A Brief Introduction to the Foundry Agreement
A foundry is a manufacturing plant where castings are manufactured by softening metal,melting it into a form, and letting it set. Regardless of whether you have ever been to a foundry, or even realize what one resembles, you are surrounded by the metal castings they produce.
A Foundry Service Agreement doesn’t simply deliver metal items for motor, railroad, or funnel parts. It also structures segments for machines that are required for producing a lot of items consumers rely on for their daily needs. 90 percent of every single product depends on metal castings.
Who Takes the Foundry Foundry Agreement – People Involved?
The agreement is drafted between a purchaser and a seller. In this case, a seller is usually a factory or any manufacturing plant. The products and services that are being sold need not be for an end consumer. The purchaser is any industry, usually a manufacturer themselves, who needs the products that the seller can manufacture.
Purpose of the Foundry Agreement – Why Do You Need It?
The agreement is intended to avoid any confusion about the deliverables. Most clients require highly specialized and minutely specific items from a foundry for their purposes. Each of these products is critical for their machinery. Any errors can cost significant losses in revenue. For that reason, specifications are important. Through this agreement, both parties specify the nature, type, dimensions, and any other specifications for the deliverables. This not only outlines the exact requirements, but assigns liability for loss of revenue or machine downtime of the buyer directly attributed to the sellers’ products.
Contents of the Foundry Agreement – Inclusions
A standard foundry agreement sample includes the following terms
- Definitions of all the terms involved in the contract, including terms that would be abbreviated in the contract
- The nature of the foundry services to be provided
- Location of manufacturing of the products or services
- Permissions for outsourcing any or all parts of the work
- The process technology to be used
- Delivery of process specifications
- Exclusivity of use of the process technology and process specifications for delivery of the products
- Intellectual property rights required in the process
- Use of the IP as part of the production process
- Restrictions on the use of IP, including its surrender rights
- Rights of pre-production qualification
- Sharing of expenses for risk start products and the events for which the whole price would be charged
- Treatment of qualification sample lots and the time duration for such treatment
- Pre-production termination of the agreement
- The process of determining quality of the products after the completion of the production process and the documentation requirements
- Rights of specification testing and compliance of the products with the original processes
- Failure and Defect reporting
- Treatment of events that are outside control of either party
- Reliability of records and data
- Responsibility of the seller to provide the buyer with information about various aspects of the production process
- Scrap disposal
- Responsibility of the seller to provide metrics for manufacturing
- Return Material and Authorization
- Rights of site visits and employee assignees there to
- Business review meetings
- Pre-production cost allocation
- Price of wafer production
- Rights of audit
- Invoices and payment terms
- Shipment of products and delays in such shipments
- Force majeure
- Title transfer and risk of loss
- Capacity planning and forecasting
- Order placement and processing
- IP Ownership
- Assignment of rights
- Treatment of jointly developed technology
- Granting of licenses for IP
- Confidentiality clauses and information exempt from such clause
- Indemnification clauses
- Termination of the contract
- Insurance provided
- Dispute resolution process
- Limitation of liability
- Miscellaneous Provisions
Benefits & Drawbacks of the Foundry Agreement
- The specifications of individuals can be met
- With accurate capacity management, expectations of both parties can be managed appropriately
- With responsibility and liability for pre-production quality testing maintained, both parties understand their obligations with respect to risk start products
- The rights of each party to ensure performance of the other in the agreement are guaranteed
- By allotting the title transfer, both parties ensure that risk of loss is optimally mitigated
- By periodic information provision, both parties can ensure that the process is happening as intended.
- A lot of effort has to be put in and if anything goes wrong then the whole process should be repeated again.
- A lot of materials and metals should be used. Wastage takes and environmental concerns should be addressed appropriately.
- This agreement is a time taking agreement and it involves lengthy procedures.
- Quality checks might yield unwanted results
How to Draft the Foundry Agreement?
When drafting this agreement, some points that need to be kept in mind are
- The pre-production rights of each party
- Providing information about the specifications of the products
- Liability of risk start products
- Audit rights for the products
- Quality assurance for the sample lot
- Processes and technology to be used in the production process
- Licensing of IP rights and their use in the production
- Sampling for quality control after production
- Title transfer to mitigate the risk of loss
- Providing real time information for the buyer to understand how the process is being operated
- Severability of the contract
- Process of quality control.
The negotiation strategy in this context would be about
- The price of the product
- The title transfer
- The sampling lot
- Audit rights
- Site visits
- Infrastructure overhaul for meeting the specifications
- Liability of the cost of inspection and quality control
What Happens in Case of Violation?
Breach of foundry services agreement should be referred to the jurisdiction in charge of the area where it is applicable and the possible decisions to be taken based on the rules and regulations of the area. In case the time is not utilised to make amendments and the violation continues then it has to be referred to the local jurisdiction. The remedies for a breach of contract are usually mentioned in the contract only. Parties may even include a provision of arbitration. However, when breach constitutes a loss of goodwill, the parties may apply for punitive damages. This is true when time is not of importance. Otherwise, for the loss of profits, compensatory damages are required.
Foundry agreement draws the lines of limits and procedures to be followed during the metal casting and design making. This agreement should be followed in a meticulous manner to get the best benefits of it. It ensures that delicate sophistications required from both the parties need to be met.
[Also Read: Manufacturing Contract Agreement]
Sample Foundry Agreements
A sample of the agreement can be downloaded from below.