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PO vs PSC vs Subcontract
The decision about whether to use a Purchase Order (PO) or Professional Service Contract (PSC) depends on what is being purchased or contracted for.
In general, the purchase of a product that either exceeds $2500 or is < $2500 but for which the department desires to have the funds encumbered should be procured using a Purchase Requisition (PR) and Purchase Order (PO). Trade services (those that require parts and labor) should also be obtained via a PO. Examples of Trade Services would include: plumbers, electricians, repair & maintenance providers/jobbers, roofers, tree trimmers, auto mechanics, security systems/Wackenhut/Pinkerton.
In contrast, contracting for professional services such as attorneys, auditors, architects, and consultants requires use of a Professional Service Contract (PSC). There are certain services for which an additional, more comprehensive contract is presented for processing. In those situations, the PSC is not intended to replace the detailed contract but rather to be used as an approval vehicle in addition to the detailed contract. In addition, in most cases where the intended cost of the service is projected to exceed $7500 in one fiscal year, a more detailed contract may be appropriate. In addition to the signatures required on the PSC, the more detailed contract must be approved and signed by the Strategic Procurement and Contracting Officer.
In rare cases where there is a need to encumber funds for a professional service, both the PSC and PO procedures must be followed. The only exception to this requirement are professional services related to construction contracts (see Procurement and Payment Services for guidance).
Tax implications
In addition to the information reflected both above and below, there are IRS guidelines that determine whether a service provider should be considered an employee or an independent contractor. For AU, this determination is made by Procurement and Payment Services based on information provided by AU departments on the PSC and Form IC. Because the IRS levies penalties for incorrectly classifying individuals as independent contractors can be severe, it is critical that great care be taken by the department to accurately complete both forms. For more information, please see either the Spending Policy or the Travel Policy and related links.
The IRS requires that all payments for services (both trade and professional; including parts and materials) be reported to them annually on IRS Form 1099's. Since accurate account coding enables the University to ensure accurate IRS reporting, the Business Office relies on AU departments to accurately code all transactions.
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Purchase Order (PO) |
Professional Service Contract (PSC) |
Subagreement |
| Type of product/service |
Any product purchase; trade services. A dealer, distributor, merchant or other seller providing goods or services that are necessary for supporting University programs, including those auxiliary to research on approved sponsored programs. For the performance of repetitive tests or activities requiring little or no discretionary judgment on the part of the provider with a fixed rate of compensation.
Examples of trade services:
Plumbers, electricians, R&M providers/jobbers, roofers, tree trimmers, auto mechanics, security systems/Pinkerton guards
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All professional services, individuals who provide special knowledge or advice necessary for the project. The contractor is responsible for accomplishing the work called for in the contract and will not be supervised or controlled by the University.
Examples of professional services: attorneys/legal fees, consultants, architects, speakers, performing artists/musicians, medical service/doctors, outside law enforcement/security
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Activities performed involve a substantive portion of the work effort of the project with a specific scope of work to conduct in conjunction with the proposed project. The PI is accountable for their course of study as well as for following federal guidelines.
Examples of costs: labor, employee benefits, materials and supplies, travel, equipment, subcontracts, consultants, other direct costs, and indirect costs; non-construction activities.
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| When use is required |
Purchases/trade services
> or = $2500 |
> $600 yearly regardless of whether a more detailed contract exists
Services >$7,500 a more detailed contract may be appropriate
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A subrecipient is an organization that expends awarded funds received from pass-through entity to carry out a sponsored program.
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Optional uses |
Purchases/services,
< $2500 that need to be encumbered |
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*On major construction jobs, architects and contractors could be engaged with bid contract and PO as supporting documentation...no need for an additional PSC.
Learn more about Subawards Definitions..
Revised 8/16/06
Return to Procurement and Payment Services Spending Policies
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