Securing Primary Tooling Rights in Chinese Subcontracting Manufacturing Contracts
Securing primary tooling rights in China requires standalone title contracts, clear steel verification, non-lien waivers, and physical shop-floor audits.
Equipment Custody
Meaning
Legal and physical responsibility for machinery while it is located on the premises of another party defines the scope of care and liability. When a buyer provides specialized equipment to a supplier, equipment custody is transferred to the factory for the duration of the production cycle. This arrangement requires the factory to maintain the machines and protect them from damage or unauthorized use.
Clear terms in the manufacturing agreement establish who pays for repairs and who bears the risk of loss during a fire or other disaster.
Maintenance Standard
Proper handling of the machines involves following the manufacturer’s guidelines for servicing and calibration. Under equipment custody, the supplier must keep detailed logs of all maintenance activities and allow the owner to inspect these records at any time. Neglecting these duties can result in a claim for damages if the performance of the machinery declines.
Liability Allocation
Risk of theft or accidental damage is usually assigned to the party holding the physical asset. Insurance policies must be aligned with the equipment custody terms to ensure that the owner is compensated if the factory is unable to protect the machines. Most agreements specify that the supplier is responsible for any loss that occurs while the equipment is under their control.
Return Condition
Termination of the production relationship triggers the obligation to return the machinery in a state that accounts for normal wear. Before the equipment custody ends, both parties conduct a joint inspection to verify the condition and functionality of the assets. Any discrepancies found during this audit are resolved according to the penalty clauses in the original contract.
This final check ensures that the owner receives their property back in a condition that allows for its immediate use at a different facility. Documentation of this handover prevents future disputes regarding the state of the machinery at the time of transfer.