Login



For PLUS+ subscription assistance, contact customer service.

Not a PLUS+ Subscriber?

Become a PLUS+ Subscriber today and you'll get access to all Supply Chain Management Review premium content including:

  • Full Web Access
  • 7 Magazine Issues per Year
  • Companion Digital Editions
  • Digital Edition Archives
  • Bonus Email Newsletters

Subscribe Today!

Premium access to exclusive online content, companion digital editions, magazine issues and email newsletters.

Subscribe Now.


Become a PLUS+ subscriber and you'll get access to all Supply Chain Management Review premium content including:

  • Full Web Access. All feature articles, bonus reports and industry research through scmr.com.

  • 7 Magazine Issues per year of Supply Chain Management Review magazine.

  • Companion Digital Editions. Searchable replicas of each magazine issue. Read them in any web browser. Delivered by email faster than printed issues.

  • Digital Editions Archives. Every article, every chart and every table as it appeared in the magazine for all archive issues back to 2009.

  • Bonus email newsletters. Add convenient weekly and monthly email newsletters to your subscription to keep your finger on the pulse of the industry.

PLUS+ subscriptions start as low as $109/year*. Begin yours now.
That's less than $0.36 per day for access to information that you can use year-round to better manage your entire global supply chain.

For assistance with your PLUS+ subscription, contact customer service.

* Prices higher for subscriptions outside the USA.

PLUS+ Customer Service Support


Customer service for all PLUS+ subscribers is available Mon-Fri, 9am-5pm Eastern time.

Email: [email protected]
Phone: 1-800-598-6067 (1-508-663-1500 x294 outside USA)
Mail: PO Box 1496, Framingham MA 01701-1496, USA



You have been logged out of PLUS+


For PLUS+ subscription assistance, contact customer service.

Need to access our premium PLUS+ Content?
Upgrade your subscription now.


Our records show that you are currently receiving a free subscription to Supply Chain Management Review magazine, or your subscription has expired. To access our premium content, you need to upgrade your subscription to our PLUS+ status.

To upgrade your subscription account, please contact customer service at:

Email: [email protected] Phone: 1-800-598-6067 (1-508-663-1500 x294 outside USA)

Become a PLUS+ subscriber and you'll get access to all Supply Chain Management Review premium content including:

  • Full Web Access. All feature articles, bonus reports and industry research through scmr.com.

  • 7 Magazine Issues per year of Supply Chain Management Review magazine.

  • Companion Digital Editions. Searchable replicas of each magazine issue. Read them in any web browser. Delivered by email faster than printed issues.

  • Digital Editions Archives. Every article, every chart and every table as it appeared in the magazine for all archive issues back to 2010.

  • Bonus email newsletters. Add convenient weekly and monthly email newsletters to your subscription to keep your finger on the pulse of the industry.

PLUS+ subscriptions start as low as $129/year*. Start yours now.
That's less than $0.36 per day for access to information that you can use year-round to better manage your entire global supply chain.

This content is available for PLUS+ subscribers.


Already a PLUS+ subscriber?


To begin or upgrade your subscription, Become a PLUS+ subscriber now.

For assistance with your PLUS+ subscription, contact customer service.

Sorry, but your login to PLUS+ has failed.


Please recheck your login information and resubmit below.



For PLUS+ subscription assistance, contact customer service.

China Supply Chain Contracts: The Contract (Liquidated) Damages Provision

A well crafted and reasonable liquidated damages provision is one of the best leverage tools out there for preventing your Chinese counterparty and supplier from breaching their agreements. That's the primary reason for having a written contract in the first place.

<p>Careful contracting, including liquidated damages, are key to success in China, argue Chris Carr (L) and Dan Harris (R).</p>

Careful contracting, including liquidated damages, are key to success in China, argue Chris Carr (L) and Dan Harris (R).

By ·
<p>Careful contracting, including liquidated damages, are key to success in China, argue Chris Carr (L) and Dan Harris (R).</p>

Careful contracting, including liquidated damages, are key to success in China, argue Chris Carr (L) and Dan Harris (R).

Latest News

U.S. Port Update Part 1: Infrastructure Shortfalls Driving Innovation
Procurement is getting its digitized act together
DSV confirms its offer to acquire Panalpina for roughly $4 billion
CMA CGM heralds service additions to the Ocean Alliance
New JLL report explores concept of industrial ‘Human Centric Design’
More News

Latest Resource

2019 Top 5 Trends of Enterprise Labeling
This year’s sixth annual Top 5 Trends in Enterprise Labeling report outlines significant shifts in labeling that are impacting businesses and global supply chains at an unprecedented level.
All Resources
By ·

One of the hallmarks of a good China supply chain contract is that it provides for very specific penalties if the Chinese side fails to abide by its crucial terms. These penalties will typically be in the form of a liquidated damages provision (also sometimes called “contract damages”). Liquidated damages are damages whose amount the parties specify in advance and during the formation of a contract that the injured party can automatically collect as compensation for a breach of the contract by the other side.

Chinese courts tend to view contractual liquidated damages provisions very favorably and so long as they are “harmonious” and not unreasonable, they will be enforced. If the number is too low from actual damages the injured party/plaintiff can ask for more. If the number is too high from actual damages, the defendant can ask for a reduction. In either case the validity of the contract is not affected. In our OEM agreements we have found these clauses to be a very effective tool in particular to “encourage” the Chinese supplier to comply with shipping dates and quality specifications.

Most importantly, if the Chinese counterparty breaches the contract, a liquidated damages provision provides a specific damage amount to discuss when you contact the breaching party. Chinese courts can seize Chinese company assets based on a liquidated damages provision and they can seize these assets before trial (prejudgment attachment of assets). Chinese companies know and fear this, so this can be a great leverage tool. Stated differently, a well crafted and reasonable liquidated damages provision is one of the best leverage tools out there for preventing your Chinese counterparty and supplier from breaching the agreement, and that is the primary reason for having a written contract in the first place.

The Liquidated Damage Clause: How Much Do I Ask For?

Here, an analogy we sometimes use is the American children’s story “Goldilocks and the Three Bears” – not too much, not too little, but just right.

A well-crafted liquidated (contract) damages provision in China is the “just-right” amount of damages should there be a breach. We are sometimes asked what the “just-right” amount? This generally depends on two things: (1) the specific facts of your situation, deal and industry; and (2) what the Chinese side will/will not agree to. 

To help you better understand, here is an email excerpt regarding a contract damages provision in an NNN Agreement we once drafted for a client. We had recommended one figure for the contract damages, but against our advice, the client had insisted on a much higher figure. The Chinese supplier rejected the higher figure and out of a desire to get going quickly, the client suggested that we just dispense entirely with the provision. The below email is our response to that idea:

With regard to our proposed language about minimum damages, we can understand why this supplier is balking at your $350,000 figure. As we discussed when drafting the initial NNN Agreement, that is a relatively high amount, and considerably more than the $100,000 to $150,000 figure we discussed be used. This amount is more art than science. It is not supposed to be a penalty, but rather a realistic assessment of the damages that you would incur if the Chinese side were to breach this NNN Agreement, say by selling a container full of your products directly to a third party. We strongly advise against deleting this language entirely, though, as specified contract damages are what helps to give this agreement real teeth, not least because they allow the Chinese court to impose a pre-judgment seizure of assets. That is a big advantage and leverage for you, and not one that you should give up willingly.

In summary, it’s a balancing act. It the amount is set too high, a Chinese court may throw it out.  If it’s too low, your Chinese manufacturer may not fear the clause enough and then violate the agreement.  Pick an amount that is reasonable, balanced and fair to both sides.


About the Author

Bob Trebilcock
Bob Trebilcock, editorial director, has covered materials handling, technology, logistics and supply chain topics for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.

Subscribe to Supply Chain Management Review Magazine!

Subscribe today. Don't Miss Out!
Get in-depth coverage from industry experts with proven techniques for cutting supply chain costs and case studies in supply chain best practices.
Start Your Subscription Today!

Latest Whitepaper
2019 Top 5 Trends of Enterprise Labeling
This year’s sixth annual Top 5 Trends in Enterprise Labeling report outlines significant shifts in labeling that are impacting businesses and global supply chains at an unprecedented level.
Download Today!
From the January-February 2019
If history is our guide, economies take a turn every nine years. Yet time and again, a strong business cycle and fading memories convince us the good times will go on forever. Ten years after the great recession, we surveyed 100 manufacturing firms to find out if businesses are ready to fight through the next recession.
Truck Driver Shortage: No one behind the wheel
Intermodal to the rescue
View More From this Issue
Subscribe to Our Email Newsletter
Sign up today to receive our FREE, weekly email newsletter!


Latest Webcast
Leveraging the Internet of Things (IoT) in Manufacturing
Is Digital Transformation a risk or an opportunity? This webinar will detail Manufacturing industry challenges and how using IoT can address these challenges through optimizing logistics, improving processes and gaining meaningful insights.
Register Today!
EDITORS' PICKS
Supply Chain Management Issues Confronting Us This Year
A variety of fresh challenges will surface for global traders in January and beyond
Global Supply Chain Pricing May Face New Pressures in 2019
The global economy started 2018 with strong, synchronized growth, but the momentum faded as the year...

IHS Markit’s New Economic “Predictions” for 2019 and Impact on Global Supply Chains
The U.S. will remain “above trend,” while other key economies will experience further...
Global Kuehne + Nagel Indicators Signal Global Supply Chain Resilience
So far this year, international merchandise trade has risen by 10.6%. Emerging markets and North...