Three ways to handle a failed inspection

This article describes common industry practice, not official rules.

When a third-party inspection fails, the buyer usually decides whether to accept the goods, ask the supplier to sort or rework them before a re-inspection, or reject the goods or the lot and ask for replacement under the contract. The right choice depends on what the report says, how hard the defects are to fix, and what the purchase contract already sets out.

Read the report before choosing

Start with the defect classes. A report often sorts findings into critical, major and minor defects, and the classes that failed show how serious the response needs to be. Look at:

• Which defect classes failed, and against which items in the inspection checklist.
• Whether the defects appear on every unit checked or only on some of them.
• Whether a defect affects function, use or safety, or whether it is a cosmetic or packing issue.
• Whether the defects can be sorted out unit by unit, or whether they need new parts, new material or a change to the production process.
• Whether the report includes photos, measurements and test results that back each finding.

If a defect could touch safety, whether a legal or certification requirement applies is for the regulator or an accredited laboratory to confirm.

Accepting the goods as they are

Accepting the goods usually fits when the defects are minor, do not affect use or resale, and the buyer is willing to take the goods with a concession. A common approach is to agree the concession in writing with the supplier. The concession might be a price adjustment, a credit or a discount on a later order, as agreed between the two parties.

Accepting does not remove rights that the contract gives the buyer. Check the contract before signing any concession, and make sure the written note names the goods, the defects and the concession.

Asking the supplier to sort or rework

This option fits when each defective unit can be found and fixed, for example by replacing a part, correcting a label, repacking or retesting. The supplier does the sorting or rework, and then the goods go through a re-inspection.

Put the scope in writing before work starts. The note can say which defects are covered, which goods are affected, what the supplier will do, who checks the sorted goods and against which checklist items. Whether the shipping date moves should also be agreed in writing, because a rework often changes the schedule.

Book the re-inspection with the inspection company and make clear what it should check. In many cases the re-inspection covers the same items that failed the first time, plus any item the rework could have affected.

Rejecting the goods or the lot

Rejection usually fits when the defects cannot be sorted within the schedule, when they affect function or use, or when the supplier cannot or will not fix them. The contract often sets out what happens next, such as replacement, return, a credit, or a further inspection of the replacement goods. Where the contract is silent, the parties need to agree the next steps in writing.

Send the supplier a written notice that identifies the rejected goods by purchase order line or lot, gives the reason taken from the report, and states what the buyer asks for. Agree in writing where the rejected goods are held and who arranges their collection. Do not assume the supplier will collect them.

What to put in writing to the supplier

Whichever option the buyer chooses, a short written message makes the next step clear. A common message covers:

• The defects, with a reference to the report and the checklist items.
• The goods affected, by purchase order, lot or carton marks.
• The option the buyer chooses, or the option the buyer proposes.
• The next step and the date agreed for it, as set in the contract or in the message.
• Whether the shipping date moves, and by how much, as agreed.
• Who pays for the re-inspection, if the contract does not already say.

Who pays for a re-inspection

Who pays for an inspection or a re-inspection is a commercial term. It is set in the purchase contract and in the booking with the inspection company. A common arrangement is that the buyer books and pays the inspection company. Some contracts pass the cost of a re-inspection after a failed inspection to the supplier. Check which arrangement applies before the re-inspection is booked.

Why the contract helps

When the contract already says what happens if goods fail, the choice after a failed inspection is easier. The contract can set out the acceptance terms, the defect classes, the rework process, the re-inspection, and the rejection and replacement terms. Both sides then work from a text they have already agreed. Without that text, the discussion often starts from the beginning when the report arrives, and the schedule can slip while the two sides negotiate.