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How to set up contracts with factories and service providers.

Posted: 2014-04-21

Full Question

We are interested in getting contracts for factories, 3PL, QC, etc. in China.

Answer

Let’s look at contractual issues with service providers for Logistics (3PL) and Inspections Agency (AKA “QC”).

It's a big red flag if your logistics provider and 3rd Party QC firm don't have a written contract for your review. A professional firm will certainly have a contract. If not, run away fast! I would suggest you take the service provider's contract and have a Chinese lawyer in China review it. This will save a lot of costs.

For your reference, here are some links, short video tutorials and a white paper or two which offer tips on how to qualify, negotiate and manage third party support, including QC and Logistics:

Tips for Selecting a 3rd Party Service Provider

Video 1: Finding Suppliers

Video 2: Evaluating Suppliers

Video 3: Negotiations

Video 4: Project Management and Quality Control

Video 5: Protecting Your Intellectual Property

Video 7: How to Find and Manage Partners for Logistics

Video 8: Avoiding Scams

Contracts with factories

While it is common to accept the contract of a professional logistics firm or inspection agency (and possibly adjust it slightly), it is not the norm to casually accept the contract of the factory because either key terms will be missing or the wording will be skewed in their favor.

Here are three big mistakes buyer make in regards to contracts and contract terms.

1. The factory may not even offer a contract unless the buyer asks. Many buyers don’t ask about the contract and simply place a PO. Most POs don’t address issues like non-conformance, delivery issues, quality standards, confidentiality…and such.

2. The second mistake is to have the contract with the wrong party. So many buyers get a contract with the factory, but then make payment to a HK trading company that the factory appoints. When a problem occurs later, the buyer has a hard time enforcing things in a court because the factory says “we never received any funds from the buyer”.

3. The third big mistake is that those wise enough to use contracts, often forget to get that contract put into Chinese. The lawyers at www.ChibridgeLaw.com explain:

If the mutually agreed jurisdiction on the document is China, and both parties have signed/chopped the document, then technically, yes, an English contract is enforceable. But before the courts can make a decision the document will need to be translated into Chinese by a court-approved translator for the court’s review. This can be expensive and time consuming. It’s much better to have your attorney structure the wording in advance rather than hope the court’s translation will be accurate. Be safe. Use bi-lingual contracts.

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