Consulting on drafting commercial processing contracts

Nowadays, the need for businesses to order products is constantly increasing because the requirements for machinery, equipment, and human resources to produce certain types of products are not easy to meet. To avoid legal risks when drafting commercial processing contracts, relying on a legal expert such as a lawyer is essential for business parties to succeed in the process of signing, implementing, and liquidating such a contract. In the following article, Viet An Law will provide some consulting on drafting commercial processing contracts in Vietnam for your reference.

Legal basis

• Civil Code 2015;
• Law on Commercial 2005.

What is a commercial processing contract?

According to the provisions of the Vietnam Civil Code, a processing contract is an agreement between the parties, whereby the processing party performs work to create products according to the request of the ordering party, and the ordering party receives products and pays wages.

In the field of commerce, a processing contract is a legal form to carry out a type of commercial activity within the scope of the Commercial Law. Specifically, “commercial processing” is a commercial activity in which the processing party will use part or all of the raw materials and materials provided by the processing party to perform one or more stages in the process. production process at the request of the ordering party to receive remuneration. Accordingly, this concept concretizes the rights and obligations of the processing party in the process of generating profits from goods processing services.

The parties participating in processing activities will sign a commercial processing contract as two separate entities, not dependent on each other, suitable for businesses that need to produce products but have not yet been established.

Characteristics of commercial processing contracts in Vietnam

Commercial processing contracts are governed by the Commercial Law 2005 and have the following characteristics:

Form of commercial processing contract

Commercial processing contracts must be made in writing or other forms with equivalent legal validity, meaning this contract cannot be concluded orally.

Content of commercial processing contract

Information of the parties entering into the contract: The ordering party and the receiving party.

Contract object:

• According to the provisions of the Civil Code, the object of a processing contract is an object predetermined according to a model, according to standards agreed upon by the parties, or prescribed by law. The Commercial Law has concretized the concept of “object” into “goods” with the stipulation: “All types of goods can be processed, except for goods banned from business.”
• However, in the case of processing goods for foreign traders for consumption abroad, the goods banned from trading, exporting, or importing in Vietnam can still be processed if approved by the authorized state agency.
• The terms of processed goods in the contract need to clearly state:
  • Name of processed product, quality, and quantity of product.
  • Raw materials and materials delivered by the ordering party to the processing party and auxiliary materials provided by the processing party (name of each type, quantity, quality, delivery location and time, unit price, advance payment) to buy auxiliary materials (for auxiliary materials provided by the processing party)); quantity of machinery and equipment for rent.

Rights and obligations of the ordering party:

• Deliver raw materials or pay money to buy raw materials by the agreed quantity and quality;
• Instruct the processing party to perform the contract, supervise the contract performance of the contract performance party, and check the quality of the processing party’s product.
• Responsible for the legality of intellectual property rights of processed goods, raw materials, materials, machinery, and equipment used for processing transferred to the processing party.
• Pay remuneration according to the agreed level to the processing party.
• Receive back all processed products, rented machinery and equipment (if any), raw materials, accessories, excess supplies, and scrap after liquidating the contract, unless otherwise agreed.
• Sell, destroy, and donate processed products, rented or loaned machinery and equipment, raw materials, sub-materials, surplus supplies, waste produced ts, and sand crap as agreements under the law.
• Unilaterally terminate the performance of the contract and request compensation for damages when the processing party seriously violates the contract.
• In case the product does not ensure quality and the ordering party agrees to receive the product and request repairs but the processing party cannot repair it within the agreed time limit, the ordering party has the right to cancel the contract. and claim damages.

Rights and obligations of the processing party:

Time and location of production and product delivery:

If divided into several batches (specific time, quantity of products delivered for each batch); Penalties for late product delivery or delivery to the wrong location, or products that do not meet the agreed quality.

Processing remuneration:

• The ordering party must pay the full fee at the time of receiving the product unless otherwise agreed.
• In case there is no agreement on the wage rate, the average wage rate for creating products of the same type at the processing location and at the time of payment will apply.
• The ordering party does not have the right to reduce wages if the product does not ensure quality due to the materials it has provided or due to its unreasonable instructions.
• Form of payment: The processing party can receive processing remuneration in money or processed products, machinery, and equipment used for processing.
• In the case of processing goods for foreign organizations or individuals, if the processing party receives processing remuneration in the form of processed products, machinery, and equipment used for processing, it must comply with import regulations for those products, machinery, and equipment.

Other terms of agreement:

• Contract term;
• Unilateral termination of the contract;
• Liability due to breach of contract;
• Procedures for resolving disputes;
• Other agreements are not contrary to the provisions of law.

Note:

• If the processing contract includes technology transfer by a foreign organization or individual, it shall be carried out according to the agreement in the processing contract by Vietnamese law on technology transfer.
• Regarding technology transfer in a processing contract, the outsourcing party can request the processing party to keep the technology secret for it. If the processing party violates this confidentiality clause, it will have to compensate the processing party.
• Regulations on liquidation of raw materials: When the processing contract terminates, the processing party must return the remaining raw materials to the ordering party, unless otherwise agreed.

Above is the content of Viet An Law consulting on drafting commercial processing contracts to answer your questions. Viet An Law specializes in providing review, consulting, and drafting services for all types of contracts, including commercial processing contracts. To use our services, please contact us for the best support.