China sourcing: Be smart when drawing up contracts

China sourcing Be smart when drawing up contracts

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.”

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?

In fact, a simple agreement is akin to no agreement.

My advice to all buyers:

1. If you need a supply agreement, 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.

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