"PRODUCT" as a Clause in Sales Contracts

Product

Writing the product and its related details are crucial in sales contracts. Many aspects of the product should be defined precisely and accurately to avoid nonconformity and future problems. If the description or specifications are not written correctly, parties may encounter misunderstandings and conflicts. This article is a short part "International Sales Contract" book which is accessible for free on my LinkedIn profile. The above picture is a model clause suggested for sales contracts, though It shall not be deemed as

The following details should be noted in writing this article:

?

Description?

A product description should be written accurately enough to sufficiently describe the products that we are contracting for. This description itself needs to contain a minimum level of specificity and detail for it to be useful.

?

Quantity – units of supply

Quantity details specified in the contract include how we define our units of supply, whether we accept partial shipments, and how partial shipments might affect any scheduling and/or payment details.

Quantity is usually defined as units of supply based on whatever is common in the industry. For many products, the unit is counted based on pieces or numbers. For some others, it might be litre, kilogram, cubic metre or foot, etc.

?

Quality

Depending on the nature of the goods and the parties’ expectations, one or more of the following criteria might be used to determine what makes a product’s quality contractually acceptable:

?

Defining a Quality Standard:

Standard is a contractual term used to define an acceptable quality metric for a product. When we define a minimum specific quality standard in a contract, we can clarify what the seller is expected to deliver in conformity with that standard.

?

Defining a Quality Inspection Procedure:

After defining whatever quality standard we intend to use, we need to define an appropriate inspection procedure for determining whether that standard has been met.

?

Certificates of Analysis and Related Documentation

For some highly scrutinized products, like consumables or chemical products, we will likely need to include some additional quality documentation. This is usually up to the seller to provide by issuing something like a Certificate of Analysis for their products.

The Certificate of Analysis includes different information such as ingredients and/or formulation of components of a given product. Some additional documents like "Mill Test Certificate" (MTC), "Technical Data Sheet" (TDS), and "Analysis Certificate" (AM) might be used in different industries such as the chemical, metal, or grain industry.?

?

Size as a matter of quality control

Specifying and evaluating product dimensions for size (length, width, and height) can be a crucial aspect of quality control in a contract and needs to be specified here. Product dimensions can affect price, end use, logistics, and customs classifications.

Weight

Net weight, gross weight, and the method that weight is measured needs to be specified in the contract. Weight can be used as a metric to calculate quantity and also used as a qualitative measure.

In some contracts, a price may be quoted based on weight. For example, most metals are priced for each Kilogram, pound, or metric ton.[1]?

?

Defining Packaging

Product packaging can affect many different aspects of a sales contract including preventing physical damage to the product during transport, logistical considerations, marketing, and how customs categorizes the product.

Packaging Layers

When a product is sold to an international customer, it may have a few layers of packaging. For example, toothpaste is packed in a tube, then each tube is put in a paper box, then 12 paper boxes are packed in a small carton, then 24 cartons are placed in a bigger carton, then 32 big carton boxes on a wooden pallet, then the pallet is wrapped by a plastic cover, and then finally, it is all sealed by three plastic belts on the plastic sheet.

Packaging Types

Different packaging types are available. In the example above, layers of packaging for toothpaste could include tubes, boxes, and pallets. The packing material and its technical specifications, such as size, density, and moisture, should be defined.

?Packaging Labels

Marks, labels, and signs on the packaging related to stocking, protecting, handling, or using the product should be indicated on the different layers of a product. If a product may be categorized as a “hazardous material” under the International Maritime Dangerous Goods code then a standard label should be included on the product in all angles of the packages. Using ambiguous and qualitative expressions such as "Export," "Suitable," "Seaworthy," "Reinforced" for packing is a common mistake in defining packaging requirements within a contract.

?

Country of Origin

Country of Origin is a metric that essentially indicates where the product was made and is classified based on a series of different calculations.

In a world with global supply chains and free trade agreements, this metric basically tells customs agencies where the goods are coming from. It involves a series of calculations and rules based on how much of a final product was made in a specified country. A product from China imported into the US, for example, is treated differently by customs than a product from Canada partly because Canada is a party to the USCMA trade deal and therefore usually has more desirable trade treatment by the US. Country of origin is essential in determining tariff treatment, customs valuation, and other customs compliance issues.

Country of origin can also be important for marketing purposes as the end user may perceive imported products from one country to be more desirable than another. For example, our customers may be looking to purchase crystal dishes that were made specifically in the Czech Republic.

?

HS Code

HS codes are used by different customs agencies to classify products using a standardized international system. Each product has a code based on the Harmonized System of Coding and classification that ranges from 6 to 12 digits. This code affects customs clearance and import license issuance. This code should conform to the description of goods and is usually determined by specialized experts like licensed customs brokers.

?

Product Code

In some industries like auto parts, each product has a unique product code. Where applicable to our industry and products, it usually a good idea to specify this product code in our contract. This code will be a combination of letters and numbers.

?

Year of Production/Crop Year

Specifying the year of production or crop year is essential in some industries, like grains or automobiles, because this can change the perceived quality of the product. Depending on the product, we might prefer that it be manufactured in a specific year.

?

The Performance or Guaranteed Figures

Performance and guaranteed figures is a contractual way for a buyer to be assured that a product will perform to a certain standard. If a product's real performance does not conform with this standard, then the seller can be deemed liable for damages.

?

Technical Supports?

Generally, this article refers to after-sales service, including the designing, installing, erecting, testing, commissioning, exploitation, training, spare parts provision, and proper management of a product.

These technical support details are often attached to contracts and may be priced separately in addition to the main product. In most contracts, the buyer withholds some amount of money as performance or good performance retention. In some other situations, the seller may insist on receiving payment for these technical support services in advance. In that case, the buyer may protect themselves by requesting a performance bank guarantee, good performance bank guarantee, or even standby letters of credit.

?

Brand

If the goods are expected to be produced under a specific brand name or trademark, that should be specified in the contract.

?

[1] Never forget to write "Metric Ton" in case you are using ton as a unit of weight, because there are three types of Tons. A Metric Ton=1000 Kg, compared to a Short Ton= 907.19Kg (North American system), compared to a Long Ton= 1016.05Kg (British system).

Disclaimer: Nothing in this production is meant to be specific legal or financial advice applicable to the reader’s individual needs. For that, please reach out to your lawyers.

Mohtaram & Howard, International Sales Contracts, 2022. https://www.dhirubhai.net/feed/update/urn:li:activity:6900135302329884673/