A procurement contract (also known as sales contract / purchase agreement) is a contract whereby the seller (the supplier) sells the products and/or service to the buyer and the buyer in return usually pays the price. Procurement contract is one of the most commonly used contracts in international transactions.
Nowadays, many foreigners or foreign companies might have business with Chinese suppliers, especially for the procurement of the medical products during the COVID-19 outbreak. Based on our team’s experience, here are some important tips for concluding a successful procurement contract with a Chinese supplier for your reference.
1. Product Warranty
Buyers should pay attention to include the specific quality standards for products in their procurement contracts. For example, with regard to the procurement of the medical products, it is recommended that the procurement contracts include provisions, like such products should have obtained the registration certificates of China’s medical products or filed the record with the competent authorities in accordance with the relevant laws and regulations. It is also important to specify that the medical products should meet the quality standards required by the importing country (region) and include the details of such requirements.
Besides, not all Chinese suppliers have the qualification to sell medical products and export them. It would be an important measure to engage a lawyer in China to conduct a simple due diligence, through public information, on the qualifications of the related Chinese supplier. The Chinese supplier should also make a commitment to qualification in the terms of representation.
2. Delivery Time
Due to the coronavirus, international trade may face risks of delivery caused by insufficient capacity of transportation. Let’s take sea transportation (CIF) as an example.
First of all, it is important to specify the precise production time in order that both parties can well organize the shipment in advance.
Secondly, it is advisable to require the Chinese supplier to contact the freight forwarder to arrange the booking around a few weeks before the completion of production. Our experience is that many clients choose to arrange the booking around one months before the completion of production. However, this should be subject to the transportation situation at that time.
Thirdly, the buyer might also include some liability terms in the procurement contract, which requires the relevant Chinese supplier to provide the related documents (e.g. shipping order, bill of lading, packing list) in time. Under such case, the buyer can supervise the status of the delivery. If the Chinese supplier fails to provide such documents, the buyer may claim the liability for breach of contract.
3. Applicable Law and Jurisdiction
Some foreign buyers may feel that it is to their advantages to have the procurement contracts with Chinese suppliers under the jurisdiction of foreign arbitration commissions. However, with such foreign jurisdiction, the fact is that it is difficult to take effective measures (such as property preservation) in time to protect buyers’ rights in China when disputes occur.
We have been consulted on a number of similar cases. Since many foreign buyers did not engage lawyers in China to review contracts (including the terms of jurisdiction) when signing the contracts. Without the suitable jurisdiction term, it is difficult for foreign buyers to take active measures in time, and finally they can only be settled passively through negotiation. We would also like to share a specific article in the future to elaborate on the reasons for this. In short, it is highly recommended that foreign buyers specify Chinese law and Chinese courts govern their procurement contracts with Chinese suppliers.
A successful procurement contract is a legally binding document that can effectively protect foreign buyer’s right in the relevant international transaction with Chinese supplier. Since different companies might have their own concerns towards the details of procurement contracts. It is advisable to engage a professional lawyer in China to draft or review the procurement contract before the execution.
More：Lawyer’s Letter: Resolving Your Dispute in China
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