Manufacturing Contract Guide: What to Include When Working with Overseas Factories
A manufacturing contract is the single most important document in any overseas production relationship. It defines exactly what gets made, how much you pay, who owns the designs, and what happens when something goes wrong. Without one, you have no legal protection if a factory delivers the wrong product, misses a deadline, or copies your design for another customer.
A manufacturing contract (sometimes called a manufacturing agreement or production contract) is a legally binding document between a buyer and a manufacturer. It covers product specifications, pricing, payment terms, quality standards, intellectual property rights, delivery schedules, and dispute resolution. If you are working with a factory in Vietnam, China, or any other overseas market, this contract is not optional. It is the foundation of the entire relationship.
Buy Our International Manufacturing Contract Template
What Is a Manufacturing Contract?
A manufacturing contract formalizes the terms between you (the buyer) and the factory producing your product. It spells out what the factory agrees to deliver, what you agree to pay, and the legal framework that governs the relationship.
This applies whether you are doing OEM, ODM, or contract manufacturing. The scope of the contract will vary depending on the model you use, but the core purpose remains the same: to protect both parties by putting everything in writing before production begins.
What to Include in a Manufacturing Contract
Every manufacturing contract should cover the following areas. When working with overseas factories, some of these carry extra weight because you are dealing with different legal systems, languages, and business cultures.
Product Specifications
This is the most important section for avoiding disputes. Define exactly what the factory is producing: materials, dimensions, colors, finishes, tolerances, packaging, and labeling. Reference your product specification sheet, approved samples, and any technical drawings. The more detailed this section is, the less room there is for the factory to deliver something different from what you expected.
Pricing and Payment Terms
Spell out the unit price, what that price includes (tooling, packaging, labeling), the currency payments will be made in, and the payment schedule. Most international manufacturing arrangements use a deposit structure, typically 30% upfront and 70% before shipment, though this varies. Be specific about what triggers each payment milestone and what payment methods are acceptable (wire transfer, letter of credit, etc.).
Minimum Order Quantities and Production Timeline
Define the minimum order quantity (MOQ) for each production run and the expected production timeline from order confirmation to shipment. Include milestones for sample approval, bulk production start, and delivery. Specify what happens if the factory misses a deadline, whether that means a penalty, the right to cancel, or adjusted terms.
Delivery and Shipping Terms
Specify Incoterms (FOB, EXW, CIF, DDP, etc.) to clarify who is responsible for shipping costs, insurance, and risk at each stage of transit. Name the port or location for handoff. This section prevents the "I thought you were handling that" arguments that delay shipments and increase costs.
Quality Control and Inspection
Define the quality standards your products must meet, including any certifications (CE, FDA, ASTM, etc.) required for your target market. Specify who conducts inspections, at what stage (pre-production, during production, pre-shipment), and what the acceptable defect rate is. Most contracts set an Acceptable Quality Level (AQL), commonly at 2.5% for major defects. Include what happens when products fail inspection: rework at the factory's expense, replacement, or order cancellation.
Intellectual Property Protection
This is where many buyers working with overseas factories make their biggest mistake: either skipping this section entirely or including language that is not enforceable in the country where the factory operates. Your contract should specify that you own all intellectual property related to the product, including designs, tooling, molds, and proprietary processes. It should prohibit the manufacturer from producing your product for anyone else, using your designs for their own purposes, or sharing your information with third parties.
For factories in China or Vietnam, use an NNN agreement (Non-Disclosure, Non-Use, Non-Circumvention) rather than a standard NDA. NNN agreements are specifically designed for manufacturing relationships in these markets and cover scenarios that a generic NDA does not, such as preventing the factory from going around you to sell directly to your customers. Your contract should also include a confidentiality clause covering trade secrets, pricing, and any proprietary information shared during the manufacturing process, applicable both during and after the contract period.
Compliance and Regulatory Requirements
Specify that the manufacturer must comply with all applicable laws in both the country of production and your importing country. This includes labor laws, environmental regulations, product safety standards, and any industry-specific requirements. If your product requires specific testing or certification, assign responsibility for completing and paying for those tests.
Termination Clauses
Define the conditions under which either party can end the contract: breach of terms, failure to meet quality standards, missed deadlines, bankruptcy, or force majeure events. Specify the notice period required and what happens to outstanding orders, deposits, tooling, and raw materials upon termination.
Dispute Resolution and Governing Law
This is one of the most consequential sections in any international manufacturing contract. Specify the governing law (which country's legal system applies), the language of the legally binding version of the contract, and the method of dispute resolution (negotiation, mediation, arbitration, or litigation). For manufacturing in China, arbitration through the China International Economic and Trade Arbitration Commission (CIETAC) or the Hong Kong International Arbitration Centre (HKIAC) is common. For Vietnam, the Vietnam International Arbitration Centre (VIAC) handles international commercial disputes.
How to Draft a Manufacturing Contract for Overseas Production
Drafting a manufacturing contract for an overseas factory is different from a domestic agreement. Here is how to approach it practically.
Start with Your Spec Sheet
Before you touch the contract itself, get your product specification sheet finalized. This document becomes the technical backbone of your contract. Vague specs lead to vague contracts, which lead to disputes. If you have approved samples, reference them explicitly.
Get the Contract in the Right Language
If you are working with a factory in China, your contract needs to be written in Chinese (Mandarin) for it to be enforceable in Chinese courts. An English-only contract may give you a sense of security, but it will not hold up legally. The same principle applies in Vietnam and other markets: always have the contract translated into the local language, and specify in the contract which language version takes legal precedence in case of conflict.
Use a Bilingual Format
The practical solution is a bilingual contract with both languages side by side. This ensures both parties can read and understand the terms while establishing which version is legally binding.
Consult a Local Legal Expert
Contract law varies significantly between countries. Clauses that are standard and enforceable in one jurisdiction may be meaningless in another. Consult a lawyer who specializes in commercial law in the country where your factory is located. This is not the place to cut costs. A few hundred dollars in legal review can save you tens of thousands in disputes.
Negotiate Before You Sign
A manufacturing contract is not a take-it-or-leave-it document. Negotiation is expected, particularly in Asia. Factories may push back on certain liability clauses, IP protections, or penalty terms. This is normal. The goal is to reach terms that both sides consider fair and realistic. For more on this process, see our guide to negotiating with suppliers.
Negotiating Manufacturing Contracts with Asian Factories
Working with factories in Vietnam, China, and broader Southeast Asia comes with specific considerations that generic contract advice does not cover.
Contracts Are the Start, Not the End
In many Asian business cultures, signing a contract is seen as the beginning of a working relationship, not the final word. Factories may expect terms to be revisited as the relationship develops. This doesn't mean contracts are meaningless, but building a strong working relationship makes the contract more effective too.
Cultural Communication Matters
Chinese and Vietnamese business culture values harmony and long-term relationships. During negotiations, factory representatives may agree to terms they find unclear rather than risk an uncomfortable confrontation. This is why clarity in the contract itself is so important. Do not rely on verbal agreements or assume that nodding means agreement. Everything that matters should be in writing.
Governing Law Is a Strategic Decision
Choosing governing law is not just a legal formality. If you choose your home country's law, you may get terms you are more comfortable with, but enforcement in the factory's country becomes much harder. If you choose the factory's local law, enforcement is more practical, but you need legal counsel who understands that system. Many experienced buyers opt for arbitration in a neutral jurisdiction like Hong Kong or Singapore as a compromise.
Protect Your IP Early
Register your trademarks and designs in the country where production happens, not just in the country where you sell. In China, IP protection follows a "first to file" system, meaning whoever registers a trademark first owns it, regardless of who actually created the design. File before you share detailed specs with any factory.
Common Mistakes That Cost Buyers Money
These are the mistakes I see most often.
Relying on a Handshake
Some buyers, especially those who have built a personal relationship with a factory owner, skip the formal contract. This works until it doesn't. Relationships change, factory ownership changes, and what was "understood" gets forgotten. Always have a signed contract in place, even with factories you trust.
Using a Generic Template Without Customizing It
Downloading a free contract template and filling in the blanks is better than nothing, but barely. Generic templates rarely account for international manufacturing specifics: Incoterms, IP protection across jurisdictions, local enforcement mechanisms, or currency and payment logistics. Customize any template to reflect the actual terms of your manufacturing arrangement and have it reviewed by someone who understands the legal landscape where your factory operates.
Ignoring the Termination Clause
Buyers spend time on product specs and pricing but rush through termination terms. Then when a factory consistently underperforms or a better option becomes available, they discover they are locked into an agreement with no clear exit. Make sure your contract includes specific, enforceable conditions for termination and addresses what happens to your tooling, molds, and deposits.
Skipping the Quality Control Section
Without defined quality standards and inspection protocols in the contract, you have no contractual basis for rejecting substandard goods. The factory can argue they delivered what was ordered if the contract does not specify otherwise. Define your standards clearly, tie them to measurable criteria, and include consequences for non-conformity.
Not Having the Contract in the Local Language
As mentioned above, an English-only contract with a Chinese factory is essentially unenforceable in China. The same risk exists in other markets. If the contract is not in the language recognized by local courts, you are relying on goodwill rather than legal protection.
Draft Stronger Manufacturing Contracts with the Cosmo Sourcing Kit
The Sourcing Kit includes international manufacturing contract templates built from over a decade of real factory negotiations across Vietnam, China, and Southeast Asia. You also get negotiation scripts, procurement courses, and step-by-step guides covering every stage from finding a factory to shipping your first order.
Unlike generic legal templates, these contracts are designed for the way overseas manufacturing actually works: bilingual formatting, NNN clauses, Incoterms, payment milestone structures, and quality control provisions that hold up when things go sideways. Everything in the kit reflects what we have learned from helping thousands of clients source more than 10,000 products.
Have questions or need hands-on sourcing support? Reach out at info@cosmosourcing.com or visit cosmosourcing.com/contact-us.