As China and its laws change, the China lawyers at my firm must constantly adjust, usually just ever so slightly. This adjustment can include even how we draft our contracts for China. And oftentimes, with even small changes in how we draft our contracts, we make changes in the questions we ask to gather the information we need to draft a contract that suits both their situation and their goals.
The following is the initial email questionnaire our China manufacturing lawyers are currently using with companies looking to engage in OEM manufacturing in China. Our lawyers send this out and then review the responses, all as a prelude to drafting the Manufacturing Agreement
The below is fairly comprehensive, but feel free to provide any additional information that you feel may be relevant. Please answer as much of the below as you can and to the extent any of our questions are irrelevant, please feel free to 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 followup questions depending on your responses to the below.
Note that the agreement we will be drafting for you will be intended for use within mainland China with manufacturers based in mainland China. It is not intended to be used with sourcing agents, nor is it intended for use in Hong Kong, Macau, Taiwan, or any other country or administrative region outside China.
1. Basic Information
- 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 Chinese and English, as relevant.)
- Please identify the state in which your company is incorporated.
- 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?
- Please provide a copy of your Chinese counter-party’s business license.
- To the extent multiple entities will be involved in this agreement on the Chinese side, please identify each of these entities and describe their corporate structure. For instance, many OEM contracts involve one Chinese company that owns a factory and performs all manufacturing and a second company (usually based in Hong Kong) that issues invoices and receives payment.
2. Design Basics
- Do you anticipate the Chinese side will be performing any design work or customization as part of the manufacturing process?
- If not, are you ordering “off the shelf” products the Chinese side already manufacturers?
- If so, have you already entered into a design services agreement? What arrangements have you made regarding ownership of the designs, payment for the designs, milestones, and ordering obligations?
3. Manufacturing Basics
- Please describe each product the Chinese side will be manufacturing. Do you anticipate these products will change over time?
- What sort of volume are you expecting? Will the volume change over time? Have you have agreed to order a minimum number of products? If so, please provide details.
- Do you wish to prohibit subcontracting? 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 the Chinese contract party.
- Have you determined the prices for the products yet? If so, please include the relevant details.
- How will pricing and related terms be negotiated? On a purchase order basis? On an annual basis? Some other way?
- 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
- Do you have an existing purchase order you intend to use for your product orders from these manufacturer(s)? If so, please provide us with a copy.
- After receiving a purchase order, how long does the manufacturer have to accept or reject it?
- If you submit a purchase order and it is not accepted by the Chinese side, what happens? In other words, is the Chinese side 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?
- 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?
- What arrangements will be made for packaging prior to shipment?
- When your products are shipped from China, what brand names, logos, and/or slogans will appear on the products and packaging? Please distinguish if possible between words and graphic logos.
- Where do you anticipate selling your products? In particular, will you be selling them in China?
- If you are selling any product in China, what brand names, logos, and/or slogans will appear on the product and on its packaging?
- Will any product you manufacture in China have a Chinese name? Does your company have a Chinese name? If so, please provide them.
- What sort of arrangements have you made for inspection and quality control during the manufacturing and packaging process (i.e., pre-shipment)? Exactly what should be done with any defective product discovered during the manufacturing process?
- What sort of arrangements have you made for inspection and quality control upon receipt (i.e., post-shipment)? Exactly what should be done with any defective product discovered then?
6. IP and other concerns
- 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 the Chinese manufacturer does not sell your product behind your back and/or steal your designs)? Pricing?
- Do you have any trademark registrations in China or anywhere else in the world (pending or otherwise)? If yes, please list them.
- Do you have any patent or copyright registrations in China or anywhere else in the world (pending or otherwise)? If yes, please lis them.
- Do you have a list of customers, suppliers, or other third parties you want to prevent the Chinese party from contacting
7. Tooling and Molds
- Will the Chinese manufacturer be using any tooling or custom molds to make your products?
- If so, does the manufacturer already have all of the tooling in question? Which party owns the tooling?
- What sort of warranty terms have you negotiated or do you expect?
- Have you determined the length of time this deal will be in place?
10. Other issues
- Has the Chinese manufacturer already signed any sort of term sheet, memorandum of understanding, letter of intent, or other document, even if only in English? If so, please provide this document.
- Have you previously purchased any products from this manufacturer? If so, please provide an example of the purchase order used.
- Are there any unresolved issues involving any previous manufacturers? For instance: have you gotten all of the tooling back from any previous factories? Are there any outstanding invoices or payments due?
This article was written by Dan Harris and published on China Law Blog. Original Post: https://www.chinalawblog.com/2018/05/china-oem-manufacturing-contracts-the-questions-we-ask.html