One of the most common problems we see between foreign companies and their Chinese manufacturers is “late” delivery. I put late in quotes because many times I think the problem is not so much that the Chinese manufacturer was late, but rather that the contract and the foreign buyer were unclear on the actual delivery date requirements.
Let me explain.
When my law firm’s international manufacturing lawyers draft a China Manufacturing Agreement (a/k/a Product Supply Agreement), we are always very careful regarding delivery times. Most of the time, our clients come to us with a term sheet or an oral agreement with their Chinese manufacturer dictating something like 30 days for delivery. We like strictly tying the Chinese manufacturer to the “agreed-upon” delivery date with a liquidated damages provision tied to late delivery. See China Manufacturing Agreements: Make Liquidated Damages Your Friend. Just by way of example, we might put into the Agreement a provision saying something along the lines of delivery shall be within 30 days and for every day beyond thirty days the Chinese manufacturer shall be required to pay US Company 1% of the purchase order price within ten days.
Perhaps more than any other contract provision, we tend to get blow-back on the delivery time provision from the Chinese manufacturer. Oftentimes when faced with the reality of having to pay a set amount for late delivery, the Chinese manufacturer gets serious about delivery times and reveals it cannot make deliveries within the previously “agreed” time frame. Our client usually realizes it is better to get real agreement (even if longer than originally anticipated) before ordering, rather than getting late delivery after ordering.
The other, somewhat related issue we face on delivery times is that when our client comes to us and says it has agreed with its Chinese manufacturer to a 30 day delivery schedule, we then have to figure out 30 days from what. We typically go with 30 days from the issuance of the purchase order, but oftentimes the Chinese company pushes for it to be 30 days from its receipt of payment or 30 days from its receiving proof of payment.
Bottom Line: Certainty is important for delivery dates and the best way to achieve that certainty is with a written contract, in Chinese, that sets out your delivery expectations and the penalties that will accrue if your manufacturer fails to meet them.