I wasn't sure where to post this question, but I thought I would start here.

We will be working with (2) vendors very shortly - they are machining companies. Someone mentioned to me that we should not engage in business until we have created a "vendor contract". At our very first meeting we both signed a non-disclosure/non-compete agreement as our product is currently under review in the Patent process.

Our relationship will be that they machine the materials needed for our product. We will pick up all parts, assemble, finish, etc. and then sell on-line.

Based on this relationship, can someone help clarify when it is necessary to have a vendor contract in place? Does it relate to $$$$ spent, products delivered, payment terms?

Thank you.

Sj

You should have a vendor contract in place before they start work - if they're alraedy started working, then you need to put it in place immediately.

The agreement should lay out pretty much everything - each parties (i.e., you and your vendor) responsibilities, milestones, payment schedules, rework guidelines, etc. You said you're going for a patent - are they going to own any of the patent rights? This should be specified in the agreement. I've seen many a times where this stuff was not specified and then both people claimed rights.....

Good luck!
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Thank you so much for this advice.

Do you feel that putting something in place now that we have moved past the talking stages and they have actually cut out a prototype version that this may require a lawyer to review?

Sj

I think newbies put too much emphasis on this sort of thing, especially if it involves keeping things all to ones self.

A vendor contract is usually more for trying to maintain a price and production over a period of time. I'm assuming you own the drawings and they are simply working from them. You might want to have a contract that secures your pricing for a given period of time, usually no more than a year and frequently less during trying economic times. So from your side, you'll want to address pricing, delivery times, minimum order size quality control standards and warranties. From their side, they're going to want from you, minimum production runs, longer ones lower their costs. They may want annual purchase committments from you. This is because many times a machine shop will run a years production at one time, especially when there are complicated setups involved. Say you project using 1,000 units/month. They'll likely quote you based on 1,000/month but when they run them, they'll run 12,000 and ship you your 1,000 each month when you order them. This saves them on their setup costs and as long as the materials are some exotic metal it covers the carrying costs. I wouldn't waste my time worrying about them knocking off your product. A patent has very little impact on us little guys anyway. Most companies don't rip people off and even if they did and you have an enforceable patent, do you have the resources to go to trial...generally not. For the most part about all you can hope for from a patent is a year head start in the market, or a company sees it and wants to buy it from you and makes you filthy rich.
Good luck

Denny

Thank you for this feedback. Funny that you mention we "should" own the drawings, because we had a bit of discussion around that exact topic with the machine shop. We brought them the prototype (no drawings), we have since changed it slightly and everything seems to be working smoothly from a production standpoint.

When we asked to have a copy of the drawings, they said that they DO NOT give that out because they would lose business - but that we technically own them (we just don't have them on a disc.) We have received a printout of the nesting setup and of inidividual parts w/o measurements of course.

We did have them sign non-disclosure/non-compete agreement up front, which I assume helps - but it was very disturbing to us that we are not being given a copy of the CAD drawings on a disc (which we were given the impression we would receive as part of their service). Everything starts with a conversation and nothing is really documented. We have since started to follow-up every meeting with an e-mail outlining what our understanding was of the meeting.

This is why we started to wonder if we needed a "vendor contract" in place, because we are not sure what is considered "standard procedure" at this point.

Sj

I'm sorry it's taken me so long to respond...I didn't see your follow-up post.

If they made the drawings I can understand their reluctance to provide them to you. I wouldn't hesitate to ask for something in writing that states that you own the drawings but they retain them. That's one option that will provide you with a little protection. The other option is to hire a draftsman to draw them from your prototype...then you own them and can shop them around for the best production deal.

I went through something similar when I was trying to hire a landscaper. The first one I interviewed I walked him around and explaining exactly what I wanted...they gave it to their architect and brought the plans back. After we went over them I asked for them and they told me No, saying they never give out the plans. I tried to reason with him that if someone won't provide me plans that will allow me to compare apples to apples, I automatically suspect their quote is going to be too far out of line. When I went to 3 other companies, they all willingly provided me with copies of the prints...all 3 were pretty close in cost....about $12,000 less than the guy who wouldn't give me the plans.

If you got the drawings without the dimensions, why not spend a hundred bucks on some micrometers and calipers, measure and put in the dimensions...or take your prototype to the draftsman as mentioned above. Right now in this economy I suspect if you shop the work around, you may find it a lot cheaper...they just want to keep their doors open.
Good luck

Denny

Thank you so much for this response. It makes a lot of sense and it is something we were feeling the need to consider. You have given us the nudge we need to move forward.

Thank you again,

Sj