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A standard purchase order is rarely adequate for a $200,000–1,500,000 machine tool. Payment milestones, delivery terms, acceptance criteria, and remedies for non-performance must be explicitly defined. The contract is your only protection if the machine does not perform as promised.
Essential Contract Clauses
Machine Specification
| Clause Element | What It Should Include |
|---|---|
| Machine model and configuration | Exact model, options, accessories |
| Technical specifications | Spindle power, RPM range, coolant pressure and flow, axis travel |
| Control system | CNC make and model, software version |
| Included tooling and accessories | Standard and optional tooling, first set of bushings |
| Excluded items | What is NOT included (installation, foundations, tooling) |
| Documentation | Type and format of manuals, schematics, drawings |
Tip: Attach the full machine specification sheet as a schedule to the contract. Any change to the specification should require a written amendment signed by both parties. Verbal agreements about machine configuration are not enforceable.
Delivery Terms
| Term | What It Specifies |
|---|---|
| Incoterm | FOB, CIF, EXW, DDP (specify which version, e.g. Incoterms 2024) |
| Delivery date | Specific date or range with delay penalties |
| Partial shipments | Allowed or not |
| Shipping method | Ocean, air, or land freight |
| Insurance responsibility | Who insures the machine during transit |
| Port of loading / discharge | Specific ports |
| Customs clearance | Who handles import clearance and pays duties |
Payment Structure
| Payment Milestone | Typical Percentage | Condition for Payment |
|---|---|---|
| Down payment (with order) | 30–40% | Signed contract and proforma invoice |
| Progress payment | 20–30% | Machine ready for FAT (Factory Acceptance Test) |
| Final payment before shipment | 20–30% | FAT passed, machine ready for shipping |
| Balance after installation | 10–20% | SAT (Site Acceptance Test) passed |
Recommended Payment Structure
| Scenario | Recommendation |
|---|---|
| Established manufacturer, first machine | 30% down, 40% at FAT, 20% before shipment, 10% after SAT |
| New or unknown manufacturer | 20% down, 30% at FAT, 30% before shipment, 20% after SAT |
| Multi-machine order | Stagger payments per machine, not blanket percentage |
| Machine with custom engineering | Higher percentage at FAT (50%) to cover engineering cost |
Warning: Never pay 100% before the machine is delivered and accepted. A manufacturer who demands full payment before shipment is either financially distressed or unwilling to stand behind their machine. The SAT payment holdback is your only leverage if the machine underperforms after installation.
Acceptance Testing
Factory Acceptance Test (FAT)
| FAT Element | What to Specify |
|---|---|
| Location | Manufacturer's factory |
| Duration | Minimum 1–3 days |
| Test part specification | Material, dimensions, tolerances |
| Test parameters | Speeds, feeds, coolant pressure, tooling |
| Measurement equipment | What will be used for verification |
| Passing criteria | Specific numerical targets for each measurement |
| Witness rights | Buyer representative attendance |
| Non-conformance process | What happens if the machine fails FAT |
Site Acceptance Test (SAT)
| SAT Element | What to Specify |
|---|---|
| Timing | Within 30 days of installation |
| Test parts | Same specification as FAT or production parts |
| Duration | Minimum 5 consecutive working days |
| Performance verification | Repeat FAT measurements on installed machine |
| Production run | Demonstrate cycle time with actual production parts |
| Acceptance criteria | Same as FAT (machine must perform identically) |
| Sign-off procedure | Formal acceptance certificate |
Tip: Include a clause that the SAT acceptance test must be performed on the same test part specification used during FAT, using the same measurement methods. This prevents disputes about whether the machine meets specification after installation.
Performance Guarantees
| Guarantee | What to Specify | Typical Remedy |
|---|---|---|
| Cycle time guarantee | Maximum time per part | Liquidated damages per second over target |
| Tolerance guarantee | Diameter, straightness, surface finish | Corrective action at supplier cost |
| Uptime guarantee | Minimum availability percentage | Service credit or penalty |
| Power consumption | Maximum kW at specified conditions | Compensation if exceeded |
Warranty Terms
Key Warranty Clauses
| Clause | What It Should Include |
|---|---|
| Warranty period | 12–24 months from installation or 18 months from shipment |
| Coverage scope | Parts, labour, travel, or combination |
| Exclusions | Consumables, normal wear, operator error, improper installation |
| Response time | Guaranteed response time for warranty service |
| Spare parts availability | Guaranteed parts availability for minimum 10 years |
| Warranty transferability | Can warranty be transferred if machine is sold? |
Dispute Resolution
| Clause | Options |
|---|---|
| Governing law | Which country's law governs the contract |
| Arbitration | ICC, LCIA, or other arbitration body |
| Jurisdiction | Which courts have authority |
| Liquidated damages | Pre-agreed damages for specific breaches (delay, performance) |
| Limitation of liability | Maximum liability (typically contract value) |
Common Legal Pitfalls
| Pitfall | Consequence | Prevention |
|---|---|---|
| Vague specification language | Disputes about what was promised | Detailed, quantified specifications |
| No FAT/SAT procedure | Machine accepted before proven | Written FAT/SAT protocol in contract |
| Payment not tied to milestones | Paid full price for non-performing machine | Milestone-based payment schedule |
| No liquidated damages for delay | Seller has no incentive to deliver on time | 0.5–1% per week delay penalty |
| Warranty excludes labour | Warranty is effectively parts-only | Specify labour and travel coverage |
Letter of Credit vs Wire Transfer
| Payment Method | Buyer Protection | Seller Protection | Cost |
|---|---|---|---|
| Wire transfer | Low | High | $30–50 |
| Letter of Credit (L/C) | High (documents verified) | High (bank guarantee) | 0.5–2% of value |
| L/C with inspection certificate | Very high (payment after inspection) | Medium | 1–2% of value |
FAQ
What payment terms are standard for deep hole drilling machine purchases?
30–40% down payment with order, 40% after FAT, 20% before shipment, and 10% after SAT. The final SAT payment holdback is critical — it gives you leverage if the machine does not perform as specified after installation.
Should I include liquidated damages for late delivery?
Yes. A delay penalty of 0.5–1% of the machine value per week of delay (up to a maximum of 5–10%) gives the manufacturer a financial incentive to deliver on time. Without liquidated damages, your only remedy for late delivery is to cancel the order and sue — which is impractical.
What is the difference between FAT and SAT?
FAT (Factory Acceptance Test) is performed at the manufacturer's factory before shipment. SAT (Site Acceptance Test) is performed at your facility after installation. The machine must pass both. FAT confirms the machine meets specification, and SAT confirms it performs correctly after installation.
Can I use my own purchase order terms instead of the manufacturer's contract?
You can try, but most manufacturers will insist on their standard terms for machine tools. The negotiation is usually about specific amendments to the manufacturer's terms, not a complete replacement. Focus on the critical items: specification, payment milestones, acceptance testing, and warranty.
How do I handle currency risk in international machine purchases?
Specify the contract currency and include a clause for how exchange rate fluctuations are handled. Common approaches: fixed exchange rate for the contract term, or a sharing mechanism (e.g., buyer absorbs first 2% change, remainder shared equally).
This article provides general guidance and does not constitute legal advice. Have all purchase agreements reviewed by legal counsel familiar with international equipment transactions. This article reflects industry practice as of 2026.