A Good Sales or Manufacturing Contract Will Protect You From Catastrophe

Imagine you manufacture crucial components in someone else’s finished goods. You have a new guy in the assembly department who didn’t quite hit the quality standards. Your customer didn’t notice the defect and the overall product failed for the end-user, causing a flood in their computer cold room. The end-user had a loss of data and were closed for three weeks. Are you liable for all that damage, or just for the cost of your faulty component? 

If your standard contract isn’t specific enough about what happens with a defective part, you could be liable for consequential damages of the end-user.   

A good contract for sale (or distribution) of products will state the price, terms, and conditions for the sale of goods, equipment, or other products. It will also discuss the risk between the manufacturer/distributor and the customer for parts that are defective and for bad specifications. The return policy will have inspection procedures and return procedures. It will have warranty information and limitations on the liability of a party.  

The actual contract can be the fine print on the back of an invoice or order form, or it can be tailor-made for a particular sale. Wherever possible, you want to provide your own terms for the transaction.