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Key takeaways
- A procurement policy defines who may buy, what limits apply, how suppliers are chosen and how exceptions are handled.
- Short beats thorough. A policy people read and follow beats a long document they ignore.
- Tier the rules by amount and risk so small buys are easy and large buys are controlled.
- Include an emergency route, a conflict of interest rule and a way to ask questions.
- Review it yearly, and measure whether people comply.
The finance team has a procurement policy. It is 34 pages long and nobody has read it. Employees buy what they need, ask forgiveness later and wonder why finance seems cross.
A policy that nobody reads is worse than none, because it creates the feeling of control with none of the substance. A good one fits on a few pages and answers the questions people actually have.
What a procurement policy is
A procurement policy is a formal statement of the rules and principles an organization follows when buying goods and services. It sets who has authority to spend, how much, through which channels, how suppliers are selected and how conflicts and exceptions are handled.
A procurement policy is the written set of rules that governs how an organization buys, including approval limits, supplier selection, ethics and exceptions.
Why you need one
- Consistency. Everyone follows the same rules.
- Control. Spending limits and approvals prevent unauthorized commitments.
- Fairness. Documented selection methods protect against favoritism and complaints from suppliers.
- Audit and compliance. Auditors, regulators and funders often expect one.
- Speed. Clear rules mean fewer questions and quicker decisions.
What to include
1. Purpose and scope
One paragraph on why the policy exists and who it applies to. Say whether it covers all spending or only some, and whether it applies to subsidiaries.
2. Roles and responsibilities
Who owns the policy, who approves purchases, who can sign contracts and who handles disputes. Name roles, not people, so the policy survives staff changes.
3. Approval limits
The heart of the policy. Define who can approve spend at each level.
- Up to 500 dollars: budget holder, no quotes required.
- 500 to 5,000 dollars: department head, one written quote.
- 5,000 to 25,000 dollars: department head and finance, three quotes.
- Above 25,000 dollars: finance director, formal tender, legal review of the contract.
Replace the thresholds with ones that fit your business. Look at the last year of purchases and set levels so that most requests need only one approver.
4. Purchase order rules
State when a purchase order is required and when it is not. A common rule: no PO, no payment, except for named categories such as utilities and payroll. See purchase order guide.
5. Supplier selection
How suppliers are chosen at each tier: quotes, tenders, preferred supplier lists, criteria and evaluation. See how to choose a supplier and RFI vs RFP vs RFQ.
6. Contracts
Who can sign, which contracts need legal review, and the requirement to record each contract with its end date. See what is contract management.
7. Conflict of interest and gifts
Staff must declare any personal interest in a supplier, and must not take gifts above a stated value. Say what to do if a conflict exists.
8. Supplier onboarding and risk
The checks that apply before a new supplier is paid. See vendor onboarding guide.
9. Emergency purchases
A route for urgent buys, who can approve verbally and the deadline to complete paperwork. See emergency purchase workflow.
10. Exceptions and breaches
How exceptions are requested and recorded, and what happens when the policy is breached. Keep consequences proportionate and clear.
11. Review and ownership
Review date, owner and how to propose changes.
Our procurement policy template provides sections you can adapt.
A one page policy summary to pin on the wall
Whatever length the full policy runs, create a one page version in plain words. A good one answers these questions in order.
- Who can buy things for the company?
- What do I need before I buy: a request, a quote, a purchase order?
- How much can I spend before I need someone else's approval, and whose?
- Which suppliers should I use first?
- What do I do in an emergency?
- Who do I ask if I am not sure?
Put the table of limits at the top. Everything else is secondary for most readers.
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How to write it
- Start with how you buy now. Interview a few buyers and approvers. Write down what really happens.
- Draft in plain language. If a sentence needs a lawyer to decode it, rewrite it.
- Keep it short. Aim for three to six pages, with a one page summary of limits.
- Test with real examples. Walk three recent purchases through the draft.
- Get sign-off from the people it affects. Finance, legal and a few department heads.
- Publish it where people look. The intranet page people use, not a folder nobody opens.
- Explain it. A short briefing and a one page summary beat an email with an attachment.
Making people follow it
- Make the compliant route the easy route. If it is slower, people bypass it. See maverick spend.
- Show the reasons. People accept rules they understand.
- Report compliance. Share PO coverage and off-process spend by department.
- Name a person to ask. A fast answer keeps people inside the policy.
- Enforce evenly. Rules that bind some people and not others lose all credibility.
Mistakes
- Too long. Nobody reads it.
- Copying a template unchanged. Your thresholds and categories differ.
- No emergency route. Staff invent their own.
- Unclear authority. People do not know who can approve what.
- No review date. The policy drifts out of date.
- No measurement. You never learn whether anyone follows it.
- It fits in six pages or fewer, with a one page summary.
- Approval limits are in a clear table.
- PO rules and exemptions are stated.
- Selection methods are linked to value tiers.
- There is a conflict of interest rule.
- There is an emergency route with a deadline.
- There is a named owner and review date.
- You have a way to measure compliance.
Words you will hear
- Delegation of authority. The formal list of who may approve spend and sign contracts, and up to what limits.
- Segregation of duties. Keeping key steps, such as ordering and paying, in different hands.
- Preferred supplier. An approved supplier staff are encouraged to use.
- Conflict of interest. A personal interest that could influence a purchasing decision.
- Competitive quotes. Written prices from several suppliers for the same requirement.
- Exception. A documented departure from the policy, with an approver.
Where to go from here
Pair the policy with a fast process. Read the purchase requisition guide and the procure to pay process so the rules and the workflow match. For the problems policy cannot solve alone, see maverick spend.
Frequently asked questions
What is a procurement policy?
It is a written set of rules governing how an organization buys goods and services, including approval limits, supplier selection, contracts, ethics and exceptions.
What should a procurement policy include?
Purpose and scope, roles, approval limits, purchase order rules, supplier selection methods, contract rules, conflict of interest, supplier onboarding, emergency purchases, exceptions and a review date.
How long should a procurement policy be?
As short as it can be while answering the questions people have. Three to six pages with a one page summary works for most organizations.
Who owns the procurement policy?
Usually the head of procurement or finance, with legal input and approval from senior leadership.
How often should a procurement policy be reviewed?
At least once a year, and whenever the business changes in a way that affects how it buys.