order play in the process of concluding a construction contract? Here we explain the overview of purchase orders in the construction industry and how they differ from order confirmations.
What is a purchase order?
A purchase order is a document created by a client to order work or materials in the construction industry. It lists information about the order, such as the product name, quantity, and unit price, as well as the desired delivery date. In businesses that do business on an ongoing basis, a basic contract is often signed before exchanging a purchase order, and the detailed rules regarding the contract are not listed on the purchase order.
A master contract is a contract that sets out the basic rules that apply to all transactions between the parties. If a master contract has not been concluded, it is necessary to prepare a construction contract clause that specifies the detailed matters not specified in the order form and attach it to the order form and order confirmation.
[Reference] "Construction Orders, etc." (National Tax Agency)
Difference Between Purchase Order and Order Confirmation
The difference between an order form and an order confirmation lies in who prepares them and the purpose of their preparation. In the construction industry, an order confirmation is a document prepared by the party that undertakes the order for work or materials. The difference is that an order form is a document that allows the client to clarify their intention to apply, while an order confirmation is a formal response from the contractor that they have accepted the order. The contract is considered to have been established by the issuance of an order form and an order confirmation, and both parties are obligated to fulfill the contents of the contract.
Why is it necessary to enter into a contract using a purchase order and order confirmation?
The exchange of purchase orders and order confirmations serves the purpose of preventing contractual troubles, such as non-fulfillment of contracts based on verbal promises. Information on the details of the work and transaction amount can be recorded in writing, making it easier to prove the details of the transaction even if trouble occurs. In addition, purchase orders and order confirmations must be signed or have the names and seals of the parties involved, which is another key point as it makes it possible to clearly identify who is responsible.
How to write a construction order and what is required
Next, we will explain the items required for the purchase order and how to write each one. Note that the items to be written on the purchase order and the order confirmation are almost the same.
Issue date (transaction date)
The purchase order should state the date of issue. The purchase order is generally issued before the order confirmation. However, depending on the purchaser's wishes, the purchase order and order confirmation may be issued on the same day.
Customer information
The order form's client section contains information such as the name of the business requesting the construction work, address, telephone number, and the name of the person in charge. It is common to affix a company seal over the client's name to prevent falsification and to clarify the intention of the application.
Contractor information
In the "recipient" field, enter the contractor's company name, address, telephone number, name of the person in charge, etc. In the case of an order acknowledgment, the recipient will affix their company seal.
Order Details
The order details include the details of the requested work, the quantity of materials, and the unit price. If there are any changes to the order details, the contract must be changed before work begins. For example, if additional work is required but the prime contractor does not agree to change the contract with the subcontractor, this may be considered a violation of the Construction Business Act, so be careful.
Transaction amount
The transaction amount should be the total contract price. There are cases where only the price including tax is listed, and cases where the price excluding tax is listed separately.
Construction delivery date
The order form must also state the construction period. Fill in the start and end dates of construction based on the details previously discussed between the client and the contractor.
Payment Terms
The payment terms section lists the payment method for the contract fee, the billing closing date, the payment date, etc. Payment methods vary from business to business, and include "advance payment," "end of month closing, payment at the end of the following month," "transfer to a designated account within a certain number of days after construction is completed," etc.
Retention period for construction orders
The retention period for construction orders is set at seven years from the deadline for the contractor who received them to submit their tax return. This is because construction orders are treated as accounting documents under the Corporation Tax Act.
As a general rule, documents must be stored on paper. Even if an electronic contract has been concluded, it is essential to print out the document and store it on paper. However, if you obtain prior permission from the tax office director, it is possible to store the electronic contract document as is.
Points to note when creating a construction order
Purchase orders are important documents for carrying out construction work. Here we explain the basic rules and points to note when creating purchase orders.
If there is a mistake in the order form, it is best to reissue it.
If there is a mistake when issuing a purchase order, it is common to reissue the relevant purchase order. If reissuing is difficult, the mistake can be corrected by drawing a double line through it and stamping it with a seal. However, the rules for corrections may differ depending on the business partner, so it is best to check in advance.
In principle, no revenue stamps are required to be affixed to order forms.
In principle, it is not necessary to affix revenue stamps to purchase orders in the construction industry. A revenue stamp is a certificate that is affixed to a document when creating a taxable document that incurs taxes and fees such as stamp duty. Taxable documents include paper receipts and contract agreements for a certain amount or more.
An order form is merely a document expressing the purchaser's intention to make an application, and does not constitute a contract by itself. Therefore, it is not a taxable document and can be issued without affixing revenue stamps.
However, in cases where a contract is deemed to have been concluded by issuing a purchase order, revenue stamps must be affixed. Specifically, this applies to purchase orders issued in transactions where no order confirmation is received, purchase orders that are signed or have the names and seals of both parties, and purchase orders issued for the purpose of accepting a quotation. Since these purchase orders are considered to be contracts, there is an obligation to affix revenue stamps.
Please note that since stamp duty is a tax levied when a paper document is issued, if an order form is exchanged via email or other means, there is no need to affix revenue stamps.
Recommended systems for streamlining construction order management
To streamline purchase order management in the construction industry, we recommend using "i-Reporter." i-Reporter is a paperless solution for on-site documents, and is a service that can digitize tasks such as creating, modifying, and storing purchase orders. The advantage is that you can replace currently used paper or Excel purchase orders with i-Reporter in the same format, allowing you to migrate without changing usability.
In the management of purchase orders in the construction industry, it takes time to deal with mistakes and omissions, which often leads to reduced work efficiency. By using i-Reporter, even if an inadequacy is discovered, it can be corrected immediately from a tablet at hand, significantly reducing work time. In addition, there is a wide range of digital inputs to support the creation of purchase orders, which also has the benefit of reducing mistakes themselves.
The following page introduces examples of how i-Reporter has been used to streamline purchase order management, so if you are interested, please take a look.
[i-Reporter Introduction Case] A case where the work of correcting purchase orders was significantly reduced
How to properly prepare construction orders and conclude contracts smoothly
This time, we explained the role of purchase orders in the construction industry, how to write them, and points to be careful about. If frequent mistakes occur during the process of issuing purchase orders or if there are insufficient details written on required items, it may lead to a loss of trust from business partners and unexpected losses. By utilizing an electronic document system, you can properly create purchase orders and ensure smooth contract conclusion.
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