Slide thuyết trình TACN2 Topic: CORRECTIVE ACTION

Five options for Curing defectsOption 1: Repair • If goods are locally delivered -> the cheapest option • For complex items: repair is the obvious choice although it could be costly • A

CORRECTIVE ACTION

CORRECTIVE ACTION

Group members

1. Duong Thu Hang

2. Dinh Hoang Duc

3. Vu Thu Le

4. Ta Quoc Viet

5. Le Van Linh

CORRECTIVE ACTION

1. Five options for Curing defects

2. Liquidated Damages: A different kind of Cure

3. Costs, Defects and the Results of Defects

4. Practice

What would the exporter do if being informed about the defects in the

delivered goods?

1 Five options for Curing defects

Option 1: Repair

• If goods are locally delivered -> the cheapest option

• For complex items: repair is the obvious choice although it could be costly

• A mechanic must travel to the Buyer’s country to fix the defective items at the expenses of the Exporter

1 Five options for Curing defects

Option 2: Allow the Buyer to repair at Exporter’s cost

• To save the cost of sending a mechanic to the Buyer’s country, some contracts allow the Buyer to repair equipment at Exporter’s cost

• Disadvantage:

– An expensive repair bill

– Exporter is not sure whether the defects have been completely repaired or not, especially when the goods are under warranty

1 Five options for Curing defects

Option 3: Replace (part or whole item)

• Advantage: Keeping the goodwill of customer

• Disadvantage: Costly for the Exporter.

– With the heavy equipment, it is usually that only the defective part is replaced

– Problem:

• 2 sets of customs

• A competent technician must be at hand when installing the replacement part ->The costs are much higher for the Exporter than local trader

1 Five options for Curing defects

Option 4: Reduce the price

“Will you accept the goods (ignoring the defects) if I reduce the price by…?”

• If goods are paid for on delivery by an LC, reduction must take the form of a direct payment

• If payment is on open account and the invoice has not been settled, the payment due is simply reduced

• Retainer: a part of the payment due for the goods (normally 5%) kept back by the Buyer till the end of the defects liability period

1 Five options for Curing defects

Option 5: Return the Goods and Refund the Price

• This is the least desirable option for the Exporter: Defective goods are often not worth the cost of return shipment to the Exporter’s country

-> The deal is totally lost for the Exporter

• If the Buyer insists on including this in the contract, the Exporter must self-protective by allowing this option only in exceptional cases and with his express agreement

Because the Exporter bears the responsibility for corrective action about the defective goods, and to cure them in the most economical way, the Exporter must negotiate hard for

absolute discretion over the choice of remedy: EXPORTER’S CHOICE

2 Liquidated Damages: A different kind of Cure

• From the Buyer’s point of view: It ensures either that the system works as specified or that the contract price is reduced reasonably

• From the Exporter’s point of view: If any failure to meet the specification occurs, their loss

is kept within reasonable limits

For example:

“ If the System falls to meet specifications on the final acceptance test, then the Seller shall use his best efforts to improve the performance of the System so that it complies with the specifications in all respects The Seller shall notify the Buyer within 30 days that the System is ready for a repeat of the final acceptance test If the output of the System is within 20% of specification, then for each 2,400 liters (1%) that the System falls below specified output, the Seller shall pay the Buyer as Liquidated Damages the sum of $20,000”

The performance figures that are typically subject to a liquidated damages clause:

• Output: generator, pumping system

• Consumption: fuel consumption of an engine, raw materials consumption of an

industrial process

• Efficiency: reduction of levels of pollution, emission of waste gas…

3 Costs, Defects and the Results of Defects

Usually, in the contract:

• “In the event of a defect coming to light and being notified to the Seller, the Seller shall, at his own discretion and without undue delay, repair or replace the defective item at his own risk and cost”

3 Costs, Defects and the Results of Defects

• In fact, the major risk for the Exporter is not the cost of repairing and replacing the defective goods, which is already covered in the contract price if the Exporter has done his work properly The big risk is that the Exporter is asked to compensate the Buyer for

“consequential damages” or “consequential loss”, which are the Buyer’s costs/losses arising from the defective goods and the Exporter’s process of repairing those goods

Direct losses and indirect losses

Like most aspects of their contractual relationship, two parties must negotiate the issue

4 Practice

1 What are the 5 options for curing defects?

Repair, allow the buyer to repair at exporter’s cost, replace (part or whole item), reduce the price, return the goods and refund the price

4 Practice

4 Translate into Vietnamese

The duty of the Seller to repair or replace defective items is the Seller’s only duty under this contract or otherwise, and the Seller shall not be liable to compensate the Buyer for any loss

of use of any works belonging to the Buyer (whether complete or partial) or for any loss of any profit or for any indirect or consequential damage that may be suffered by the Buyer

4 Practice

Nghĩa vụ của người bán về sửa chữa hoặc thay thế hàng hóa khiếm khuyết là nghĩa vụ duy nhất theo hợp đồng này; ngoài ra người bán sẽ không phải bồi thường cho người mua bất cứ tổn thất nào phát sinh khi người mua tự sửa chữa (dù toàn bộ hay một phần), hoặc bất cứ tổn thất về lợi nhuận nào, bất cứ thiệt hại gián tiếp hay thiệt hại về sau của người mua

4 Practice

5 Translate into English

Sau khi nhận được thông báo của bên mua về thiết bị có hư hỏng, trong vòng 72h bên bán sẽ

có trách nhiệm cử cán bộ kỹ thuật đến hiện trường để tiếp nhận và giải quyết Trường hợp hư hỏng nhẹ thì thiết bị đó sẽ được sửa chữa tại nơi hiện trường trong vòng 20 ngày làm việc Trong trường hợp hư hỏng nặng thì bên bán sẽ quyết định phương án xử lý hiệu quả nhất

4 Practice

Upon receipt of notice about defects from the buyer, within 72 hours, the seller shall be responsible for sending technicians to the site to confirm and solve the problem In case of minor errors, the equipment shall be fixed at the site within 20 working days In case of major errors, the seller shall decide the best solution

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