Articles

Introduction

In many projects, particularly in the solar and EV charging sectors, it is surprisingly common for the appointment of a contractor or even a subcontractor to be made through a Purchase Order (“PO”) rather than a proper contract or Letter of Award (“LOA”).

This often happens at both levels: the employer appoints a main contractor through a PO, or the main contractor engages a subcontractor in the same manner. It may seem convenient, the contractor quotes a price, a PO is issued, and work begins. However, this simplicity often comes at a cost, especially when something goes wrong.

A Common but Risky Practice

This practice often occurs at different levels of the project chain. Sometimes, the employer appoints the main contractor through a PO, usually for smaller or pilot installations. More commonly, the main contractor subcontracts a portion of the work to another subcontractor, also through a PO. In both cases, instead of executing a proper contract or subcontract, the appointment is confirmed by a PO, often accompanied by a quotation, bill of quantities or a single drawing, and little else.

We see this frequently in some solar and installation of EV charger(s) projects, where the appointment of an installer or system integrator is made through a PO rather than a formal EPCC contract, sub-contract or LOA. While the intention is often to move quickly or avoid “paperwork”, this shortcut can leave both parties exposed when disputes or technical issues arise.

The Limitations of a PO

A PO records an order to supply goods or perform services but it is not by itself a comprehensive contract. While a PO may specify key commercial details such as the contract price and payment milestones, it generally lacks the broader legal framework necessary to govern the performance of works or services.

Most POs:

• Lack a detailed scope of work and technical specifications;
• Do not adequately address risk allocation (eg: delay, variation, defects liability, extension of time, or force majeure);
• Provide little to no clarity on quality standards, safety obligations, or insurance requirements; and
• Do not define termination rights, warranty obligations, or dispute resolution mechanisms.

When disputes arise, such as delays in delivery, defective installation, or disagreements over variations, both parties often face difficulties in establishing the precise terms of their agreement. A PO by its nature does not provide an adequate contractual framework to govern these issues effectively.

Why a Proper Contract or Letter of Award Makes a Difference

For works that involve design, installation or integration, such as solar PV systems or EV charging infrastructure, it is important to have a properly executed EPCC contract, subcontract, or at least a LOA with clear terms.

A well-drafted contract provides the necessary legal and operational framework to govern performance and manage potential risks. A proper contract typically includes:

• Clearly defined responsibilities and deliverables, covering the detailed scope of work, testing, commissioning, and handover requirements;
• A structured payment mechanism that promotes transparency and reduces the likelihood of disputes;
• Variation procedures that set out how changes to the scope or specifications are to be managed and valued;
• Defects liability provisions that define the rectification obligations and the duration of the defects liability period;
• Extension of time (EOT) mechanisms that establish when and how time relief may be granted;
• Force majeure provisions that address events beyond the control of the parties and the consequences arising therefrom;
• Liability and indemnity provisions that protect both parties from unforeseen events or losses;
• Insurance requirements that ensure adequate protection against property damage, third- party claims, and other insurable risks;
• Compliance and safety obligations, which are particularly important for electrical installations;
• Termination rights that set out the grounds and procedures for ending the contract; and
• Dispute resolution provisions that provide clear mechanisms for resolving disagreements, whether through negotiation, mediation, arbitration, or litigation.

The inclusion of these provisions ensures that the parties have a clear understanding of their respective obligations and the mechanisms available to manage potential risks throughout the project. It provides certainty on how variations are to be valued, how time extensions and claims are to be assessed, and how defects or unforeseen events are to be addressed. More importantly, it establishes an orderly process for administering the contract, enabling both parties to resolve issues through defined procedures rather than ad hoc discussions or assumptions. Without such structure, projects often encounter ambiguity, delay, and unnecessary disputes.

A Practical Middle Ground

Not every project requires a lengthy or highly detailed agreement. However, the appointment of a contractor or subcontractor should at least be formalised through a short-form contract or a clear LOA. These documents should record the essential commercial and legal terms, including the scope of work, technical specifications, payment structure and milestones, allocation of liabilities and indemnities, project timeline and completion requirements, variation and extension of time procedures, insurance coverage, termination rights, and the governing law and dispute resolution mechanism.

Even a concise document of this nature provides a solid contractual foundation and helps avoid ambiguity or misunderstanding. The intention is not to overcomplicate the process, but to ensure that both parties have clarity, accountability, and a mutual understanding of how the works are to be carried out and managed.

Conclusion

POs are suitable for the procurement of goods or materials where the transaction is straightforward and limited in scope. However, for construction, solar, or EV charging works, where performance, safety, coordination, and compliance are critical, a PO on its own is inadequate.

In short, a PO merely records an order. However, a contract defines a relationship.

Putting a proper agreement in place may appear time-consuming at the outset, but it provides structure, certainty, and protection that far outweigh the inconvenience. The effort invested before the work begins often determines whether a project proceeds smoothly or ends in dispute.

This Article is written by Yeo Shu Pin (Partner) of Messrs. Shu Pin & Associates.

Disclaimer: Every attempt to ensure the accuracy and reliability of the information provided in this publication has been made. This publication does not constitute legal advice and is not intended to be used as a substitute for specific legal advice or opinions. Please contact the author(s) for a specific technical or legal advice on the information provided and related topics.