Istisna' – Construction or Manufacturing Contract

Like the Salam contract, Istisna' is another form of contract for the sale of a future product. Under this contract, the buyer (client/purchaser) places an order with a manufacturer (or contractor) to produce (or construct) a specific item. The Istisna' contract arises when the manufacturer undertakes to produce the ordered item from his own raw materials. For Istisna' to be valid, the price of the future product must be agreed upon by mutual consent of both parties, and they must reach an agreement on all specifications of the product.

The Istisna' contract obligates the manufacturer to produce the goods. However, before the manufacturer begins production, either party may cancel the contract by giving notice to the other party. Once the manufacturer has started production, the contract cannot be unilaterally terminated.

Differences between Istisna' and Salam:

Given the specific characteristics of Istisna', several differences between Istisna' and Salam are outlined below:

Differences Between Istisna' and Ijarah:

As mentioned above, under an Istisna' contract, the manufacturer produces the required goods using its own raw materials. Therefore, if the manufacturer does not already possess the necessary materials, it is responsible for procuring them and undertaking all activities required for the production of the asset. However, if the necessary raw materials are supplied by the customer and the manufacturer merely contributes labor (expertise, craftsmanship), the arrangement is no longer classified as an Istisna' contract. Rather, it is considered an Ijarah (service) contract, because the customer is effectively hiring the manufacturer's labor or services in exchange for an agreed fee.

Once the seller (manufacturer) has produced the ordered goods, it is obliged to deliver them to the purchaser. At this stage, a question may arise as to whether the purchaser has the right to reject the goods. According to Imam Abu Yusuf, the most renowned student of Imam Abu Hanifa, if the product has been manufactured in accordance with the specifications, qualities, and characteristics agreed upon by the parties at the outset of the contract, the purchaser is obligated to accept the goods and complete the purchase. The legal rulings of the Hanafi school have been developed in accordance with this view. The rationale behind this position is that, in modern commercial and business environments, a manufacturer often produces goods using its own resources and at its own expense. If a purchaser were allowed to cancel the contract without a valid reason after production has been completed—even though the goods fully conform to all agreed specifications and quality requirements—the manufacturer could suffer substantial financial losses.

Delivery Timeline

As mentioned above, specifying a delivery date is not an essential requirement in an Istisna' contract. However, the purchaser may stipulate a final delivery deadline. If the manufacturer fails to deliver the product by that specified date, the purchaser is no longer obligated to accept the goods or pay the agreed price.

In contemporary practice, some contracts of a similar nature include penalty clauses to ensure timely delivery of the product. Under such provisions, if the manufacturer fails to complete and deliver the product within the agreed timeframe, they become liable to pay a penalty calculated for each day of delay. This raises the question of whether a similar penalty clause may be incorporated into an Istisna' contract in accordance with Shariah principles. Classical juristic works dealing with Istisna' do not appear to contain explicit discussions of such clauses. However, classical jurists did consider comparable arrangements permissible in Ijarah (leasing/service) contracts. They maintained that compensation for a service may vary depending on the time taken to complete it. For example, if a person commissions a tailor to sew a garment, he may stipulate: "If you complete the garment within one day, I will pay you 1,000,000 UZS; however, if it takes more than two days, you will receive only 800,000 UZS." Such a condition is regarded as permissible.

By analogy, it may be argued that in an Istisna' contract the price of the manufactured asset may be linked to the delivery period. Likewise, the parties may mutually agree that the contract price will be reduced by a specified amount for each period of delay in delivery (whether per day, week, or month).

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