Key Considerations for Overseas Supplier Agreements

In the dynamic world of international business, supplier agreements are indispensable tools that define the terms and conditions under which business transactions are conducted. These legally binding documents are particularly crucial when dealing with overseas suppliers, as they provide a framework for managing risks, resolving disputes, and ensuring a smooth supply chain operation.

When drafting a supplier agreement, it's crucial to address several key areas, with special emphasis on the supply chain sections. This article will provide a comprehensive guide on what to consider when writing a supplier agreement with an overseas supplier.

1. Detailed Product/Service Description: A supplier agreement should clearly outline the goods or services being supplied. This includes the quality, quantity, specifications, and any other relevant details. It's essential to be as detailed as possible to avoid any misunderstandings or disputes in the future. 

2. Intellectual Property Rights: If the goods being manufactured involve any intellectual property, the contract should specify who owns these rights and how they are to be protected. It is recommended to outline who owns the product, the design of the products and any related documentation (patents, drawings ect.), molds, and samples.  List the procedure regarding the sharing of documentations to third parties as it relates to the products and any related information. Detail what the supplier is to do with the documentations, materials, samples, molds upon termination of the agreement, including instructions for sending back documents ect., how to destroy and / or  provide proof of destruction. List potential consequences if any of these points are not respected during the longevity of the agreement and how long after termination does this limitation apply. 

3. Pricing and Payment Terms: The agreement should clearly define the price of the goods or services, the currency to be used (especially important for international transactions), payment terms, and any penalties for late payments. It should also specify the incoterms to be utilized whether the price includes delivery and customs charges, or whether these are to be paid separately. The price section should highlight how often prices should be negotiated, any exceptions to the schedule. Include any discounts that should apply (for example, should a specific purchasing volume be reached). Suppliers should also confirm any potential surcharges that occur should minimum order quantities not be met.

4. Delivery and Supply Chain Terms: This is one of the most critical sections in a supplier agreement, particularly for overseas suppliers. It should detail the delivery terms, including the delivery schedule, mode of transportation, packaging, and shipping terms (Incoterms).
The agreement should also address the supplier's responsibilities in managing the supply chain, such as maintaining adequate stock levels, ensuring timely production and delivery, and managing any third-party logistics providers. The agreement should specify consequences for delays (such as a % of the order value to be credited back) for each incremental delays.

5. Risk and Ownership Transfer: The agreement should specify at what point the risk and ownership of the goods transfer from the supplier to the buyer. This is typically tied to the delivery terms and is particularly important in international transactions where the risk of loss or damage is higher.

6. Quality Control and Inspection: The agreement should outline the quality control measures to be implemented by the supplier and the buyer's rights to inspect the goods either before shipment or upon arrival. This is crucial in ensuring that the goods meet the agreed specifications and quality standards. Highlight consequences for failed inspections or failed test results. If a preferred vendor is utilized for inspections or test this can be mentioned in the agreement (not necessarily which company to use but that the client reserves the right to nominate who will carry out inspections or tests when necessary) 

7. Changes/Modifications : The contract should outline a process for making changes or modifications to the order, product specifications, or other terms of the agreement.

8. Dispute Resolution: Given the complexities of international trade, it's essential to have a clear dispute resolution mechanism in place. The agreement should specify the law governing the contract, the jurisdiction for resolving disputes, and the preferred method of dispute resolution (e.g., arbitration or litigation).

9. Liability and Indemnity: The agreement should outline who is liable in case of any damages or losses during the production or delivery process.

10. Force Majeure Clause: A force majeure clause is essential in protecting both parties from unforeseeable circumstances that could hinder the fulfillment of the contract, such as natural disasters, war, or severe economic downturns. ‍

11. Confidentiality Clause: Given the sensitive nature of business relationships, a confidentiality clause is crucial to protect proprietary information shared between the parties.‍

12. Termination Clause: The contract should include terms for termination, including any notice periods and penalties for early termination.‍

13. Ethical Standards: The contract could include a clause requiring the supplier to adhere to certain ethical standards, such as fair labor practices, environmental sustainability and what valid certificates should the supplier be able to provide.

In conclusion, a well-drafted supplier agreement is a crucial tool in managing overseas suppliers and ensuring a smooth supply chain operation. It's advisable to engage a legal expert with experience in international trade to assist in drafting and reviewing the agreement to ensure it adequately protects your interests and complies with all relevant laws and regulations.