What is a procurement policy, and what should it contain?
Short answer
A procurement policy is the written rule book for buying: who may buy, which route applies at which value, how suppliers are chosen, who approves, and which exceptions are allowed.
Key takeaways
- A procurement policy sets the rules for buying: scope, principles, who may approve what, the route by value, how suppliers are chosen, conflicts of interest, exceptions and records.
- The policy says what must happen and who decides; procedures say how to do it, step by step. Keep the policy short and stable, and the procedures easy to update.
- Thresholds decide the route. Public bodies take theirs from law, such as $15,000 and $350,000 in US federal rules or £135,018 for UK central government; a company sets its own.
- A nonprofit spending US federal grants must have documented procurement procedures and written conflict-of-interest standards under 2 CFR 200.318; outside those awards, funders and national rules decide.
- A green or sustainable procurement policy adds environmental and social criteria to the same rules; the EU calls green public procurement voluntary, and ISO 20400 gives guidance, not a certification.
What is a procurement policy?
A procurement policy is a document, approved by an organisation’s leadership, that sets the rules for buying from suppliers. It says who may commit money, which route applies at which value, how suppliers are chosen, who approves each decision, which exceptions are allowed and what records must be kept.
The policy exists so that every buyer and every requester follows the same rules without asking. Take a common situation: a department head signs a €40,000 consulting contract with a firm run by a former colleague, with no other quotes. Without a policy, nothing was broken. Under a policy like the examples on this page, the purchase would have needed three written quotes, a buyer’s involvement and a conflict-of-interest declaration.
The policy sets the rules; it does not describe the work. The steps a purchase goes through, from need to payment, are explained in the procurement process guide. The policy decides which of those steps a given purchase must take and who signs at each one.
What is the difference between a procurement policy and procedures?
A procurement policy states what must happen and who decides; procurement procedures explain how to do it, step by step. The policy is approved by the board or the executive team and changes rarely. Procedures are owned by procurement, change when a system or form changes, and can be updated without going back to the board.
| — | Procurement policy | Procurement procedures |
|---|---|---|
| Answers | What must happen, who decides, what is forbidden | How to do it, in which system, with which form |
| Approved by | Board, executive team or governing body | Head of procurement or finance |
| Changes | Rarely: at a review date the organisation sets itself (for example every two or three years), or when the law changes | Whenever a system, form or team changes |
| Length | A few pages | As long as the tasks need, one procedure per task |
| Example (illustrative) | “Purchases from €2,500 to €50,000 need three written quotes.” | “Send the request for quotation from the sourcing tool, using template RFQ-02, with ten working days to answer.” |
Put a rule in the policy only if breaking it should need the board’s approval; everything else belongs in a procedure.
Many organisations publish a single document called procurement policy and procedures. That works for a small organisation, as long as the rules and the instructions are kept in separate sections, so that a change of system does not reopen the rules.
What should a procurement policy contain?
A procurement policy should contain about a dozen sections: purpose and scope, principles, roles and delegation of authority, thresholds and routes, supplier selection, exceptions, conflicts of interest, contracts and signature, sustainability, payment channels, records, and breaches and review. The table gives each section, what it says, and an example of a plain rule.
| Section | What it says | Example rule |
|---|---|---|
| Purpose and scope | Which entities, money and purchases the policy covers, and what it excludes | “This policy applies to all purchases by the group’s companies, whatever the budget. Salaries, taxes and intra-group charges are excluded.” |
| Principles | The few ideas every decision must respect | “We buy on value for money, treat suppliers equally and record every decision.” |
| Roles and delegation of authority | Who requests, who buys, who approves and up to what amount | “Budget holders approve up to €10,000; above that, the head of department also approves.” |
| Thresholds and routes | Which route applies at which value | “Below €2,500: one quote. €2,500 to €50,000: three written quotes. Above €50,000: a formal tender.” |
| Supplier selection | How suppliers are found, qualified and evaluated | “Only suppliers registered and checked in the supplier system may receive an order.” |
| Contracts and frameworks | When an existing contract must be used, and who signs new ones | “If a contract covers the need, it must be used. Contracts above €100,000 are signed by two directors.” |
| Exceptions | When a single supplier may be chosen without competition, and who approves it | “A single-source purchase needs a written reason and the approval of the head of procurement.” |
| Conflicts of interest and gifts | Declarations, who may not take part, gifts and hospitality | “Anyone who writes a specification or scores bids signs a declaration first. No gifts above €50.” |
| Sustainability and supplier conduct | Environmental and social criteria, and the supplier code of conduct | “Tenders above €50,000 include at least one environmental or social criterion.” |
| Payment channels | Purchase orders, procurement cards and the “no PO, no pay” rule | “Every invoice must quote a purchase order number, except for the categories listed in annex 2.” |
| Records | What is kept, where and for how long | “Quotes, evaluations and approvals are kept with the order for seven years.” |
| Breaches and review | What happens when the policy is broken, and when it is reviewed | “Purchases made outside the policy are reported to the finance director. The policy is reviewed every two years.” |
The delegation of authority and the threshold table are the two sections people read every week; write them as tables, not paragraphs.
The amounts and periods in the examples, such as the €50 gift limit, seven years for records or a review every two years, are illustrative, not a recommendation: each organisation sets its own from its size, risk, tax and audit rules, and the law that applies to it. A downloadable procurement policy template, built on these sections, is in preparation among the site’s tools. A small business can start with five of them: scope, delegation of authority, thresholds, conflicts of interest and records.
How does a procurement policy set thresholds?
A procurement policy sets thresholds as value bands, each with its own route: a single quote, several written quotes, or a formal tender with published notice. The bands are measured on the total value of the need over the contract’s life, not on one invoice. Public bodies take their thresholds from law; companies and most nonprofits set their own.
| Rule set | Applies to | Thresholds | What changes at the threshold |
|---|---|---|---|
| US Federal Acquisition Regulation (FAR 2.101, 13.203) | US federal agencies | Micro-purchase $15,000; simplified acquisition $350,000 | Up to $15,000, no competitive quotes needed if the price is reasonable; up to $350,000, simplified procedures |
| US Uniform Guidance (2 CFR 200.320) | Organisations spending US federal grants and awards, including nonprofits | Micro-purchase as set by the FAR, or up to $50,000 by annual self-certification; simplified acquisition no higher than the FAR’s | Informal methods up to the simplified acquisition threshold; formal, publicly advertised methods above it |
| UK Procurement Act 2023 (Schedule 1) | UK contracting authorities | Goods and services: £135,018 for central government, £207,720 for other authorities; works £5,193,000 (from 1 January 2026, including VAT) | Above the threshold, the Act’s full procedures and notices apply |
| EU Directive 2014/24/EU (Delegated Regulation 2025/2152) | Public buyers in EU member states | Supplies and services: €140,000 for central government, €216,000 for other authorities; works €5,404,000 (2026–2027, excluding VAT) | Above the threshold, EU-wide publication and the directive’s procedures apply; national law sets the rules below it |
These are legal thresholds for public money in three jurisdictions, not a standard for everyone: a private company copies none of them unless it chooses to.
US rules are often quoted online as if they applied everywhere. They do not. A company in India, Kenya or Brazil, for example, follows its own policy and any national law on public money, not the FAR. Thresholds also change: the US figures are adjusted for inflation, and the UK and EU revise theirs every two years. Write the date and the source next to any legal threshold your policy quotes.
Every threshold invites the same abuse: splitting one need into several smaller purchases to stay under it. Public rules forbid it. The FAR says not to break down requirements into purchases below a threshold to avoid its procedures (FAR 13.003(c)(2)), and the EU directive says a procurement shall not be subdivided to avoid its scope unless objective reasons justify it (Article 5(3)). A company policy should say the same, and the requisition system should flag several requests for the same item from the same requester in a short period.
What must a public-sector procurement policy follow?
A public-sector procurement policy must follow the procurement law of its country, and it cannot loosen it. The policy then adds the organisation’s own rules below the legal thresholds and its own approval limits. It is not legal advice, and a specific tender should be checked with counsel.
In the UK, the Procurement Act 2023 asks contracting authorities to have regard to four objectives: delivering value for money, maximising public benefit, sharing information so that suppliers understand the authority’s procurement policies and decisions, and acting, and being seen to act, with integrity (section 12). The same section asks them to consider the barriers small and medium-sized enterprises face. Authorities must also have regard to the national procurement policy statement, the government’s published priorities for procurement, with some exceptions (section 13).
In the EU, the directive asks member states to make sure contracting authorities prevent, identify and remedy conflicts of interest (Article 24). In the United States, federal agencies buy under the FAR and their agency supplements; states, cities and counties have their own procurement codes. Below the legal thresholds, a public body’s own policy usually sets lighter routes, such as three quotes, and these are the rules most of its purchases follow.
What should a nonprofit procurement policy include?
A nonprofit procurement policy should include the same core sections as any other, plus the rules its funders impose. For a US nonprofit that spends federal grants, those rules are in the Uniform Guidance: it must maintain and use documented procurement procedures (2 CFR 200.318(a)) and written standards of conduct on conflicts of interest (2 CFR 200.318(c)(1)).
- Conflicts of interest. No employee, officer, agent or board member with a real or apparent conflict may take part in selecting, awarding or administering a contract paid by the award, and staff may not accept gifts from contractors, except items of nominal value the policy allows.
- Competition. Purchases must allow full and open competition, and a firm that drafted the specification may not bid on it (2 CFR 200.319).
- Methods and thresholds. Micro-purchases, simplified acquisitions with quotes from an adequate number of sources, and formal methods with public notice above the simplified acquisition threshold (2 CFR 200.320).
- Single source. A noncompetitive purchase only for a micro-purchase, a single possible source, an emergency, written approval by the funding agency, or when competition proved inadequate.
- Responsible contractors. Contracts go only to contractors able to perform, judged on integrity, compliance, past performance and resources (2 CFR 200.318(h)).
- Records. A file for each purchase with the reason for the method, the contract type, the choice or rejection of each contractor, and the basis for the price (2 CFR 200.318(i)).
These rules apply to purchases paid by US federal awards. A US state or tribe uses its own procurement policies for those purchases, as it does for its own money (2 CFR 200.317). A nonprofit or NGO outside the United States, or one with no federal money, follows the conditions of each grant agreement and its national law. Where funders differ, many NGOs write one policy that meets the strictest funder, so that staff learn one set of rules.
What is a green or sustainable procurement policy?
A green procurement policy adds environmental criteria to buying decisions; a sustainable or responsible procurement policy adds social and ethical criteria as well. It is either a section of the main policy or a separate policy that the main one refers to. It works only when its criteria appear in specifications, evaluation and contracts, not only in the policy text.
The European Commission defines green public procurement as “a process whereby public authorities seek to procure goods, services and works with a reduced environmental impact”. It calls it a voluntary instrument: member states decide how far to apply it, and the Commission publishes voluntary criteria for product groups. ISO 20400:2017 gives guidance to organisations of any size or sector on integrating sustainability within procurement; it is guidance, so there is no ISO 20400 certificate to obtain.
- Criteria by category: energy use for IT, recycled content for paper, emissions for fleet.
- Whole-life cost in evaluation, so that a cheaper product that uses more energy does not win on price alone.
- A supplier code of conduct attached to every contract, with the right to audit.
- Checks on labour and human rights in high-risk supply chains. In the UK, commercial organisations above a turnover set by regulation must publish a yearly slavery and human trafficking statement (Modern Slavery Act 2015, section 54).
Which other policies sit alongside a procurement policy?
Several narrower policies sit alongside the main procurement policy and refer to it. Each covers one channel or one category where the general rules are not enough.
- Delegation of authority
- The table of who may approve and sign what, by amount and type of commitment. It often covers more than purchasing, such as hiring and capital spending, so it may be a separate document the procurement policy points to.
- Procurement card policy
- The rules for card purchases: limits per transaction and per month, blocked merchant types, what the card may never buy, and the monthly reconciliation. How a card programme works is explained in what is a P-card.
- IT procurement policy
- Extra checks for software and IT services: security and data protection review, licence terms, and who may accept online terms for a cloud service. It stops a team signing up for a tool with a company card and no review.
- Supplier code of conduct
- What the organisation expects from its suppliers on ethics, labour, environment and data. It is sent with tenders and attached to contracts.
- Indirect procurement rules
- Channels for everyday buying, from catalogues to cards; the rules for this spend are discussed in what is indirect procurement.
How do you write a procurement policy?
To write a procurement policy, start from how the organisation buys today and which rules already bind it, then write the few rules that change behaviour and test them on real purchases before approval. Procurement policy development is mostly a matter of agreeing approval limits and thresholds with finance and the business.
- List the rules that already apply: procurement law for public money, funder conditions, group policies, the delegation of authority.
- Look at last year’s spend by supplier and by value band, so that the thresholds fit how the organisation really buys.
- Draft the delegation of authority and the threshold table first, and agree them with finance and the main budget holders.
- Write the other sections in short rules, one idea per sentence, and move every “how to” into procedures.
- Test the draft on ten recent purchases: would each one have followed the right route, and who would have signed it?
- Have it approved by the board or the executive team, publish it where requesters will find it, and train budget holders first.
- Load the rules into the systems: approval limits in the purchase requisition software, thresholds in the sourcing tool, the “no PO, no pay” rule in accounts payable.
- Set a review date, for example every two or three years, and review sooner when the law or the organisation changes.
Best practice in procurement policy is mostly restraint: a short policy that people read beats a long one they ignore. If a rule has no owner, no control and no consequence, leave it out.
Questions
What is the purpose of a procurement policy?
The purpose of a procurement policy is to make every purchase follow the same rules: value for money, fair treatment of suppliers, approval by the right person, and a record that can be checked. It protects the organisation from overpaying, fraud and favouritism, and it protects staff, who can show they followed the rules.
Is a procurement policy required by law?
For public bodies, procurement law sets most of the rules, and the policy adds the organisation’s own. A US nonprofit spending federal awards must have documented procurement procedures and written conflict-of-interest standards. Most private companies have no general legal duty to have one, but auditors, lenders and large customers often expect it.
Who should approve a procurement policy?
The board, the executive team or the governing body should approve the procurement policy, because it delegates the authority to commit the organisation’s money. Procurement drafts it with finance and legal; procedures under it can then be approved by the head of procurement or finance.
Does a small business need a procurement policy?
A small business benefits from a short one, often two pages: who may approve which amounts, when quotes are needed, how conflicts of interest are declared and what records are kept. It becomes necessary once several people buy, or when a lender, investor or customer asks for evidence of purchasing controls.
How often should a procurement policy be reviewed?
No single cycle applies to every organisation. Many set a fixed review date, for example every two or three years, and review sooner when the law changes, the organisation restructures, or audits show rules that are not followed. Public thresholds change on their own schedule, every two years in the UK and EU, so check any legal amount the policy quotes at each review.
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