Document type: Article Practice area: Commercial — Supply Chain Jurisdiction: United States (federal and state) Last reviewed: 5 September 2026

The asymmetry

A hardware company signs a contract manufacturing agreement in a position of relative strength. It has a product, a design, and money. The manufacturer wants the business.

Eighteen months later the position has reversed completely. The manufacturer holds the tooling. It holds the process knowledge that made the yield acceptable. It holds the qualified supply chain for the sub-components. It holds the relationships with the second-tier suppliers who will not talk to you directly. Its line is the only line the product has ever run on, and requalifying anywhere else means months and money the company does not have.

Everything in this article is about that asymmetry, and about the handful of provisions that determine whether the company retains any ability to leave.

The provisions are not exotic. Tooling ownership. Documentation and process transfer. Capacity commitment. Change control. Exit and transition assistance. They are boring, they are negotiated in the last hour of a deal by people who want to ship a product, and they decide the relationship.

Lachlan Devices

Lachlan Devices is a 180-person company in Ann Arbor making a portable clinical diagnostic instrument. Its chief operating officer is Amara Zielinski-Baptiste; its general counsel, hired late as usual, is Rohan Delacroix-Mensah.

In 2022 Lachlan signed a manufacturing agreement with Kestrelworks, a contract manufacturer with plants in Malaysia and Mexico. The agreement was eleven pages, drafted from Kestrelworks' template, executed in a hurry two weeks before a funding milestone. It said nothing about tooling ownership, nothing about capacity, nothing about what happened on termination, and it incorporated a quality agreement that had not yet been written.

In 2025 Lachlan decided to move production. What followed took fourteen months and cost about $4.1 million, and every dollar of it traces to a provision that was not in the eleven pages.

Tooling: the provision that decides everything

Who owns the tooling. Molds, dies, fixtures, jigs, test equipment, programmed test stations, and the software that runs them. If Lachlan paid for it, Lachlan should own it — but ownership is not the same as possession, and the agreement has to say both.

Three things must appear in the contract, and in Lachlan's did not:

Title. An express statement that title to tooling paid for by the customer vests in the customer on payment, with a schedule identifying each item, its cost, and its location. Not "tooling purchased by Customer shall be Customer's property" as a floating sentence — a schedule, maintained and updated, because in three years nobody will remember which of forty fixtures the customer paid for.

Marking and segregation. Physical identification of customer-owned tooling, segregation where practical, and an obligation to permit inspection. Unmarked tooling in a manufacturer's plant is the manufacturer's tooling as a practical matter, whatever the contract says.

The right to take it, on demand, without conditions. This is the clause that matters. A customer with title but no unconditional right of removal has a lawsuit, not a supply chain. The clause should permit removal on notice, at any time, without regard to any dispute — expressly disclaiming any lien, setoff, or retention right the manufacturer might otherwise assert, and requiring the manufacturer to release the tooling notwithstanding any claim for unpaid amounts.

Perfect the interest. Where the manufacturer is holding goods or tooling belonging to the customer, a UCC filing is cheap insurance against the manufacturer's secured lender, its trustee in bankruptcy, and its other customers. Companies skip this because it feels distrustful. It is the single cheapest protection in the relationship.

And address foreign-located tooling separately. Title and removal rights in Malaysia are governed by Malaysian law, not by the contract's choice of New York law. Local counsel should confirm that the arrangement is effective where the tooling actually sits, and export questions attach to moving it.

What happened to Lachlan. The agreement did not identify tooling, so the parties disputed which of it Lachlan had paid for. Kestrelworks asserted a lien for disputed amounts. Removal took five months and a settlement.

Capacity, forecasts, and the allocation problem

The manufacturer has other customers. In a shortage — of the line, of a component, of skilled operators — someone gets allocated and someone does not. Nothing in a standard agreement determines which one you are.

What a real capacity provision does:

Reserves capacity, in units per period, with a commitment that the manufacturer will hold it available.

States the consequence of failure to supply. Not "the manufacturer will use commercially reasonable efforts," which is a promise to try. A liquidated amount, a right to cover with the difference recoverable, a price adjustment, or an escalating remedy.

Defines the forecast mechanism. A rolling forecast with a firm zone (binding, cancellable only with liability), a committed zone (the manufacturer procures long-lead materials, customer liable for those materials), and a planning zone (non-binding). Every forecast dispute in this industry is a dispute about which zone an order was in, and the fix is to draw the zones explicitly with dates and cancellation liability at each.

Addresses allocation expressly. In a shortage, how is capacity allocated among the manufacturer's customers? A pro rata clause based on trailing purchases is common and better than silence. A guaranteed minimum allocation is better still, and a customer with volume can get it.

Addresses component shortages. Who buys the long-lead components, who holds the inventory risk, whether the customer may buy components directly and consign them, and what happens when a component goes end-of-life. Last-time-buy rights and end-of-life notice periods belong here.

And addresses the customer's own commitment. Minimum purchase obligations, take-or-pay, and what the customer owes for unconsumed materials procured on its forecast. This is where the manufacturer's real exposure sits, and a fair agreement addresses both directions.

The quality agreement, which is a different document

In regulated industries — medical devices, aerospace, automotive, food contact — there is a quality agreement alongside the commercial agreement, and it allocates regulatory responsibility rather than money.

It is usually written by quality organizations and never read by lawyers, which is a mistake, because it determines who is responsible for things that produce regulatory liability.

What it should cover:

  • Which party holds the specifications and controls changes to them.
  • Incoming inspection, in-process controls, and final release criteria, with the acceptance test protocols identified.
  • First article inspection and the qualification process.
  • Who may release product, and on what evidence.
  • Nonconforming material handling: identification, segregation, disposition authority, and who decides whether to use-as-is, rework, or scrap.
  • Corrective and preventive action obligations and timelines.
  • Record retention, by category, with retention periods and access rights.
  • Audit rights: routine, for-cause, and unannounced, including access to sub-tier suppliers.
  • Regulatory inspection cooperation and notification — if a regulator inspects the plant and observes something about your product, when do you find out?
  • Complaint and adverse event information flow, which for a medical device customer is a compliance obligation, not a courtesy.
  • Sub-tier supplier control and the customer's approval rights over changes to them.
  • Traceability, including lot and serial control and the ability to reconstruct what went into a given unit.

The alignment problem. The quality agreement and the commercial agreement frequently contradict each other — different definitions of nonconformity, different notice periods, different audit rights. Have one lawyer read both, and add an express order of precedence.

Change control: the provision that protects the product

The product you qualified is not the product you will be shipping in two years unless change control says so.

Engineering changes initiated by the customer need a defined process: notice, cost and schedule impact, approval, effectivity date, and disposition of in-process and finished inventory built to the old configuration.

Manufacturer-initiated changes are the dangerous ones. A manufacturer will, in the ordinary course of its business, want to change a sub-tier supplier, substitute a component, move a line, change a process, or relocate production to a different plant. Each of those can change the product in ways that matter and that testing may not catch.

The clause you need requires the manufacturer to obtain prior written approval for any change to: the design, the materials, the process, the sub-tier suppliers, the manufacturing location, the test methods, or the packaging. With a defined notice period, the data required to support the change, and a requalification obligation where the customer requires one.

Watch the plant relocation case specifically. Moving production from one of the manufacturer's plants to another is often treated internally as an operational decision requiring no customer involvement. For a regulated product it can require requalification, regulatory notification, and a new registration. Name it explicitly in the change control clause.

And build in a "no unapproved changes" audit. Compare the current build to the qualified configuration annually. Companies that do this find changes nobody told them about.

The contract formation problem nobody notices

Before any of the substantive terms matter, there is a question of what the contract actually is — and in hardware supply it is frequently not what either party thinks.

The master agreement plus purchase order structure. Most manufacturing relationships operate through a master agreement setting general terms, with individual purchase orders placing volume. The manufacturer responds with an order acknowledgment carrying its own terms. Both documents contain a clause saying its terms govern and the other's are rejected.

This is the battle of the forms, and under Article 2 of the Uniform Commercial Code as enacted in most states, the result is genuinely uncertain. A definite expression of acceptance can operate as an acceptance even with additional or different terms; between merchants, additional terms become part of the contract unless the offer expressly limits acceptance to its terms, the terms materially alter the contract, or objection is given. Where the writings do not otherwise establish a contract but the parties' conduct does, the contract consists of the terms on which the writings agree plus supplementary terms supplied by the Code — which is how a carefully negotiated limitation of liability disappears and is replaced by the Code's default warranties.

Three practical fixes:

Make the master agreement control expressly, in both directions: state that the master governs, that purchase orders and acknowledgments are for administrative convenience only, and that any additional or different terms in any purchase order, acknowledgment, invoice, packing slip, or click-through are rejected and of no effect regardless of the recipient's conduct.

Then make the operating documents match. Have someone actually look at the purchase order template, the acknowledgment the manufacturer sends, and the portal terms that appear when your buyer places an order. Procurement systems generate documents nobody in legal has read, and a supplier portal that requires acceptance of the supplier's terms to place an order is a contract formation event happening weekly.

And address requirements and output obligations honestly. Where the customer commits to buy its requirements, or the manufacturer to supply the customer's requirements, the Code imposes a good-faith constraint on quantity variation and disallows quantities unreasonably disproportionate to any stated estimate or prior comparable output. Parties who intend a firm commitment should state numbers rather than relying on a requirements construct.

One more formation point. Where a supplier's performance becomes doubtful, the Code allows a party with reasonable grounds for insecurity to demand adequate assurance of due performance in writing and to suspend its own performance pending assurance, with failure to provide assurance within a reasonable time operating as a repudiation. This is a genuinely useful tool in a deteriorating supplier relationship and it is almost never used, because nobody remembers it exists. Put it in the escalation playbook.

Warranty, epidemic failure, and the limits of a limitation

The ordinary warranty — conformance to specification, free from defects in material and workmanship, for a defined period — is where negotiation stops in most agreements. It should not.

The problem it does not solve is the systemic defect. A manufacturer that ships a hundred thousand units with a latent defect in a solder joint, discovered eighteen months later in the field, has a warranty obligation to repair or replace the returned units. The customer has a recall, a field service program, a regulatory notification, customer attrition, and a reputational event. The gap between those two numbers is enormous, and a standard limitation of liability puts the entire gap on the customer.

The answer is an epidemic failure clause, and it has four parts:

A trigger. A defect rate exceeding a defined threshold — commonly a percentage of units shipped in a period, or of a production lot — attributable to a common root cause within the manufacturer's responsibility. Define the measurement window and the population precisely; this is where the disputes are.

Enhanced remedies. Beyond repair-or-replace: the costs of the field action, including logistics, labor, replacement units, customer notification, and, where negotiable, a contribution to the recall administration.

A carve-out from the limitation of liability, or a separate and higher cap for epidemic failure. A clause that provides enhanced remedies and then subjects them to a cap equal to three months of fees provides nothing.

A root cause process. Who investigates, on what timeline, with what access, and how disagreement about attribution is resolved. Most epidemic failure disputes are attribution disputes — design defect (customer's problem) versus workmanship defect (manufacturer's problem) — and a neutral technical process agreed in advance is worth more than a clause about damages.

On the general limitation of liability: the standard mutual exclusion of consequential damages and a cap tied to fees paid is the market position, and it is a poor fit for hardware. The customer's realistic exposure — recall, field action, lost sales — is exactly what "consequential" excludes. Negotiate carve-outs for: the epidemic failure remedy, indemnification obligations, breach of confidentiality, breach of the intellectual property provisions, and gross negligence or willful misconduct. And consider a super-cap for product-related liability distinct from the general cap.

Note also the interaction with product liability. As between the customer and the injured consumer, both parties are likely in the chain of distribution, and the allocation between them is contractual. Indemnity, insurance, and the additional-insured status of each party should be drafted with the product liability defense in mind — including who controls the defense and who has settlement authority.

Intellectual property, and the process knowledge problem

The easy part. The customer owns its designs, specifications, and product intellectual property. The manufacturer owns its general manufacturing know-how. Both should be stated.

The hard part is what gets created in between. Making a design manufacturable produces process improvements, fixtures, test methods, and yield-enhancing techniques. Who owns those?

The manufacturer's position is that manufacturing process know-how is its stock in trade and it cannot give it away to every customer. That position is reasonable.

The customer's position is that process knowledge specific to its product, developed under its funding, in the course of making its device, is the thing that makes the product manufacturable — and if the customer cannot take it, the customer cannot leave. That position is also reasonable.

The workable middle is a distinction between product-specific process technology, which the customer owns or receives a perpetual license to use and to sublicense to a replacement manufacturer, and general manufacturing know-how, which the manufacturer retains. Draw the line in the agreement with examples, because the line is genuinely hard to draw in the abstract.

And require documentation as a deliverable, on an ongoing basis. The device master record, the process instructions, the test protocols and limits, the tooling drawings, the qualified sub-tier supplier list with part numbers and specifications, and the bill of materials with approved manufacturer part numbers. Not "on termination" — quarterly, during the relationship, delivered to the customer and held by the customer. A documentation obligation triggered by termination is a documentation obligation performed by an unhappy counterparty during a dispute.

Watch the reverse-engineering and improvement clauses in manufacturer templates, which sometimes claim rights in improvements to the customer's product. Strike them.

Supply chain compliance, which is now the customer's problem

The manufacturer operates the supply chain. The importer of record and the brand on the box carry the legal exposure.

Forced labor. 19 U.S.C. § 1307 prohibits the importation of goods mined, produced, or manufactured wholly or in part by convict, forced, or indentured labor. Enforcement has become substantially more aggressive, and the statutory presumption applying to goods from certain regions places the burden on the importer to rebut with clear and convincing evidence. A detention is not a lawsuit; it is a shipment sitting at a port while the importer assembles supply chain documentation it may not have.

What that requires contractually: a representation and warranty on labor practices through the sub-tier chain; an obligation to provide supply chain mapping and traceability documentation on request within a short period; audit rights extending to sub-tier suppliers; the right to reject a sub-tier supplier; and an indemnity for detention, seizure, and associated costs. And practically: know your sub-tiers before a detention, because assembling the documentation afterwards, from a manufacturer that has no incentive to hurry, is how shipments sit for months.

Country of origin. 19 U.S.C. § 1304 requires marking of imported articles with the country of origin. Origin determination is a legal analysis — substantial transformation, or the applicable rules of origin — not a statement of where the final assembly happened. Errors produce marking duties and penalty exposure, and 19 U.S.C. § 1592 provides penalties for entries made by fraud, gross negligence, or negligence. Put the origin determination obligation, the supporting documentation obligation, and an indemnity into the agreement.

Tariffs and classification. Who bears the cost of a tariff change is a commercial allocation that should be express, and it has become a live one. So has the question of who controls classification decisions and who is responsible if a classification is wrong.

Product safety. For consumer products, 15 U.S.C. § 2064 requires reporting to the Commission of information reasonably supporting the conclusion that a product contains a defect that could create a substantial product hazard or creates an unreasonable risk of serious injury or death. The reporting timeline is short. The manufacturer holds much of the information that triggers the obligation, so the agreement must require prompt escalation of field failure data, complaint data, and its own quality findings — and the customer must have a process to act on them.

Restricted substances, conflict minerals, and sanctions screening of the supply chain complete the picture, each with its own documentation and diligence expectations.

Pricing, cost transparency, and the terms that erode

Price is the term everyone negotiates and the one that quietly moves.

Cost-plus versus fixed price. A cost-plus structure — bill of materials at cost plus a stated conversion margin — gives the customer visibility and gives the manufacturer protection against component inflation. It also requires the customer to audit the cost base, which most customers never do, at which point "cost" becomes whatever the manufacturer's system says. A fixed price gives certainty and transfers component risk to the manufacturer, who prices it with a margin the customer cannot see.

Whichever structure, address these:

Component cost pass-through. Which components pass through at cost, how cost is evidenced, and what happens when a component price falls as well as rises. Pass-through clauses drafted during a shortage are asymmetric and stay that way.

Productivity commitments. A stated annual cost reduction on conversion cost, reflecting learning-curve improvement. Standard in automotive, uncommon elsewhere, and worth asking for.

Volume tiers, with true-up mechanics, and what happens if actual volume falls below the tier the price assumed.

Currency. Which currency, who bears movement, and whether a band triggers renegotiation. A Malaysian plant billing in dollars is carrying currency risk it has priced into your unit cost.

Tariffs and duties. Express allocation. This has moved from boilerplate to a material term.

Payment terms and the working capital fight. Payment terms are a financing negotiation dressed as an administrative one — every thirty days of extension is a transfer of working capital. Address early payment discounts, supply chain finance arrangements, and whether the manufacturer may factor receivables.

Audit rights over cost. Where pricing is cost-based, an audit right over the cost build-up, exercised occasionally, with cost-shifting if a material overstatement is found. An unexercised cost audit right in a cost-plus agreement is how customers pay margin on margin for years.

Most-favored terms, if you can get them, and know that manufacturers resist them strongly and that they are difficult to enforce without an audit mechanism.

And watch the quiet erosion. In a long relationship, a price agreed in year one becomes a price adjusted informally by a purchasing manager and a sales manager over email, and the resulting arrangement bears no relation to the agreement. Reconcile actual invoiced pricing against the contractual mechanism annually. Companies that do this routinely find leakage in the low single-digit percentages of spend, which on a hardware program is real money.

When the manufacturer fails

Supplier insolvency is the risk that turns a supply problem into an existential one.

Watch for it. Slowing payments to sub-tiers, extended lead times without explanation, quality drift, key personnel departures, requests for accelerated payment or deposits, and — the reliable signal — a sub-tier supplier calling you directly to ask about payment.

What the automatic stay does. On a bankruptcy filing, 11 U.S.C. § 362 stays acts to obtain possession of property of the estate or property from the estate. Your tooling, sitting in the debtor's plant, will be characterized by the debtor as property of the estate unless you can demonstrate otherwise — which is why title documentation, marking, a schedule, and a UCC filing matter so much before anyone is in trouble.

What happens to the agreement. 11 U.S.C. § 365 permits the debtor to assume or reject executory contracts. Rejection is a breach, leaving you a prepetition claim and no supply. Assumption requires cure of defaults and adequate assurance of future performance — and assumption and assignment can hand your agreement to a third party you did not choose.

Protect in advance:

  • Title, marking, schedule, and a UCC filing on tooling and on customer-owned inventory and consigned components.
  • Documentation held by you, delivered quarterly, so the process does not live only in the debtor's plant.
  • A dual-source or qualified-alternate strategy for anything critical, even if the alternate carries no volume.
  • Safety stock sized to the requalification timeline at an alternate, not to the ordinary lead time.
  • Direct relationships with critical sub-tier suppliers, so you can buy from them if the prime fails.
  • Step-in rights where achievable, though their effectiveness in an actual bankruptcy is limited.
  • A named restructuring counsel you can call the day the filing happens, because the first two weeks determine the outcome.

The manufacturer's side of the table

This article is written from the customer's chair, which is where most readers sit. The manufacturer's interests are legitimate and a deal that ignores them does not hold.

Volume certainty is the manufacturer's core concern. It commits line capacity, hires operators, and procures long-lead materials on the customer's forecast. A customer that wants a firm capacity reservation should expect to give a firm purchase commitment, and a customer that will not commit volume is asking the manufacturer to carry the risk of its business plan.

Material liability is the recurring loss. Components bought on a forecast that did not materialize sit in a warehouse. The manufacturer needs a clear obligation on the customer to take or pay for materials procured within the committed window, with a defined valuation and a defined disposition process. Customers resist this and then are surprised when the manufacturer builds a margin cushion instead.

Cancellation and reschedule charges should be a formula, not a negotiation each time: a schedule tied to how close to the delivery date the change occurs, with defined charges for finished goods, work in process, and raw materials.

Design responsibility. The manufacturer builds to the customer's design and should not carry design defect liability. The customer should give a design warranty and an indemnity for claims arising from the design as supplied, symmetrical with the manufacturer's workmanship warranty. The attribution process discussed above serves both parties.

Specification stability. Every engineering change costs the manufacturer money and disrupts the line. A change control clause that requires customer approval for manufacturer changes should also require the customer to bear the cost and schedule impact of its own.

Payment. Prompt payment, interest on late payment, and a right to suspend for material non-payment after notice — which the customer should accept, because a manufacturer that cannot suspend for non-payment has no remedy at all.

Exclusivity, if the customer wants it, should be paid for: a volume commitment, a price premium, or a term that justifies turning away other work.

And a reasonable exit for the manufacturer. A customer that shrinks to a fraction of its forecast volume, on a dedicated line, is a problem the manufacturer needs a way out of. A mutual convenience termination with a long notice period serves both parties better than a one-sided clause that gets litigated.

The general point. The most durable manufacturing agreements are the ones where each party's genuine risk is addressed. An agreement that loads everything onto the manufacturer produces either a refusal to sign or a price that quietly includes the risk premium — and, in a bad quarter, a manufacturer looking for the exit the contract did not give it.

Disputes: keeping the line running while you argue

The distinguishing feature of a supply dispute is that the parties must continue performing while it is unresolved. A litigation strategy that stops shipments destroys the customer's business faster than any judgment repairs it.

Build the escalation ladder into the contract. Operational contact, then program management, then a named executive on each side, with defined periods at each level. Most disputes resolve at level two and never should have reached a lawyer.

Require continued performance during a dispute. An express obligation on both parties to continue supplying and paying undisputed amounts while a dispute is pending, with disputed amounts escrowed or reserved rather than withheld. Without this clause, a payment dispute becomes a supply stoppage within a week.

Choose the forum for what you actually need. Arbitration offers confidentiality, a technically competent decision-maker, and international enforceability where the counterparty's assets are abroad — a genuine advantage under 9 U.S.C. § 2 and the international enforcement framework. It is poor at emergency relief and at multi-party disputes involving sub-tier suppliers. Carve out injunctive relief for tooling recovery, confidentiality, and intellectual property, and permit either party to seek interim measures from a court.

Provide for technical determination. Attribution disputes — was this a design defect or a workmanship defect — are engineering questions decided badly by lawyers and adjudicators. A neutral technical expert, appointed on an agreed timeline, deciding attribution on a defined protocol, resolves in weeks what litigation resolves in years. Include the mechanism and pre-agree the appointing body.

Preserve evidence early. Failed units, retained samples, process data, test records, and the traceability that connects them. In an epidemic failure dispute the physical evidence decides the case, and the party that scrapped the units loses.

And be realistic about leverage. The customer whose product runs on one line has less leverage than its contract suggests, and the manufacturer that depends on the customer for a third of its plant loading has less than it thinks. Both facts are usually true simultaneously, which is why these disputes settle.

Force majeure, after everyone learned what it means

For twenty years force majeure was a clause nobody read. It is now negotiated, and the negotiation is worth doing properly.

The problem with the standard clause is that it excuses performance for events "beyond the reasonable control" of the affected party, lists acts of God and war, and says nothing about the events that actually disrupt hardware supply: a component shortage two tiers down, a port closure, an epidemic, a government export restriction, a cyber incident at a supplier, or a natural disaster affecting a single-source fab.

Draft it with these in mind:

Enumerate the modern events, including epidemics and public health measures, government action including export and import restrictions and tariffs, cyber incidents, utility and infrastructure failure, and supplier failure where the supplier's failure would itself qualify — because the standard clause usually excludes sub-tier supplier problems, which is where the disruptions come from.

Distinguish inability from unprofitability. Increased cost is not force majeure, and a clause that permits suspension when performance becomes uneconomic is a price renegotiation clause. Say so expressly.

Require mitigation and notice, with a defined period, and require the affected party to provide information sufficient for the other to plan.

Address allocation during the event. If the manufacturer can supply some customers but not all, how is the shortfall allocated? Silence means the customer with the loudest relationship manager wins. The Code's default rule requires an allocation in a fair and reasonable manner among customers where performance has become impracticable in part, with notice to buyers — which is a floor, not a plan.

Give the customer a right to source elsewhere during the event, free of any exclusivity or minimum purchase obligation, and to use the tooling — which returns you to the tooling clause.

And set a termination right if the event continues beyond a defined period, so that "force majeure" does not become an indefinite suspension in which the customer is contractually bound and receiving nothing.

Note the doctrinal backdrop. The Code excuses a seller's delay or non-delivery where performance has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption of the contract, or by compliance in good faith with an applicable governmental regulation or order. Courts apply that standard narrowly — increased cost, even substantial increased cost, is generally not enough. A well-drafted clause is doing real work relative to that default, in both directions.

Exit: the provision that makes the rest of it real

Every provision in this article is worth less if the customer cannot leave. The exit clause is what converts a relationship into a negotiated one.

Termination rights. For cause, with a cure period. For convenience, on notice — the notice period is the negotiation, and a manufacturer will want twelve to twenty-four months while a customer wants three to six. For insolvency, for change of control, and for repeated quality failure or failure to supply.

And what happens next, which is the part that matters:

Transition assistance, as an obligation. For a defined period after termination — commonly six to twelve months — the manufacturer must continue to supply at the then-current price, transfer documentation, support requalification at the new manufacturer, make personnel available, and cooperate with sub-tier supplier transitions. This obligation must survive termination for any reason, including termination by the manufacturer for the customer's breach, subject only to payment. A transition obligation that lapses when the manufacturer terminates for cause is a transition obligation you will not have when you need it.

Tooling release, unconditional, notwithstanding any dispute, with no lien or retention right.

Inventory. Who buys the finished goods, work in process, and raw materials, at what price, on what timeline. Define it now, because the manufacturer will value it optimistically later.

Sub-tier supplier introduction and consent to assignment of component supply arrangements.

Documentation delivery, complete and in usable form, with a defined list.

Final quality records and any regulatory documentation the customer needs.

How Lachlan's transfer actually went. Fourteen months and $4.1 million: five months and a settlement to recover the tooling; four months reconstructing process documentation that existed only in Kestrelworks' plant; three months requalifying at the new manufacturer, including a regulatory notification that would have been unnecessary had the change been controlled; $900,000 of inventory purchased at a valuation Lachlan disputed and paid; and a nine-week supply gap that cost two hospital system contracts.

Every one of those costs maps to a clause that was not in the eleven pages. Delacroix-Mensah's summary to the board: "We did not have a bad manufacturer. We had a good manufacturer and no exit."

Related documents

This article is general information, not legal advice, and does not create an attorney-client relationship.