Importance of Terms and Conditions of Sale: Industrial Manufacturing Machinery and Tooling

Article by Frederick C. Kucklick

I have seen firsthand in business, and also during engagements as an expert witness in lawsuits: some breach of contract, intellectual property or other cases may have been mitigated or avoided completely had suppliers of machinery and tooling included comprehensive terms and conditions of sale with their original quotations. A piece of paper that some may deride as "boilerplate" might eventually prove to be a useful investment.

Some company owners and managers scoff at the idea of attaching a set of comprehensive Terms and Conditions of Sale ("Terms") to each quote. I have heard managers claim that the customers will not buy from them with such Terms. My experience suggests otherwise.

I am not a lawyer, and this is not legal advice. It's from the trenches. I co-founded, operated and managed a $75 million international corporation that designs and manufactures industrial manufacturing machinery, tools & dies, metal forming machine tools, metal cutting machine tools, assembly machines, integrated systems and production lines for the automotive industry, appliance industry, and metals industry. More recently I have served as a litigation consultant and/or expert witness in litigations involving manufacturers of manufacturing equipment and tooling. Some lawsuits may been avoided had the company selling the equipment and tooling ("Seller") provided a comprehensive quotation, complete with specifications for the goods offered and Terms and Conditions of Sale.

Creating Terms and Conditions of Sale

I have found that hiring a good business lawyer to work with the president or another authorized and experienced officer of the Seller to compose and review the Seller's Terms can be a valuable, but potentially time-consuming, investment. I do not recommend asking a lawyer to "write some terms," nor do I recommend copying another company's Terms without careful consideration and legal review.

Well constructed Terms can describe how the Seller actually wants to do business.

Each Seller's business may have its own unique circumstances to be addressed in its Terms. Consider the following:

• Does the Seller manufacture a proprietary line of manufacturing machinery, tooling or other product?
• Does the Seller want its customers to have a complete set of engineering drawings, software, or other information that discloses the Seller's proprietary designs and, in turn, Seller's trade secrets?
• Does the Seller receive engineering drawings or other technical information from Buyers? Should the Seller automatically agree to keep such information confidential?
• Does the Seller have a written cancellation clause to establish the costs a Buyer must pay, and whether the Seller must deliver partially completed goods, for a cancelled purchase order that has already partially completed on the date of cancellation?
• Does the Seller need to extend the delivery period of a project if a Buyer puts a project temporarily "on hold?"
• Does the Seller want to be held liable for a customer's lost production in case the machinery or tooling cycles below a specified cycle time, or otherwise fails to perform for any reason, including if the Buyer doesn't properly install, staff, operate or maintain the goods once they are installed in the Buyer's facility?
• Who is liable for a Buyer's lost multi-million contract for products originally intended to be manufactured on special purpose machinery or tooling manufactured by the Seller?
• Who is liable if the Seller delivers past an originally scheduled due date due to customer-demanded engineering changes or while the Seller is designing or manufacturing the equipment on a tight schedule?
• Who is liable if the Buyer fails to supply required test parts that are critical for final development and the runoff of the equipment on the Seller's floor, resulting in shipping untested machinery and tooling, and increasing the likelihood of a lengthy and costly production launch in the Buyer's facility?
• If the Seller invents a patentable improvement to its own proprietary line of machinery or tooling during the execution of a contract for a Buyer, who owns the patent?
• Who is liable for performance of an entire integrated production line if the Buyer or a third party supplies a component or process to be integrated in the system, which ultimately turns out to be, in some manner, incapable of complying with the system's specifications, thereby affecting the performance of the entire system?
• Who is liable if the Seller's precision manufactured and tested tools and dies are installed in Buyer's equipment that is later discovered to be incapable of operating the tooling with the required precision, resulting in lost production, excessive amounts of scrap and die breakage?
• Who is liable for any personal injuries if the Buyer is responsible for providing safety guarding or other devices after the equipment has been shipped?
• What is the currency of settlement? • If the transaction is with a foreign corporation, in what court or arbitration jurisdiction should the matter be settled if disputes arise?

Closing Thoughts

I feel that anticipating as many of the things as possible that can happen during normal transactions, and addressing them in the Seller's Terms and Conditions of Sale can be an investment in the Seller's future.

Terms don't need to fit on a single page; they can occupy several pages.

I have found disadvantages to printing Terms on the back of a quotation form. They can be inadvertently omitted if a quote is Emailed, copied or faxed.

I prefer a Terms enclosure that is included with or incorporated into each quote document, regardless of the means of delivery.

Once the Seller has created Terms and later determines other factors or conditions that become known or are applicable to a specific transaction, the Seller can add appropriate wording to the body of the quotation to which the Terms have been attached, thereby amending the Terms.

Frederick C. (Fritz) Kucklick is founder and president of IMT Consulting, Inc., a firm that provides management and engineering support for CEOs, managers, and attorneys. IMTC's clients include major corporations such as GKN, Daewoo, Mazak Corporation, Eaton Corporation, Asia Motor Works, Ltd., and Hayes Lemmerz International, plus numerous privately held companies. Litigation consulting and expert witness matters for which Kucklick has been retained include breach of contract disputes, patent infringements, misappropriations of trade secrets, industrial espionage, products liabilities, and others in arbitration and state and federal courts.

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