International Manufacturing Contracts: The Questions We Ask

With supply chain issues constantly changing, our International Manufacturing Contracts must change as well. Even small changes in how we draft our manufacturing contracts dictate changes in the questions we ask our clients when gathering the information for drafting a contract that suits their goals and needs.

The following is the initial email questionnaire our international manufacturing lawyers are using with companies looking to engage in OEM manufacturing in a foreign country. Our lawyers send out the below, then review the responses, all as a prelude to drafting the International Manufacturing Agreement

The below is fairly comprehensive, but please feel free to provide any additional information you feel may be relevant. Please answer as much of the below as you can and to the extent any questions are irrelevant, please write N/A, but to the extent it might make sense for you to explain to us why something does not apply to you, please do so. We will likely have follow-up questions depending on your responses to the below.

Note that the agreement we will be drafting for you will be intended for use only within the country for which we have been instructed to draft the contract. [Note that contracts we draft for factories in mainland China are not intended for use in Hong Kong, Macau, Taiwan].

1. Basic Information 

    1. For each entity that will be executing the agreement, please supply the full legal name, address, phone number, fax number, and URL, as well as the name, title, and email address of the representative who will be signing on behalf of that entity. (In both the local language and in English)
    2. Please identify the country, state, and/or province in which your company is incorporated.
    3. Will you be using this OEM agreement only with this specific manufacturer, or are you hoping to be able to reuse it with other manufacturers? If you are hoping to reuse it with other manufacturers, will those manufacturers be in the same country as this one?
    4. Please provide a copy of your potential manufacturer’s business license.
    5. To the extent multiple entities will be involved in this agreement on the manufacturing side, please identify each of those entities and describe the corporate structure. For instance, many OEM contracts involve one company that owns a factory and performs all manufacturing and a second company (often based in Hong Kong or Singapore) that issues invoices and receives payment.

2. Design Basics

    1. Do you anticipate the product manufacturer will be performing any design work or customization as part of the manufacturing process?
    2. If not, are you ordering “off the shelf” products the product manufacturer already manufactures?
    3. If so, have you already entered into a design services agreement with your manufacturer? What arrangements have you made regarding ownership of the designs, payment for the designs, milestones, and ordering obligations?

3. Manufacturing Basics

    1. Please describe each product your product manufacturer will be manufacturing. Do you anticipate these products will change over time?
    2. What sort of volume are you expecting? Will the volume change over time? Have you have agreed to order a minimum number of products? Please provide details.
    3. Do you wish to prohibit subcontracting? We typically recommend this because subcontracting is a common cause of product quality problems. Are you aware of any third parties that will be involved in manufacturing, packaging, or shipping your product? This includes any entities that may be owned by or otherwise affiliated with your manufacturer.

4. Pricing

    1. Have you determined the prices for the products yet? If so, please include the relevant details.
    2. How will pricing and related terms be negotiated? On a purchase order basis? On an annual basis? Some other way?
    3. Have you negotiated the payment terms? For instance, will you pay by letter of credit? By installments? If by installments, what are the amounts/percentages of those installments, and when are they due?

5. Purchase Orders, Shipments, and Inspections

    1. Do you have an existing purchase order you intend to use for your product orders? If so, please provide us with a copy.
    2. After receiving a purchase order, how long does your manufacturer have to accept or reject it?
    3. If you submit a purchase order and it is not accepted by your manufacturer, what happens? In other words, is your manufacturer bound for some period to make a certain amount of product at a certain price or only obligated to make product for you after it accepts your purchase order?
    4. What have you negotiated regarding shipping terms? For instance, how long after acceptance of a purchase order will goods be shipped? Will you be using a freight forwarder? From and to which ports will the goods be shipped? Will the goods be shipped FOB or CIF or something else?
    5. What arrangements will be made for packaging prior to shipment?
    6. When your products are shipped, what brand names, logos, and/or slogans will appear on the products and packaging? Please distinguish if possible between words and graphic logos.
    7. Where do you anticipate selling your products? In particular, will you be selling them in the country in which they will be manufactured?
    8. What brand names, logos, and/or slogans will appear on the product and on its packaging?
    9. What sort of arrangements have you made for inspection and quality control during the manufacturing and packaging process (i.e., pre-shipment)? Exactly what would you like to see be done with defective products discovered during the manufacturing process?
    10. What sort of arrangements have you made for inspection and quality control upon receipt (i.e., post-shipment)? Exactly what would you like to see be done with defective products discovered then?

6. Intellectual Property

    1. What are your main concerns in this deal? Are you concerned with ensuring high product quality? Receiving products within the agreed-upon time?  Protecting your intellectual property (i.e., ensuring your manufacturer does not sell your product behind your back and/or steal your designs)? Pricing?
    2. Do you have any trademark registrations anywhere in the world (pending or otherwise)? If yes, please list them.
    3. In what countries will you be selling your products?
    4. Do you have any patent or copyright registrations anywhere in the world (pending or otherwise)? If yes, please list them.
    5. Do you have a list of customers, suppliers, or other third parties you want to prevent your manufacturer from contacting? Will you be having your manufacturer ship your products directly to you or will they be going to your customers, suppliers or third parties?

7. Tooling and Molds

    1. Will your manufacturer be using any tooling or custom molds to make your products?
    2. If so, does your manufacturer already have all of the tooling or molds? Who owns the tooling or molds?

8. Warranty

    1. What sort of warranty terms have you negotiated or do you expect?

9. Contract Term

    1. Have you determined the length of time this manufacturing deal will be in place?

10. Other Issues

    1. Has your manufacturer already signed any sort of term sheet, memorandum of understanding, letter of intent, or other document? If so, please provide this document.
    2. Have you previously purchased any products from this manufacturer? If so, please provide an example of the purchase order used.
    3. Are there any unresolved issues involving any previous manufacturers? For instance: have your previous manufacturers given you all of your tooling back? Do you have any outstanding invoices or payments due?

We await your answers to the above. Once we have those, we will prepare and send you an initial draft of your international manufacturing agreement for your review. If you have any questions in the meantime, please don’t hesitate to reach out to any of our lawyers working on this project for you.