Be Smart, not Sorry, when Drawing up Contracts
China Business Law: Behind the scenes with an English Speaking Chinese Lawyer
This morning, I spoke with a client. He said he needs a simple supply contract to use for his sourcing business in China.
I sent him a checklist, so that he can let me know what he expects the contract to specify. He replied that he needed quick advice, he can’t sit and write all this. He repeated saying that he needed a “quick” and “simple” agreement, so he can use on “many, many products monthly”, and use “across different factories.”
China Contracts: Never "Quick and Simple" drafting unless you mean easy to lose money!
I began telling him that if he wants to use it that way, the contract must be comprehensive and can’t be simple. Some businessmen tend to think lawyers complicate things, even though he needs just a simple agreement.
So I want to clarify here: if you hope your contract will be binding to your suppliers, and may be used as the basis to solve any potential dispute you may have with your suppliers, the agreement cannot be simple!
For example, you can’t just say that “the supplier must provide good quality products.” You have to verify your idea of “good quality,” and specify that the supplier must acquire quality authentication for certain types of products. If necessary, you should assign an inspection company to do inspection during the production or before delivery, if the supplier fails the inspection they should reproduce the product, however, if they can’t deliver the goods to you by the deadline, they will have to pay a fee for late delivery, etc.
How can a supply agreement be simple? A simple agreement is akin to no agreement.
As a Chinese lawyer, my advice to all buyers is 3 fold:
1. If you need a supplier agreement with your Chinese suppliers, give yourself and your lawyer some time. You have to decide what your expectations of the agreement are, and let your lawyer know about these.
2. During the process, speak with your lawyer thoroughly, make sure you understand each other. China is probably a totally different jurisdiction than the one you are familiar with, so a thorough discussion will make sure the contract satisfies your requirements.
3. Don’t expect a quick and simple agreement, a responsible lawyer won’t give you such an agreement. Lawyers do not want to complicate things, they just want to make sure you are protected by your agreement.
i agree with you perfectly
I do agree it is perfect however if there are binding from either side and which leads to to breaking points so what we should do to cancel the contract/deal.
I remember when we made an agreement with one soda caustic supplier in china to supply soda , and I sent my team to check the quality when I was in Africa but unfortunately when consignment reach to senigal and we checked that , out of two containers 60 % of material was found bogus , so what wee should do the freight is too high , the port charges are to be faced .. what to do ?
Hi Hussain:
A good contract of course will link the quality to the payment, and specify when the contract could be terminated. But a good contract will not solve all problems. A inspection before the goods is delivered by someone you trusted is very important, espically for chemicals. (Actually I know some buyers get rubbish delivered, though inspection report provided by supplier is fine), Sometimes, local support is very important, though you have to pay for it, but it will save you a material lose.
Thanks for your advice.In business,good contract is essential.
Hussain,
Although a contract is a necessary and integral part of any business deal, defining the rights, duties and liabilities of the parties, a contract is not enough to protect you against bogus goods.
I would suggest using a reprutable cargo inspection company like Intertek to inspect the goods for conformity before shipment. Also, I assume you are paying by letter of credit and the Inspection Certificate would be one of the documents required before payment is made upon delivery.