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Percentage Business Guarantees – Terms and pricing should be predicated on supplier being granted a minimum percentage of available business, not absolute dollar or unit volumes. |
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Best Pricing – Achieve Most Favored Customer status guaranteeing best price offered at any volume. |
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Formula Price reductions – Agreement should provide for price reductions (or rebates) for business levels materially higher than initial expectations. |
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Existing Orders – Terms of contract should be applicable to any future deliveries, whether on existing orders or new orders. |
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Just in Time/Pull Scheduling – Should provide for weekly releases with 1-week lead-time. |
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Schedule Sharing – Supplier should be provided with 12 month, non-binding forecast and inventory information on a weekly basis. |
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Upside guarantees – Agreement should include explicit obligations for supplier to support short-term schedule increases. |
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On-Time Delivery – Supplier should be required to deliver on time (within a reasonable tolerance) to schedule dates. |
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Material Liability – Liability upon termination, cancellation, or engineering change should be limited to no longer than the supplier’s factory cycle time plus shipping. Exceptions can be taken for unique materials, limited to the above parameters at that level. |
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Cycle/Lead Time Reductions – If lead times are longer than one week initially, there should be an explicit roadmap to achieving such over the term of the agreement. |
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Consignment Agreement – Requires supplier to consign material to Buyer factory until consumed in production. |
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Best Terms – Should be Most Favored Customer, guaranteeing best terms offered. |
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Discount Terms – Preferred terms are 2% net 10 days. |
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Packaging – Packaging should be in conformance with a Buyer specification that facilitates subsequent storage and handling. |
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Lot Sizing – Supplier should be required to deliver in lots that are consistent with production usage and can be easily changed. |
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Freight – Supplier should be required to pay freight to Buyer’s dock. |
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Freight Account – If Buyer is to pay shipping, it is preferable to have the charges made to Buyer’s account, thus increasing Buyer’s volume-based discounts. |
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Actual Freight Costs – In those cases where Buyer is to pay shipping costs on the supplier’s account, they should be actual costs after any discounts provided by the carrier to the supplier |
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Documents (Bills of Lading, etc.) – Provision of all necessary documents should be delineated in the contract. |
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Responsibility for Tooling Maintenance – Supplier should be required to maintain any Buyer tooling, keeping appropriate records and reporting status on a regular basis. |
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EDI Support – Supplier should support EDI provision of requirements. Additionally, in the cases where supplier’s e-commerce capabilities are superior to Buyer’s, supplier should assist the conversion/upgrade of Buyer’s capability. |
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Partner/Affiliate Reciprocity – All provisions of the agreement should be made available to Buyer affiliates and manufacturing partners. |
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No-Questions RMA – Buyer should have the right to return defect product without waiting for an RMA. |
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Warranty (including Y2K) – Supplier should warranty materials and workmanship for a minimum of 3 years. |
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Termination Clause – Either party should have the right to terminate if the other party becomes insolvent. |
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Default Cancellation – Either party should have the right to terminate in the event of uncured breach of contract. |
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Continuity of Supply – Supplier should be required to supply after termination for the life of the product. |
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Performance Penalties – Supplier should be required to pay penalties for late delivery and defects (per delivery) |
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Force Majeure – Circumstances beyond the reasonable control of either party should constitute grounds for suspension of obligations. |
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Time-of-the-Essence – Timely performance of the duties of either party is an ultimate requirement of the contract. |
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Intellectual Property – Buyer should have rights to any IP created as a result of the performance of the agreement. Also the performance of the agreement should not grant any rights to the supplier to any IP of Buyer’s. Mutual indemnification. |
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Confidentiality – Both parties should be required to hold the confidential information of the other in confidence. |
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Explicit right to sublicense - Supplier's technology should be provided with explicit grant to sublicense to Buyer customers. |
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Choice of Governing Law - California law should govern all disputes. |
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Workers' Compensation – Each party should be required to retain adequate insurance for Worker’s compensation |
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Compliance with Existing Law – Each party should be required to comply with all laws in the performance of the agreement. |
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Assignability – Buyer should have the right to approve any assignment of the responsibilities of the supplier |
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Change of Control – Buyer should have the right to terminate in the event of a material change of control of the supplier. |
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Configuration Control – The supplier should be required to seek written approval from Buyer for any material change of process or manufacturing site. |
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First Article Compliance – Supplier should be required to submit first articles of any new or modified product. |
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Set-offs – Any financial obligations of the supplier should be offset from existing invoices. |
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No Bill-Backs – The supplier should have the right to increase prices or bill Buyer for reductions from expected volumes. |
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Import Offsets – Buyer should have the right to offset trade balances for the purposes of import duty reduction. |
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Acceptance of Title – Title should not pass to Buyer until product is delivered to Buyer’s dock. |
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Severability – Any clause of the agreement should be severable in the event of invalidity. |
