Working with Chinese suppliers? Learn why a detailed supplier agreement matters, common drafting mistakes, how to address indemnification and insurance gaps, and the key clauses to include.

If your purchase orders already have terms and conditions, do you really need a separate supplier agreement?

Yes—especially for long-term supply relationships. Purchase order terms are often too limited, leaving gaps on critical issues like intellectual property (IP) ownership, indemnification, and insurance coverage.

Without a comprehensive agreement:

• It’s unclear whose terms apply if there’s a conflict
• IP rights may not be clearly addressed
• Enforcement becomes harder if disputes arise
• A supplier agreement provides a blueprint for cooperation and reduces reliance on the court’s interpretation of minimal PO terms.

Common Mistakes Companies Make

• Unenforceable dispute resolution clauses: Choosing a forum that won’t enforce judgments in the supplier’s country leaves you with an empty victory.
• Weak IP protection: Go beyond trademarks and patents—cover designs, methodologies, feedback, improvements, modifications, and product iterations.
• Overreliance on NDAs: NDAs protect against disclosure, but not necessarily against use of your information. Non-use clauses are critical.

Building Flexibility Without Losing Protection

Avoid “over-lawyering” with unrealistic worst-case scenarios, but still make the agreement detailed enough to protect your interests. A thorough, well-considered contract signals seriousness to your counterparty. If they don’t review it carefully, consider that a red flag.

The Indemnification Gap

Indemnification means your supplier defends you if a third party sues—different from a warranty.

Example: If a product defect causes injury and you’re sued, indemnification covers your defense costs and damages. In China, indemnification can be unfamiliar and is often resisted.

To bridge the gap:

• Negotiate liquidated damages clauses as a risk-management tool
• Clarify obligations in plain, mutual terms
• Insurance Challenges

Chinese exporters may not have—or be able to obtain—adequate product liability insurance. Options include:

• Negotiating for them to increase their existing coverage
• Purchasing your own policy (though it can be costly and complex)

Key Clauses Every Supplier Agreement Should Include

• Dual language contract, with the primary language being the one in the jurisdiction of enforcement
• Licenses for designs, technology, and trademarks
• Order process and payment terms
• Delivery terms and right to reject goods
• Warranty provisions
• Clear IP ownership terms
• Compliance with Chinese technology import laws for any tech brought into China

Final Thoughts

China’s legal environment has improved, and many exporters now have in-house legal teams. They take disputes seriously and negotiate hard—often in their own favor.

Bottom line:

• Never assume a contract will be interpreted in your favor
• Address IP, indemnification, insurance, and enforcement upfront
• Use supplier agreements as a proactive risk-management tool, not just an afterthought

In a dispute with your Chinese supplier or business partner? Contact us at inquiries@chinalawsolutions.com