Ultimate guide for sign a purchase contract

By justchinait
 / 
November 17, 2020
 / 

General procurement or company legal personnel, as the person in charge of contract formulation, review, and management, need to understand the terms in the contract. If they are not professionals, they will not know what the standard of the agreement to be signed is. It is impossible to be included in the contract. The quality requirements or acceptance criteria for this equipment have been written out, so the procurement department of the procurement contract must work closely with the legal counsel to shoulder the responsibility of resisting the procurement contract risks.

The general contract mainly contains the following elements:

1. Subject

2. The subject matter

3. Quantity

4. Quality

5. Price

6. Performance period, place, and method

7. Contract cancellation, suspension, termination

8. Default appointment

9. Dispute resolution method.

The main review tasks of legal counsel should be:

1. Subject

2. Contract termination, suspension, termination

3. Liability for breach of contract

4. Dispute resolution and prevention of other risks in the agreement, such as the time of ownership transfer and the risk of losing the subject matter.

The subject matter, quantity, quality, etc. should generally be the items to be reviewed for procurement. The subject specification and quantity are relatively professional and meticulous, and the legal counsel has few opportunities to contact and is not professional enough. If the company purchases the other party’s goods, it is beneficial to the work. The improvement of efficiency will help reduce the company’s transaction risks.

1. Contract subject

The subject of the contract is a very critical part. The legal representative of a company is the best to sign the deal, which saves many steps. If an agent signs the contract, it depends on the agent’s agency authority, capacity, and whether it is an apparent agency. Other issues generally only need to pay attention to whether it is legal and whether the primary business license has passed the annual review.

2. The subject of the contract

The subject matter of the contract must be legal. For example, standard corporate transactions cannot conduct gold transactions. There is also a need to pay attention to the counterparty’s ownership of the target.

3. Quantity

Only if the company agrees, it doesn’t matter to the legal counsel how much you buy.

4. Quality

Quality is my biggest concern, and it is also the most problematic place in the procurement contract. When I review the agreement, I pay the most attention to quality issues.

Because the company’s procurement department is generally independent (that is, the application department first applies for procurement to the next higher level, and after approval, the procurement department will purchase uniformly), therefore, the contract quality of the contract given by the procurement department is only a single pass. Even the acceptance criteria are also vague. Clear. For procurement contracts, the quality requirements and detailed acceptance criteria should generally be put forward by the purchasing department applying for it.

5. Price

The price is not the main issue, but we should remember capitalizing on the price in the contract.

6. Time limit, place and method of performance

This part only needs to pay attention to the stipulations in the contract, and the general purchasing department will provide it.

7. Contract cancellation, suspension, and termination

The main point here is to pay attention to the circumstances under which the company can unilaterally terminate the contract and the conditions under which the two parties can suspend or terminate the agreement.

8. Liability for breach of contract

The liability for breach of contract in the procurement contract is used as a compensation plan when both parties fail to perform the contract. The most important thing is that the liability for breach of contract must be clear and operability.

If the other party fails to complete the delivery within the specified time, he will have to compensate 1% of the total purchase price. The most feared part of the liability for breach of contract is to write the sentence “If the delivery is not made within the time specified in the contract, the other party shall bear all responsibilities.” Liability for breach of contract is stipulated, but there is no specific and feasible plan. In the event of a contractual accident, you have to find a lot of evidence to prove your loss, and the operability is too weak.

9. Dispute Resolution

As long as you pay attention to the court of jurisdiction, the purchase contract, if it is a purchaser, generally requires the court’s authority where your company is located, which mainly depends on your status in the agreement.

Of course, you absolutely cannot choose both arbitration and court, nor can the arbitration is chosen when choosing mediation is not unique.

10. Other matters

There are also some essential things in the purchase contract, such as the own time of the subject matter, the time of risk transfer of the subject matter, and issues concerning intellectual property rights.

Of course, contract terminology is also an issue that should be paid attention to. You can never have ambiguities in contracts that have been reviewed by legal counsel. That is too undesirable. Generally speaking, you should use short sentences instead of long sentences. If you use long sentences, you must follow the grammar carefully.

Analysis of common problems in material procurement contracts

The contract is an important means to clarify the rights and obligations of both the supplier and the buyer and safeguard the legitimate rights and interests of both parties.

1. Contract subject

Problem: The contract’s subject is not clear, causing the parties to the contract to be rejected by the court when seeking legal protection.

Analysis: The subject of the contract must be a citizen, legal person, or other organization with independent civil rights and capacity for public conduct. The contract should be signed or sealed by the legal representative or its authorized agent, and affixed with the official seal; the official seal shall not be replaced by a special seal for business, plan, or finance; the full name of the account shall be used, and the title shall be consistent with the official seal.

2. Price agreement

Problem: The agreement on the price of goods is not explicit. In the case of frequent market price fluctuations, disputes are likely to arise.

Analysis: When the market price shows an upward trend, the contract should indicate: “The supplier shall supply the goods strictly at a price agreed in the contract and shall not be adjusted with market changes. The supplier shall not postpone the supply for any reason. Otherwise, it will be liable for breach of contract and the demander The resulting losses”.

When the price change trend is not apparent, the contract may indicate: “The supplier supplies the goods at a price agreed in the contract. If adjustments are required in special circumstances, the buyer must confirm and agree in writing. The supplier shall not postpone the supply for any reason. Otherwise, it will bear the liability for breach of contract and the loss incurred by the demander.”

The unit of measurement corresponding to the goods should be accurate, and the contract amount should be precise whether it includes taxes and freight, the bearer of the freight and unloading costs, and the responsible party for the transportation process and mode of transportation.

3. Quality acceptance criteria

Question: Fill in “According to National Standards” in the quality acceptance standard column. The acceptance criteria for many materials are specified according to the scope of use.

For example, there are four standards for seamless steel pipes, “Seamless steel pipes for structural use”, “Seamless steel pipes for fluid transport”, “Seamless steel pipes for low and medium pressure boilers”, and “Seamless steel pipes for high-pressure boilers”. The agreement is explicit, and the supplier may supply it at a low standard.

Analysis: The quality acceptance criteria for materials should be specified in the contract. As the standards are updated quickly, the agreement should also indicate that “Quality acceptance is not limited to the above standards. For the content not included, the current highest national and industry standards applicable to the material shall be implemented.”

4. Goods acceptance

Problem: The material and manufacturer of the goods are not specified in the contract, and the supplier may be shoddy.

Analysis: The time and place of cargo acceptance should be precise. The name, model, specification, quantity, unit price, material, manufacturer, unit and total amount of the goods shall be accurate and detailed in the contract.

For goods with a large number of technical performance parameters, a separate technical agreement should be signed as an appendix to this contract to avoid factors such as unknown model or unclear material causing wrong delivery and use of the illegal stuff, which will affect the progress and quality of the project.

5. Acceptance method

Problem: Ignore the agreement of the acceptance method. Especially for steel, it is easy for suppliers to take advantage of: if calculated by the theoretical weight, materials with negative deviations are supplied; if accepted by weight, materials with positive differences are supplied.

Analysis: The acceptance should be based on the quantity specified in the contract, and the two parties should count and measure together on site. If a steel purchase contract is signed, it must be agreed upon whether it weighs acceptance or ruler acceptance.

6. Delivery date

Question: “Delivery within one month after the contract takes effect.” This kind of agreement is somewhat vague, and the delivery date is not restrictive. There is a risk that the schedule will be affected by the untimely supply of materials.

Analysis: Make an explicit agreement on the delivery date. If the party has particular requirements, the contract should indicate “delivery by telephone or written notice from the demander”. If the supplier fails to supply the goods on time and quantity, it shall bear the corresponding liability for breach of contract.

7. The warranty period and warranty money

Analysis: In the engineering contract, the owner generally detains a certain amount of progress payment from the construction party as the quality guarantee fund. To transfer and share the risk, the supplier should set aside the quality guarantee fund in the same proportion to the buyer.

The warranty period should be consistent with the project contract or follow relevant laws and regulations. The amount of the guaranteed money shall not be less than 5% of the total contract amount, and the payment of the guaranteed money shall be marked with “interest-free payment”.

When signing large-value and necessary procurement contracts (especially when signing contracts with suppliers for the first time), to more effectively urge the suppliers to complete their performance obligations, both parties must stipulate in the contract that “the supplier shall, within * days after signing the contract, The demander must submit a bank performance guarantee letter of RMB* million. If it is not submitted on time, the demander has the right to refuse the advance payment or terminate the contract, and the demander does not have to bear any liability for breach of contract. After *****, the demander will send the bank. The performance bond is returned to the supplier intact.”

8. Settlement method and deadline

Question: Full payment before delivery. Such clauses increase the demand-side risk, reduce the constraints on the supplier’s product quality, after-sales service, and liability for breach of contract, and it is not easy to defend rights.

Analysis: The proportion of advance payment should generally be controlled within 30%. After both parties determine the payment conditions and dimensions of advance payment, progress payment, delivery payment, accept payment, and warranty payment, they should also clarify the payment method (such as transfer, acceptance bill, cash, check, etc.).

Be cautious when paying: If the account number, account name, etc. do not match the information on the contract, the supplier should be required to issue a relevant certificate, and the payment procedure should be processed after confirmation.

The time for the supplier to provide invoices and the types of invoices (such as ordinary tax invoices and individual value-added tax invoices) should be clearly stipulated in the contract. Before each installment, the supplier should be required to issue a particular unit for financial affairs equal to the amount of the collection. A blank note shall not replace the receipt.

9. Liability for breach of contract

Question: The “responsibility for a breach of contract” in some contracts is “performed by the Contract Law”, which is too general and inconvenient to implement; other contracts only stipulate unilateral liability for breach of contract, which is unfair.

Analysis: The supplier’s liability for breach of contract is mainly reflected in whether the quality, quantity, delivery time and after-sales service of the goods have fully fulfilled the contract; the demander’s liability for breach of contract is mainly reflected in whether the payment, delivery, and acceptance of the deal have been fully performed.

The standard of liquidated damages is clearly specified in the contract, which should adequately protect the interests of the interested party and reduce the probability of breach of contract. If the material supplier signs a supply contract when the price fluctuates frequently, and the agreement does not stipulate, or the contractual liability for breach of contract for delayed supply or non-supply is unclear, the supplier may stop supplying the price of the material rises.

10. Dispute Resolution

Problem: In some contracts, the settlement of disputes is only a “friendly negotiation between the two parties”. When a conflict occurs between the two parties, it is often difficult to negotiate due to disagreements over the settlement method and location.

Analysis:

①Clarify the time and place of signing the contract.

②The time limit for raising objections: for appearance acceptance, it can be agreed to raise objections within a few days after arrival; for equipment that needs to be installed and debugged, it shall be agreed that the complaint shall be built within a few days after the test operation is regular and the whole experience is qualified.

③There are four ways to resolve disputes: reconciliation, mediation, arbitration, and litigation. However, arbitration and litigation are based on the principle of arbitration or litigation. The contract should try to stipulate that the dispute resolution place is our local people’s court or arbitration committee to handle legal affairs and reduce the cost of rights protection.

11. The active and expiration period of the contract

Problem: A contract stipulates several conditions for the effective or invalidity of the agreement simultaneously, and the actual validity period of the contract cannot be determined.

Analysis: There are the following types of agreements when the contract becomes effective:

① The contract becomes effective after both parties sign and seal.

②The contract will come into effect from the date the advance payment is paid.

③The contract shall become effective from the date of signing.

④Contract validity period: ****year*month*day to ****year*month*day (this period must be higher than the warranty period in the project contract).

The contract invalidation has the following agreements:

① The contract will become invalid after the goods and payments are cleared, but the supplier’s warranty period responsibility is not exempted.

②Under exceptional circumstances, when the contract cannot continue to be performed, the agreement shall become invalid after the two parties negotiated and signed and sealed in writing.

③When one party refuses to perform or break the contract or actively negotiate to resolve the problem, causing significant losses to the other party, the interested party may notify the breaching party in writing to request termination of the contract.

At this time, the interested party may not continue to perform the contract and does not have to bear the responsibility during this period, but the breaching party cannot eliminate its liability for breach of contract.

④ After the expiration of the contract period (from ****year*month*day to ****year*month*day).

12.Other agreements

1. Agreement on quality certification materials: The material certificate (or product certificate) of the goods must accompany the goods. If the supplier cannot provide the original material certificate of the manufacturer, the copy should be stamped with the supplier’s official seal.

2. After-sales service commitment: The supplier shall be required to promise the response speed and the longest waiting time for handling the problem in the contract. Such as reply within two hours after receiving customer complaint, if on-site maintenance is required, staff will be arranged to solve the problem within *days.

3. The contract’s information should be true, accurate, and comprehensive, such as unit name, authorized agent, telephone number, account number, tax number, account bank, etc.

4. The abbreviation of both parties to the contract shall be unified. Such as supplier and demander, seller and buyer, Party A and Party B, only one group can be reflected in a deal.

5. The contract is in one copy, each of which holds * copies; the fax and copy of the agreement are all valid and have the same legal effect. When necessary, the supplier’s bidding materials and other written commitments may be included as contract attachments, which have the same legal effect.

6. The technical agreement (or supplementary agreement), as an attachment to the contract, has the same legal effect.

7. The contract should state that “the supplier shall ensure that the performance of the supplied materials, raw materials, etc, comply with the relevant national standards, norms, and regulations in terms of safety and environmental protection.” When purchasing, the buyer shall give priority to the safety and environmental protection Qualified suppliers (suppliers) advocate health, environmental protection, and safe production.

8. When the purchaser is stationed in the factory to supervise the manufacturing, or the supplier’s staff go to the purchaser’s construction site to perform operations, the contract should specify the safety responsibilities, expenses and due obligations of both parties.

13.Other considerations

1. Before signing the contract, the supplier’s qualifications must be reviewed: whether the supplier has the requirements of the goods supplied; whether the scope of supply is within the scope of its business license; whether the agent holds a power of attorney for legal persons;

Whether the provided review materials are within the validity period, whether the contract amount signed is lower than its registered capital, etc. If purchasing specialized equipment and other unique materials, the supplier must also provide the corresponding professional production qualification license.

2. The purchase contract must be signed before it can be officially approved. Bulk materials must be tendered, the market must be fully investigated, and the supplier with the best cost-effectiveness must be selected.

3. Material management personnel should understand the performance, specifications, and quality standards of materials, and be familiar with the “Contract Law.”

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