Main Contents of Processing and Assembly Contracts

Processing and assembling with supplied materials is a form of labor trade, with the contracting parties being the entrusting party and the承接方. It differs from general goods sales contracts in many ways, with its main contents as follows. 

A. Subject Matter of the Contract 

The subject matter of a sales contract is goods, whereas the subject matter of a processing and assembling contract is labor, i.e., the work and certain techniques or processes required to process and assemble raw materials and components into specified products. 
To clarify the nature of the subject matter — the labor provided — the specific content and requirements of the processing and assembling business should be detailed. 

B. Provisions Regarding Supplied Materials and Components 
Materials and components are the material basis for providing labor. The contract should specify their quality and quantity, and also the time and place for the entrusting party to deliver them. To define responsibilities, the contract should address handling methods for cases where the entrusting party fails to provide materials as per quality, quantity, or time. 

C. Provisions Regarding Delivery of Finished Products 
The entrusting party strictly stipulates the quality and specifications of finished products. The contract also clearly defines delivery quantity and deadlines. If the承接方 fails to deliver products as specified, it shall bear corresponding liability for damages. 

D. Provisions Regarding Material Consumption Rate and Defective Product Rate 

The material consumption rate refers to the amount of raw materials or components consumed per unit product. The defective product rate refers to the proportion of non-conforming products in the total output. These two indicators are directly related to product cost and limited by the processor's technical level and production conditions. Therefore, both parties should negotiate a reasonable standard. The processor shall bear responsibility for rates exceeding the stipulated standard. 

E. Provisions Regarding Processing Fees 

Processing and assembling business is essentially a labor trade, with processing fees representing the value of labor. The determination of processing fees should reference international labor prices. For China, the wage level in Southeast Asia is used as a calculation benchmark. Considering the quality of labor services and production efficiency provided by the processing enterprise, the processing fees charged should be both profitable and competitive. 

F. Transportation and Insurance 

During processing and assembling trade, ownership of materials and finished products does not transfer; it always remains with the entrusting party. Therefore, in principle, transportation and insurance responsibilities are borne by the entrusting party. In specific operations, transportation and insurance for exported finished products, as well as insurance for imported materials and warehousing, can be arranged by the承接方, with costs paid separately by the entrusting party or incorporated into the processing fees. 

G. Payment Methods 

There are two methods for the entrusting party to pay processing fees to the承接方: 

Materials and finished products are both not priced, and the entrusting party pays processing fees to the承接方 via letter of credit or remittance. 

Materials and finished products are priced separately, with the difference constituting the processing fee. For this, the承接方 should adhere to the principle of "receiving before paying." 

Specific methods may include: 

（1）D/A for materials, D/P at sight for finished products; 

（2）D/A for materials, sight L/C for finished products; 

（3）Reciprocal L/Cs, with a usance L/C for materials and a sight L/C for finished products. 

It must be noted that the time interval between usance and sight should consider the full processing period, ensuring payment for finished products is received first, then payment for materials is made.