China Supplier Contracts & Negotiations: PO vs Contract vs NDA – Part 1

Contracts With Chinese Suppliers

Let’s take an Australia buyer for example. The “contract” is usually a one-page document when they buy from another Australian company or sell to their Australian customers. The PO is the contract because if any of the terms are broken there's an implied warranty. The Australian seller has legal exposure if they do things wrong like failing to ship the item or not making a refund on defects. In Australia, there's a legal system to protect you and for simple orders, you may not need the buyer and seller in Australia to have a long contract listing all the term and condition sheet.

But in China, no matter if the purchase is small, you are crazy not to have a well-defined contract. When you're buying from Asia you don't have that seller doesn’t have the burden of an implied warranty, so it's your job as the buyer to specify what terms and conditions are important for you. Thus, in practice, I often end up having a simple purchase order but attach to it as a four or five bilingual pages’ document that describes things that are important to me, such as my vendor standards & code of conduct.

IMHO, you are very wise to include what are the penalties for mislead times and poor quality upfront. Some buyers make the mistake of issuing the terms and conditions at one time and then place a purchase order with the with each shipment. I actually do things the other way around. Since I've made the effort to create the terms and conditions, it’s pretty simple for me to just attached those terms and conditions with the purchase order on each and every order. So the supplier can't say oh “I forgot about that clause for non-compete” that we signed a few years ago.

Sometimes they're actually not trying to trick you, they just forgot about. But if the item is important to you, you can’t let the supplier forget about it. So for me, my standard practice is that every time I place an order, the supplier also adds their signature and their corporate “chop” to not only the PO, but also all the terms and conditions. Many buyers just put on the PO that “PO is placed under the terms and conditions of Contract signed DD/MM/YYYY”. That may protect you legally, but I believe a good China supplier contract prevents problems rather than just offer protection. I believe you will find that saves you headaches, time and money to simply attached the contract to the PO and get it signed EVERY time you place an order.