Customer contracts and liability

[ACP1]

As an owner of a new CNC business, I'm curious how other business owners are working with their customers. The questions are:
1) Do you have a formal services contract to provide parts (in our case, either plasma cut or milled) or do you just use their purchase order? The concern is if a customer could order the parts and then not take delivery (pay) for them. Is there an industry norm?
2) Do you use any type of limited liability contract (or clause in a contract) by which you either minimize (or completely eliminate) your liability should they be sued? Again, not sure what the industry norm is. I look forward to your replies.

[tlagnhoj]

I need to start by saying that I am NOT an attorney nor have I ever played one on TV. These are MY OPINIONS learned from the Law School of Hard Knocks.

As an owner of a new CNC business, I'm curious how other business owners are working with their customers. The questions are:

1) Do you have a formal services contract to provide parts (in our case, either plasma cut or milled) or do you just use their purchase order? The concern is if a customer could order the parts and then not take delivery (pay) for them. Is there an industry norm?

Such contracts are only as good at the person signing it. If you receive a PO for a product and your customer fails to honor it upon delivery you already have a (what my attorney refers to as) "a material breach of contract". The PO IS the contract to deliver the items at a set price. If your customer will violate that "contract" then they will violate any other contract you get them to sign. If price, delivery date, FOB point or any other information is missing GET CONFIRMATION from your customer BEFORE accepting their PO.

Know your customers!!! If you get a bad feeling from them there is more than likely a reason. Meet with new customers at their place of business. It is amazing what you can learn standing next to a receptionist for 5 minutes while waiting for your contact to appear.

2) Do you use any type of limited liability contract (or clause in a contract) by which you either minimize (or completely eliminate) your liability should they be sued? Again, not sure what the industry norm is. I look forward to your replies.

In some states such "contracts" are null and void on their face. It is considered not possible to release a company from liability without knowing that a potential damage is possible. Further in most cases it is not your customer that will experience the "damage" but rather their customer. If the product that your customer sells becomes the subject of a suit there is every likelihood that EVERY company that can be identified as having contributed components to the product will become a party to the claim. Any contract you may have with your customer can not and will not protect you from actions from their customer.

I have never had to test this advice but the what I have been told is that the more you know about how the parts you make are to be used the more responsible YOU are if they fail. Make your customer responsible for the design by NOT getting involved beyond what you need to know.

I require my customers to provide CAD files of ONLY the part they need made. The files must list materials, methods (weldments etc...), heat treat and surface treatments that I am responsible for, all listed in a separate layer on the drawing. If it is not in that ONE layer it is provided by other OR not required. I am not and will not be their "Engineer". And since I do not do welding or heat treating anything that comes in that indicates that a part is to be welded OR heat treated I "No Quote". My customers usually remove the offending information and submit a new RFQ.

The point is that what I have in my files is a drawing for a "widget". What that "widget" does or how it may be used is not my concern. It's rather like selling bolts to a company that resells them to an auto company. How am I to know if the bolts are to be used to hold on a license plate bracket or a brake caliper? If I can not begin to guess how that bolt is to be used how can I be libel for it's failure when misused?

Again... I AM NOT AN ATTORNEY!!! You should seek competent legal advice on this matter if you have ANY doubts.

[harryn]

Some companies require a down payment with the order. Ideally, it should be enough to at least cover your materials so that at most you loose your time.

[autobot]

You can also sell your debt owed to collections right?

Or 'factoring' where you sell your invoices to companies?