Name: Bootcamp Module 3: Drafting Contracts to Buy Manufactured Goods
Uploaded: 2025-07-10T17:18:14.005Z
Duration: 58 min 21 s
Description: Bootcamp Module 3: Drafting Contracts to Buy Manufactured Goods

Transcript for "Bootcamp Module 3: Drafting Contracts to Buy Manufactured Goods": Hi, everybody. Welcome. Welcome. Welcome. I am so excited to be here and so excited to be with everyone, for this webinar. I we are gonna be talking today about drafting contracts to buy manufactured goods. This is our third module in a series of webinars that are focused on vendor contracts. And we call this the vendor contract boot camp because the goal is really to help everyone understand kind of the fundamentals of this world of manufactured goods. And I think this is becoming a lost art to a certain extent as the world is overwhelmed with GenAI, with SAS, with privacy, with data. It's just become this very data digital centric world. But we wanted to include this topic because it really is an important one, especially if your company does anything with physical goods. So and then I wanna just give a huge shout out, and thank you to Agiloft for sponsoring and hosting this series and making it all possible. They've been a fantastic partner in bringing all this training to you. So very grateful to them. The good news is you can if you wanna look at the past episodes, if you missed those, we've got module one, which was really cool episode or module. It was focused on the, changes, strategic changes and challenges, things like new tariffs and, currency devaluation and all the other random stuff that interrupts supply chain contracting. And then the last session, the second module, was focused on pricing and payment and credit. So this is our first one of the the remaining three modules are gonna focus on specific types of contracts. This one's manufactured goods. Module four is gonna be focused on digital goods contracts, and module five is gonna be focused on services with deliverables. So we've got some great series ahead. I hope you'll tune in. If you missed the past one, you can go on the Agiloft website and rewatch them. You can also download the slides, and, we'll have handouts coming for these episodes as well. So, really excited to be able to share this kind of training with the world. So before we get started, I just wanna just kinda lay the land for what we're talking about, which is manufactured goods as being so different from other types of contracts. And there are lots of reasons it's different, and I've outlined some of them in this slide. It's just you're really thinking of a whole different world when you're talking about physical goods. And so what I have found, especially when I'm working with people who haven't done a lot of physical goods, manufactured goods in the past, one of the ways I try to get them their head around it is to focus on the end result. What goes wrong when you have these physical goods that you could have prevented with better terms in your contracts, with more realistic operational terms in your contract? So I encourage you as you listen today is to think more about and and think about how you're gonna be framing these kinds of issues in your contracts and the kinds of risks your business faces with your goods and, really, how you can, adjust your contract that way. And so our our agenda for today is four parts. We've got specifications and quality control, which is such a huge part of manufactured goods success, delivery title, risk of loss, and then we're gonna talk about product warranties, and then we'll wind out with risk frameworks for goods. And that's gonna cover recalls, indemnification, and limitation of liability. So I'm very thrilled with our guest today and our other speakers, and I'll go ahead, and introduce you, Tyler Quillen. Thank you so much for being here, Tyler. Thank you for having me. It's a pleasure. I appreciate having the opportunity to come and chat. I guess I'll do a quick little intro. I'm I'm Tyler Quillen. I'm senior corporate counsel at Microsoft. I'm product counsel for Xbox hardware and devices ecosystem, which means I support all the engineers and the business leaders that are building all of the consoles and accessories that we play video games on. Awesome. Thanks for having me. Thank you. And Andy Miller. Welcome, Andy. Hi, Laura. So, thank you for inviting me. Pleasure to participate here. I think I've I was invited because I I really headed up, the legal side of procurement for Lucid Motors in the early days when Lucid was developing its factory and its products. If you're not familiar with Lucid, it's a it's a high end, electric, sedan, one motor trend car of the year, the first year out. And I was involved in negotiating for the thousands of parts that went into making the motor motor vehicle. I headed up a team of, five legal professionals, at Lucid, working on that and also, you know, handling things when the contracts were eventually signed and some of them went wrong. So Can't believe anything ever went wrong. What's that? Yeah. I know. Well, you know, the thing with the in the motor industry is it takes, it takes 3,000 parts to make a vehicle, and it takes one part not two. So That's awesome. And then, also, Andy and I had an overlap for a little while at SolarCity way back in the day Right. In whenever that was. That would have been, like, 2015, '16, somewhere around there. Yeah. So Before it became Tesla. Yep. Yep. Yep. That's how we go way back. So, anyway, I'm so excited to have you both here and really dig deep into some of these things. So the format for these, mod all the modules is we divide them up into four topics, which I've laid out. And for each topic, we're gonna we divide that into two. And the first part, I provide, just a five minutes or so of mini training. And that's really just lay the groundwork for what the rules are, how these things work, kind of objectively if you're new to the topic. And then we'll spend the second half of that session mini session, the fifteen minute session, and really dive into Tyler and Andrew's advice and strategies for dealing with that topic. So with that, I'm just gonna jump right in, and we're gonna talk about our first one, which is specifications and quality provisions. These are so, so critical, especially when you have complex, manufactured goods. Whether you're buying, you know, a car, you're buying an Xbox, whatever you're buying. Well, you know, if you're lucky enough to buy an Xbox for work, whatever you're buying, it's it's complicated. And one of the key things with that you need to understand when you're doing these contracts is how to use the specifications and quantity or quality provisions to best protect your company. So the reason all these, goods contracts are so different is because it's so hard to fix things that are physical. With a digital product, you can sometimes just upload a patch. You can, you know, redo it. It might take a little while, but the actual delivery of the solution often is not overly complicated. But it it's the opposite with, manufactured goods. Often, it's the maybe the, little screw that was broken isn't too complicated, but fixing it and, you know, getting the the product to good is can be much more complicated. And there's a few reasons for that. One is the amount of time that, again, even if you have a little screw, trying to fix goods at a scale is so hard to do. And it's also it involves people and tools and, doing things to a physical item that may be on the other side of the world from where the people who are that fix it. It's also because often goods are scale. You know, there's some really mega goods, but most of the time, goods are smaller. And you have to deal with shipping them to whoever it is that is doing it or dispensing your fleet or your your, group of, repair people and maintenance people to where the goods are to be fixed. And then finally, it's because of the potential. There are things that happen with goods that they can have, you know, catch on fire. They can, have breakdowns that cause them cause an injury or or sometimes death, and that really complicates things as well. And so because of how hard it is to fix stuff, because of how important it is, especially with the physical injury potential, that's why the specifications and quality control focus is so much bigger, at least from my life experience, than it is with kind of your typical digital services contract that we spend so much time on the front end dividing. We and the engineers spend so much time really developing and documenting everything about the technical situation relating to that good. And so as lawyers, as contract managers, as sourcing folks, we are really focused on translation. We're we're learning from from the engineering team, from the technical team, the product team about the contract. They are developing written descriptions of things that are technical. And then our job is, okay. How do I take that and put that into a document in a way that's gonna work? And one of the ways it works is by helping translate technical terms into language that's appropriate for a contract. And you'll see it doesn't mean necessarily in plain language. It's not we're not trying to take this complex technical thing and boil it down to, you know, something a fifth grader could understand. That's not the purpose of technical specifications or even quality control. We are trying to create something that's objective, is one of the things you're going for, and it's measurable, and it is something that is fixed that we can see. So we're avoiding subjective concepts, like high quality or efficiency or things like that, and we're really focusing more on precise things. That may be the type of steel, the the some kind of international standard, a percentage, or things like that. Now one of the other cool things about goods is that we invest a lot before the good even arrives. If you are buying parts or equipment at scale or that's expensive, often, your folks are gonna be on-site with the manufacturer. And they're gonna be doing something. This was a topic a concept new to me, which was factory acceptance testing. Because at one point in my career, I'd only done, you know, random things. And then I was like, what? You go on-site while it's made, and you look at the line as it's being made? Really? But they do, and it's a really important part of it. So that's called factory acceptance testing. There's different variation. There's and what people refer to as fat fat testing, and I'm like, no. It's testing, but we we won't talk focus on that. But first article testing is a variation where you're only testing the first one that comes off the line, not all of them. But sometimes you stay, and your team and your quality team will stay on-site during the whole manufacturer to make sure that it contains or sustains that, quality. Then the second one is depending on the complexity and the nature of the good, you may have a whole second round of quality testing when it arrives on your site, either testing of the stand alone system, or it could be how the stand alone or how the system is integrated into a bigger workflow or process, or effect or whatever it is it's part of. So on all these things, we're really paying attention to the testing terms. That's a big part of this, and a big part of our role as lawyers is making sure that you are getting precise. So I laid out four different things to look at when you're doing this testing review. And when you are helping your team and they're talking about, okay. We want the product to do x or achieve 8% of this thing. And that's when you go in. Well, how how are you gonna measure that? Who's gonna measure that? Because that, as we all know, the devil's in the details. Is it your vendor is measuring it themselves? Is it, your own third party consultant who's you've hired, who's independent, and they're gonna go on-site and measure that? These are very different, impacts of quality control, and you will have a lot more ability and a lot more trust in those results if it's something you control, if you're using an independent. And then, especially, what happens if the test fails? Where is that? And we're gonna talk a little in a second about kind of acceptance. But thinking about what's gonna happen. If it doesn't pass this test, is it gonna get repaired? Is it gonna get tossed out? Is it what's gonna go on? And then when even after you've installed it, you've accepted it, you're using it, companies with, sophisticated manufactured goods continue to do that quality control, sometimes called quality assurance. There's a lot of different names for these things, not just one. I've included two typical names, but they're not they change by industry. So a nonconformance or deviation report. This is whenever something happens that and I always said, whenever this something goes wrong and an engineer's within a 100 feet, we get one of these reports. You know, they can they're gonna dive in and figure out what it was that went wrong. And then the same for corrective action report, that these are things that those teams are developing to go and both figure out what happened and make sure it doesn't happen again. And as you can imagine, these are have a lot of, potential risk. As lawyers, we're getting nervous about what's in these reports, and we wanna make sure how we're being how you're discussing it. But that's a training for another day is how to work with, communication about problems with your products. Maybe that'll be a future, webinar. So that's kind of my just the basics of specifications and quality, quality control, quality assurance, and why it's so important. And I wanted to start our first question for discussion is I wanna start with you, Tyler, is really about strategies. And this is a hard one for a lot of people because if you don't come from a technical background and you're in this job, and it's all engineers and they're talking in at a level that you can't understand, what do you think works best in that kind of situation for helping people understand how to do their job that they need to do on the contracts, but also, stretching to work with the engineers? That's a great question. And spoiler alert for our audience, I don't have a technical background, so this is a perfect question. I think this is not a place for your pride to take center stage. Right? I think humility, and relationship building is integral, a cornerstone to to doing product work. And so being very transparent in communicating what you need to communicate, whether it's, hey. Listen. This sounds really cool. You're loose using a lot of words. I don't quite understand. Can you can we take a pause? Can we zoom out? And can you explain this to me like I'm in middle school? And then, hey. Listen. If that doesn't work, roll it back. Right? I'm so sorry. Thank you for taking time. Could you explain it to me again, but like I'm 10? And just until you get it. Because that's really what what you want. Right? The goal is to have a contract that not only meets the the technical aspects, but it it it protects and insulates the company from from liability and make sure that everybody's happy. Right? The supplier gets paid, we get paid, everybody's making money, everybody's happy. And so we can only do that so long as everybody's coming along for the ride. And I actually think that sometimes not having a technical background is a benefit because sometimes the engineers can get so in the weeds, in drafting the technicalities of it that if it were to go to litigation, heaven forbid, and some judge or anybody was trying to interpret the intent of the parties, it would have been unclear. And so to come from a a layperson's, background, just a a technologist's love of, you know, technical aspects to try and help you put a lens for the the common person to understand, I think, is a benefit. So, you know, guiding light and takeaway is just be humble, ask questions, seek for understanding. And, honestly, I think the humility helps build relationships with clients such that if something does go wrong or you ever need to ask for a favor or you need to lean on that, you're already building relationships that you can lean on later. Yeah. For sure. And I know the, we had a, somebody actually it was a Tesla. It was a Will Drury. It was on the first module of the series, and he was, in charge of supply chain for the manufacturing part there. And he said he was trained, and I I didn't I wasn't the one who trained him, but it was he said he was trained to always focus on when this goes wrong with this supplier, what do you have to prove it? What do you have? What piece of what emails specifically said do this so that you can later look? Or what term in your SOW? Or what is it or specification? You wanna have that documentation to be able to show that. And that's our job is helping them kinda translate some of the engineer speak into something that because the judge, the jury, the arbitrator, they're likely not gonna be engineers in this or with this specialty either. So we have to make it so regular people can understand. Great. 100%. Point. So let me move to you, Andy. And the the question I wanted to ask you, which I think is this is really one of the hardest things about it. One is translating concepts you don't necessarily really understand. But the other one is how do you balance detail with the need to create, you know, kind of a succinct description of what's going on. You don't need the 2,000 page technical data in the contract, but you need enough in the contract. What's your advice on, managing that challenge? Well, you know, it is so much depends on the product you're talking about and the relative expertise of of the parties. You know, often as a manufacturer, you have expertise in one part of the product, but there are other parts where you're delegating that very much to the supplier. So for example, you know, you take a motor vehicle. It has things made out of leather, things made out of plastic, things made out of steel. The expertise that Lucid Motors had was how to wire the cells into a battery and how to discharge and control that battery to get maximum capacity from it. That it did not know how to make rubber wheels or carpets or stretch the leather over the seats or make the seat or make the seat go up and down or back and forth or create a massage. Right? So, you know, one of the approaches for balancing precise QA, QC requirements in manufactured contracts. So if you are the expert here, if you are the industry leader and you are the manufacturer, then very much as you said earlier in your slides, go in and give very detailed specifications and make sure your supplier understands them and test the prototypes. But very often, you're not in that position because it takes many parts to make goods. You know? I'm sure, you know, the Xbox has hundreds of parts, right, down to the tiny little screws that are impossible to remove, unless you have a special screwdriver, and have to be adjusted with a particular torque, then go with the results. And this kind of feeds into a little bit of the last question as well. If you're not the expert, what you can say is I want this particular result. Alright? And you specify the result, and then you say to the sub whoever the manufacturer is, whether they're a contract manufacturer doing exactly what you tell them or or or whether they're a supplier doing everything from start to finish, including the design and the choice of materials and the manufacturing techniques, be very careful about specifying the results. And that puts you in a position of power because you get to choose whether it's you get to determine in the contract whether a result has been met. Now there could there'll be we can get into testing. Right? And there are industry standards for testing. When things go wrong, you know, people often use the eight d analysis developed by Ford, eight disciplines analysis, which, you can specify in the contract. That's relevant for some industries and not others. So you can specify in the contract how testing, is gonna is gonna work. Again, it's gonna be very specific to the parts. Yeah. For sure. You know, say it's a bat say it's a battery cell. You know? How you know, what's what's the degradation over time? Because batteries are full of chemicals, and they start to degrade as soon as they're manufactured. But what's the degrade how does the degrade the degradation curve change over time depend on usage, the the charging and discharging? And, you know, so a person who lightly puts it, their foot on an accelerator of a of an electric car is gently discharging the battery, but someone with a lead foot discharges it differently. That's And the Yeah. The the cell supplier is gonna be very cagey about this because they they say, well, we don't know how you're gonna use our product. So, you know but you kind of you come up with some some parameters and, you know, and you you agree with your own engineers. You know? What what what, standards what what testing results do we need that would just that would support the overall results? Yeah. And I love I really love the focus on results. I think that's a fantastic one and and definitely best practice for lawyers who are helping people with specifications. So I'm so glad you raised that. And I think one of the ways we see that referred to is turnkey and that, contracts will talk about turnkey solutions. That's kind of the see, Jim. Yeah. Yeah. So it's it there's different words for it for different industries, but it's it's, yeah, really such a fascinating subject. But let's move on to the next one. And the next one we're gonna talk about is delivery title and risk of loss. And this is one that for people who aren't used to doing physical goods work, this is a new world. And it's a little bit more complicated because we're talking about uniform commercial code. We're talking about the international convention on or UN convention on the international sale of goods. There are different laws at play. So one of the complexity with manufactured goods is it's not a simple, you know, something is dropped off on your front step delivery in a lot of cases. It's very it can be very complicated when you're talking about complex goods. So you could have the the part arrive or the equipment arrive, and you may have an order that has lots of different pieces of equipment that gonna arrive over a six month period. Although, personally, I like one delivery per p purchase order. That's my personal standard. But, sometimes that's not how it works out. So physical arrival, it's not necessarily just one date, but it's also only the first date. Because often these complex pieces of equipment that are manufactured have to be installed or integrated into a bigger system. And then that's not the end because now you gotta make sure it works because this is a lot of complicated things being put together, and there's commissioning and there's testing. And then finally, there's some kind of acceptance that's gonna happen by the customer, in some form. So how you define delivery is gonna be very important. And the reason delivery is so important is because it's gonna trigger a bunch of things in your contract. It's gonna trigger and it's not necessarily all of these, but these are common triggers of when the payment's due and what taxes are due. You're taking delivery overseas. Are you taking it in The US? When the warranty start, this was a big I used to do module solar panel modules. This was a huge one for us because they start to degrade as soon as the box is open and as soon as they're delivered. And it's, you know, gets complicated on when we want that delivery date to be, and then risk of loss and legal title transfer. And so risk of loss, if you haven't done a lot, people get really confused on risk of loss. And my what you really need to remember is this is just basically if if something happens, if it's, dropped off the side of a a cargo ship, if it is hit by lightning, who's responsible for paying for it? Who's gonna have to cover those costs? So that's essentially risk of loss. In most goods, that's gonna be covered by your Incoterm. An Incoterm is the three letter, you know, acronym published by the ICC that is, international standards widely accepted, widely used. And these Incoterms include some core concepts like risk of loss and custom duties and who's taking it through customs and some of those other details. But then the thing you have to remember is risk of loss, if you have an Incoterm, it's already covered. In the Incoterm, it says something in that Incoterm about who bears risk of loss. So my personal view is I don't you could, in theory, repeat it and say the exact same thing. Risk of you know, there's a risk of loss, an Incoterm selected, and you just repeat how that Incoterm works and say risk of loss. But I have had so many times in my career where there was in conflict. Those were in conflict, where somebody later changed the Incoterm, and it does no longer matches the words that were written out in the provision about less risk of loss. So my view is say it once and just say it then, and let the INCOTERM do its job. On title, this is title is we all know legal ownership. That's who actually has title and owns it. Incoterms don't address title. That's not something that are that's covered in those. And so you should, as best practice, have clarity around title and title transfer. You don't have to, and we're gonna talk about why when in some situations. But, to me, every contract with for sale of goods should have a title statement. And the key, and this is one of the fat things I wanna make sure everybody watching knows about, which is title transfers. It can happen before delivery, but it can happen after. And this is a big surprise for a lot of people. This is under US law and the UCC. And so the uniform commercial code says that title transfers for good sale at physical delivery. Now if you're doing a rent equipment lease, if you're doing a bailment or consignment arrangement, which is something sometimes we do with manufactured goods, that's different. We're talking about a physical sale. When the item's delivered, that title is gonna transfer to the customer at that moment. Now a lot of people think because most of the UCC rules in The US can be overwritten by the parties in their contracts. We can agree to whatever we want, and that's gonna control. Well, this is one of only a handful that that's not true. The UCC and the case law is very clear that this provision cannot be, trumped by a provision in your contract. This is a fixed standard. It continues. The only thing you might be able to get if it's a messy factual situation, maybe you'll get some equitable relief in some way or whatever. But, generally, the title's gonna transfer at the moment of delivery. Well, that creates a huge mess sometimes. And so what I see is the contract, they'll say something like, I'm gonna deliver the good, and title passes when you finish paying for it ninety days, six eight hundred eighty days later. But if it's a if it fits these parameters of a good in The US, you know, come governed by the UCC, in fact, regardless what your contract says, you're taking title at delivery. And what happens is the vendor, as I said in that last slide, you can see this part of the code. It's limited to a reservation of a security interest, and a security interest is like a lien. And so the vendor's given a lien, but it's an unperfected lien, which means you're in the back of the line if there's a bankruptcy or other dispute. So what I've seen time and time again is the vendors deliver it thinking they have title. Something happens, and they don't have title. They have an a security interest, and they didn't go through the proper legal steps to what we do called perfect or make it better and stronger. And if you don't do that, you are at the back of the line with everybody trying to collect money. So that's one of the problems and why it's so important to be clear with teams about that delivery and title and security interests and making sure we're clear on that. From the customer perspective, what I've seen, when customers don't realize they have title to a good, it also can create issues for your financial statements because you're not reflecting it on your balance sheet. You you're not properly thinking about it as your own good. It's still theirs. And so I think making sure you understand those dynamics is really important and something, again, I find very few people understand the details of how this works. So with that, I wanna talk about the, and, Andy, I'll I'll start with you this time, which is really and it doesn't have to focus on the title part, but more on the delivery and acceptance because that is such a big part of physical goods and how we're setting up, ourselves for success when goods are gonna be delivered. What do you think are the harder parts and when you're counseling clients on the whole acceptance and delivery process, and things that people watching should think about when they're doing their own deals? Well, again, you know, I think it depends on the product and the look the various you know, the location of the parties. You know, to go back like, batteries now in front of mind for me because I've been talking about batteries, so let's stay with that. So let's say you have a Japanese manufacturer of battery cells. You know, title passes upon delivery. That's also when your warranty is gonna start. Your Japanese supplier is not gonna wanna give you a very long, warranty. So, you know, where you take delivery is gonna trickle down into your warranty. Right? And little known fact, you know, you might think you you might you might look at your manual for your car and say, oh, so so on my 12 volt battery, I've got a I've got a four year warranty. And on the powertrain element, I've got an eight year warranty or a 100,000 miles or five years, whatever comes first. Right? You know what the manufacturer's getting? A year, eighteen months. Part of that is sucked up in delivery and storage. Part of it is, like, you know, delays in manufacturing. The the manufacturer basically has no warranty to rely on. And so, they they they wanna extend that as much as possible. Right? And so and so they're gonna take so they're gonna look at their manufacturing and sales process, and they're going and they're gonna look at the various location of the parties, and they're gonna dis they're gonna determine where and when to take delivery based on those considerations in that particular case when you're talking about something like something chemical like batteries or paint or glue or something like that. Right? So so, you know, that's that's that's that's that's one consideration. I so so, generally, I would say, think about the product, think about the parts and location, and think about how delivery is gonna and the timing of delivery is gonna impact the overall manufacturing and supply process and your other rights under the contract. Yeah. Great great point. And I think delivery and the delivery point was something at you know, for people who don't do a lot of good stuff, they kind of gloss over and move fast past it, small d delivery. But once you get into these more sophisticated higher dollar value contracts, I know for me, and I'm sure for Tyler and Andy for you as well, like, we spend a massive amount of time really honing in on exactly when is delivery for this complex system or complex, purchase arrangement that sometimes has a thousand different things happening over a time line of six months, twelve months, whatever it's gonna be, it can get very detailed. So great great points, Andy. So for Tyler, I wanna see what do you are you seeing anything in terms of trends or approaches in the industry? I know we've all kinda come through come of or come through the last several years with some very big disruption things that have happened. And, you know, we did that in module one, so I won't go into all the disruptions. But what kinds of trends are you seeing in terms of negotiation and delivery and acceptance now that maybe were different even a cup like, a year or two ago, five years ago, kind of over the time that you've been working with goods? What kind of things are you seeing, particularly to help people understand what's the trend now? Yeah. It's a good question. I I think, first, I I don't know that there are sort of real revolutionary shifts in delivery and acceptance. These are all sort of fundamental blocking and tackling of of sort of contractual elements for manufactured goods and contracts that control. But I will say there's a bigger emphasis on, priority manufacturing, unlike on getting in line or or having sort of, capacity elements to to your manufacturing lines and getting units, in priority placement, and then also dual sourcing. Right? So so diversifying your reliance on on, on a particular supplier where you can dual source one component, to two, three, depending so that if for whatever happens, a supply chain disruption, whatever, you're you're mitigating your exposure there. And then the last thing that I I'll say, and this is sort of just inherent in technology, I think, generally, in competitive industries is the delivery and acceptance and how that plays into other elements of the contract of, like, when does exclusivity trigger. Right? So oftentimes, you're negotiating on when or how long you will have exclusivity with a specific partner that does a that creates a niche component. So I'm sure solar panels have, you know, niche manufacturers that have technology or batteries. For us, it's all sorts of components, thumbsticks, etcetera. And you're like, how, you know, how long can we have exclusivity for this to to create a a competitive advantage? And some of that plays into sort of delivery and acceptance and when those are triggered. Yeah. No. That's a great point. So many ideas for new topics for future webinars. That's a such a great one. So with that, let's move into warranties. And this is really the, you know, what I think of as the big Kahuna for goods contracts because this is where, as customers, we often have our strongest position on challenging a good that's that's a problem. Because once you've once you're into the warranty, you just have better rights. And I want to explain why that is. And part of it is understanding what a warranty is and what it's not. And a warranty, the basic definition that I love, that I find is has guided me my whole career. I didn't learn it, I think, till, like, when I was a fifth year lawyer. Some before I was like, okay. Let's go into technical definition, and we'll look at the case law. And then somebody, a partner in a firm I was working at said, no. It's just something that's you're saying is true. And that's how you measure warranty. Is it true or not true? And so all your warranties are really written as statements that are gonna either be true or false. And so the first example I show where it's like, we are saying in a statement that's true, that that this widget will conform to the specifications for one year. Again, simplistic, but that's a a statement that is you can answer, is this true? It conformed yes or no. The second one says you will manufacture the widgets described in exhibit a. Well, that's gonna invite a lot of questions about what that means. Like, well, we just we manufactured it, but it didn't necessarily have everything in a. Is it strictly in conformance? Like, we're starting to get in that. And then there's also a lot of factual questions that come in when we're evaluating whether a vendor breached a covenant, which is the the description on the the right hand side, where it's a promise to do something. So the law treats these two things as different. And the reason why and it took me this is another one that I had a long time trying to understand why warranties are so important compared to other covenants. And one of them is because of the proof element. And to me, this is the most telling and the thing that I like the most and I think about the most, which is I hear from litigators when you have a warranty, it's a a true or false question. And so, really, you're just trying to prove is it true or false, and are these facts as stated here, as occurred here, equal truth? You know, make the statement true or make it false. But when you're talking about a, you know, whether you will manufacture in accordance with the specs, then it's a kind of a phrase as a he said, she said. There's lots of competing facts. And, yeah, I did this, but then you did this. And it's it gets more complicated and messy. It's harder to get past, summary judgment if you're trying to deal with it that way. So warranties just have a straighter path of proof and a straighter path for resolving disputes. There's also with warranties. We have a lot of warranty terms in the UCC. So we'd look to that to fill gaps. So warranties are just to me, they're the most, powerful kind of statements about quality, about performance that you have in the contract. So I as you can tell, I love my warranties. So there I just wanna go through real quick the types of warranties. You'll see express warranties, and I put these, four on the screen. This all I had a nice slide before this with all of my nine warranties in a box, which is why it looks like this. But, anyway, we've got these four express warranties. These are things that you warrant expressly, And it can doesn't have to be expressed by in your contract. It can be other ways. Or in the case, of course, of dealing and usage of trade, it can kinda be by your actions and the ways that you are behaving under the contract and things you're doing under the contract. So these are your typical contractual provisions or at least the top three. And then we also have an under US law, these implied warranties. And these are things that are implied unless you, disclaim them in some way, that you have to take actions to stop them from applying. In most cases, you just do this with one of those typical UCC disclaimer things you see with the all caps, under no circumstances, blah blah blah blah. That works for most of these. The things that you know are things like ice the IP rate disclaimer, you have to be explicit about. And then the one on the end of the top row about the model or sample, that's another one you're gonna have to be explicit about. If you've given the customer a model and then you deliver something different, even if you didn't say anything, you're at risk of that model being deemed an implied warranty of what the product will do. So you have to kind of address that. So there's complications, but that's the core of it. So I wanted to give you some language just to show you the difference in how we can do the words to really favor our side. So this would be the kind of warranty you sometimes receive as a customer, which is vendor will deliver to customer the manufacturer's standard warranty attached in the exhibit, and the vendor disclaims all warranties, express or implied, including blah blah blah. Now you'll notice, and this is something you wanna pay attention to, that your vendor isn't actually giving you a warranty. They're basically doing something that we call pass through warranties, that they are just the messenger. They're not the ones responsible. They're basically saying the manufacturer over here has a warranty. I'm gonna attach to the contract. They're gonna be the one you talk to if anything goes wrong. This is very common in some types of goods in the manufacturing space, so you wanna be paying attention to making sure. Or worst case scenario, I've had vendors who do both, and it's a complete mess. They'll have the vendor will have a whole bunch of warranties, but then they'll also pass through, and there'll be overlap on those. And when it comes time for a dispute oh my god. Trying to figure out who is handling what. It's just, yeah, maybe you're gonna be covered because you've got both of them, but it's gonna be really hard and complicated. So one of the things I like to do is make sure you have clarity of who's warranting what so that if something goes wrong, everybody knows what's gonna happen. So that's one. Then if you look at the customer side, this is the way that, you know, in my dream world that I like to revise it, which is I'm gonna get a warranty to customer and its end users. This is not something, sophisticated manufacturers likely to give because they don't wanna extend those rights to the end users, but I like to do that and get them third party beneficiary status if I can. And then that goods will, for ten years following installation, and then you'd list all the things you can dream of to in the list of warranties. And then you you're clear that this is an addition to any other warranties. So you wanna capture all those implied warranties. You don't have to, but it's I think, it helps support your standard if you make this kind of reference instead of just, oh, well, they're implied so I can be quiet. I typically like to, be explicit about this. And, also, know and and we're gonna, actually, this next slide, I'll get into remedies. But, these are this is a way you can do it if that's a much more pro customer. And you see there's no disclaimer of the implied warranties. So one and this is the final point on this topic, which is this idea of repair, replace, and refund. Is that gonna be enough? This is a really big issue just like delivery and acceptance was one of my top negotiated things. I think the remedies is almost as big. And that's because when something happens, not if, because it's gonna happen. It's a good it breaks. Things go wrong. What do you need to happen? So if you have things installed all over the world, having them go and repair something is gonna be really expensive because you've gotta ship all those goods from all over the world to this one location where they're gonna, you know, take ten minutes and turn a screw. And then you gotta ship it all back, and it might be worth more than the good itself, all that cost of what you had to do. So you're really thinking about those things of how long will the product be down during repair placement? Who's gonna cover your cost if you need an interim solution? You're thinking through those for your particular product, your whatever it is. And then you're thinking about refund. This is I think this will be my last point, which is really think hard about whether you want a refund. And I think in other spaces in digital goods, some other things are like, yeah. You get a prorated you know, you were gonna, I'll give it to you, prorated half of the what you paid back if it stops working six months in. Well, you just spent a huge amount of money installing, integrating. You know, like, it's not your damages are gonna be huge. Getting half of what you paid for it isn't enough. Like, that's not enough to make you whole. So, be careful. And I know it's very standard to accept that in digital and services contracts. In my experience, for anything of value complexity, be very careful about accepting just a straight refund, especially partial refund. I really push back on this a lot. I try to have that as a remedy, but in addition to other remedies, which we'll talk about in the next section. So that is those are my key issues. So I wanna start with you, Tyler. And these, you know, these issues are hard when it comes to warranties, and this is some of the hardest negotiations that we have. What do you think What what are the hardest parts? What are the most challenging parts when you just either you know, I think for negotiations with vendors because you're trying to achieve an outcome that both parties could be happy with. What are your thoughts on that? Yeah. It it's hard. I hate to be the, like, it's all interconnected guy, but, foreshadowing for sort of our our next section on risk and frameworks. But, really, this sort of plays directly into that. I think of it in sort of three buckets. Because our our work is so technologically, dependent and and focused on innovation, the IP warranty is really, pretty pretty critical in addition to, conformity and specifications, ensuring that we get those. And then lastly, because Microsoft is just so massive, there's just some policies and standards, and processes that we just we can't budge on. Like, if you're gonna do business, you're gonna be a supplier for Microsoft, you need to warrant that you're gonna comply with our policies and applicable laws and those sorts of things. And applicable laws is usually a low lying fruit. Like, you should if you're gonna do business, you need to just agree to apply abide by laws. But the, hey. Can you just, like, agree that you're gonna, you know, read these linked, business conduct terms and environmental commitments and sustain and all these things and that your business is gonna comply? And for smaller businesses, that's a challenge. I understand. Like, if you're running, sort of niche technology widget manufacturing business and you just have certain constraints on the amount of investment commitments you can make about how the materials you use are sourced or etcetera, it it's a challenge. That's often one those sort of three buckets of IP specifications and conformity and then also commitment to comply with sort of Microsoft's pretty overarching terms and policies. I will say, I do think that Microsoft's policies are pretty fair. I mean, we're not asking folks to sorta, you know, do things that are, ahead of their skis or over their skis, but they are, you know, big commitments. So Yeah. I I get that. And for Andy, so this is just practical advice about how you can help your business team. And maybe because I know everybody's gonna wanna talk indemnity unlimited liability, but if you have any high level thoughts on this one. Yeah. I mean, so there are lots of components to this. I think, you know, the whole the whole warranty thing, there are so many aspects of it presented as a complete thing. It's very confusing because it's very complex. So get granular, divide and conquer on this one. Right? So so you wanna think in buckets, you know, to use tireless terms. So you want, you know, you wanna think about duration. You wanna think about the different types of warranties. So the manufacturing warranties are made according to the specs. But then also the performance warranty. Right? Is it gonna perform? Right? And that gets back to duration. But is it gonna form for the length of time and in the manner expected? Right? So, then there's compliance, you know, as Tyler also you know, he mentioned the ESG concerns. You know? So, you know, was was there any forced labor involved, for example? But but but also, does it meet the applicable safety standards in the country where it's gonna be used? In the countries where it's gonna be used, they're different across the globe. Right? Who's responsible for that? You know, can you warrant that? Most less sophisticated suppliers really can't. You know? Yeah. And then it's a judgment then, you know, peep you know, the the in house counsel and their advisers have to really think about, well, we look we know this product inside out. We know the laws in these different countries. Are we are we gonna take that risk? So, you know, Tyler also made a point, you know, like you when he was saying, like, you know, Microsoft's, terms are fair. One thing you always have to be mindful of is not overburdening the supplier. Yeah. Right? For sure. Because if they're really eager to get this contract, they'll agree even if they really shouldn't. You know? Yeah. So you have to you have to be you have to be fair and, you know, allocate the risks with the parties most able to deal with them. That's But, yeah, so I so so those are different things. Yeah. Yeah. No. I I love love all those, and especially not overburdening the supplier, which is definitely one of my big theories. And I've learned the hard way, about making sure your supplier is making a profit and and can be there for you when you need them. Yep. Okay. The last part is risk frameworks. We've got about ten minutes left. So I'll just go through the training part because I definitely wanna hear from Andrew and Tyler on this one. And that's you know, we really are dealing with complex liability chains, when we're talking about physical goods. There's a lot of people in the mix, and it could be that well, so you can include, what do you wanna try and include in your contract to reduce your risk? And for these slides, I'm just gonna assume we're the retailer in this little chain where we had a wire supplier with a faulty part, put it into the widget, sold it to us, and then our end user got injured. So we're the vendor, and we're gonna talk about the the manufacturer of the widget. So one of the ways we address risk is with provisions relating to recall and epidemic failures. And this is that concept of the little screw goes wrong. This widget is, you know, you've distributed a million of them around the globe, but they all have a problem that's gonna get need to get fixed, and it's covered by the warranty. Or somehow it's our it's gonna cause physical injury. So there are requirements to come and recall all of those. Those things can be so expensive. You talk the equivalent of data breach notices and remediation in the digital world, you know, we've had this for a long time in the physical world. And so recall and epidemic failures are just a very expensive, very important part. You're gonna look for who's gonna pay for the cost. We're gonna look for root cause analysis and making sure that they're not just gonna fix the failures, but of they're gonna fix the bigger picture failures, not just this little screw. Like, how did this screw happen? How did this process make how did this process happen? More important, I think, for most of us, and the bigger one is indemnification. Now if you're buying off the shelf goods, and I'm assuming that for this purpose, because if you get customized, then it gets much more complicated and beyond our scope today. But if you're just buying off the shelf goods, you really as a customer, you want broad based product indemnification. Whatever is gonna come your way, what whoever sues you for anything, you wanna know your vendor or the manufacturer is gonna step up behind that. And this is particularly complicated in the product space and the good space because of product liability laws. And there's strict liability in The US for any product injury, meaning that injured end user's lawyer can sue anybody even if you didn't have an do anything other than sell the good. If you're part of that distribution chain, they can bring that cause of action against you. So that makes indemnification even more important because we wanna have that widget manufacturer step up. And remember, we only have privity in the most cases with the widget manufacturer. We don't have it with all their suppliers. So it we it becomes even more important that we have that indemnification perfection. And I've got some language. I'm not gonna go through the detail because, but you'll you can get the slides and look at these. But as a customer, I like these very off the shelf product. I like very broad indemnity. Anything relating to the product. Like, if I can get that, I'm super happy. Although then it comes to this issue of the the vendor might if they give that to me, they probably aren't gonna be there to stand behind it anyway, but it's I can still hope. Or even any other the product and services and other goods and services the vendor provides. So that's one option. And you compare it to a vendor provision, which is very narrow, lots of limitations, lots of nexus narrowing, and conditions. So vendors try to keep this much narrower. Limitation of liability, again, very important. Your focus, if you're buying off the shelf manufactured goods as a customer, is you don't wanna butt up against that limit of liability. You wanna be able to get most cases, the, vendor is the one more at risk of lie of owing something, doing something wrong. So having a really strict, limit of liability can be really difficult for a customer trying to get protection for all the damages suffered. So I like to when I'm doing limited liability, that I'm trying to get, the exclusion. So I focus on as a customer, I'm focusing on exclusions and adding exclusions to those caps. Either bad acts, breaches of warranty is my favorite. Like, any breach of the warranty obligation or obligations under the warranty agreement are not subject to the cap or warranty terms and remedies, product liability, stuff like this. Adding a super cap if you can't get an exclusion for the, like, the warranty. We've done that sometimes where we can't get it out of the indemnification. We can't get it out of the cap, but we add a super cap. So I'm gonna rather than I'm gonna skip these two questions because I think we are, we're close to the end, and I know I wanna respect people who are finishing up. So, and I'm gonna ask each of you your final advice, and we've got about three minutes. So just top of mind and, again, asking Laura to give something in thirty seconds or so is always a challenge. But, Tyler, let me start with you. Is there any overarching theme that you want people to take away from this session? Yeah. I I it kinda plays into the last thing that we're skipping. I I think and and, Andy talked about it a little bit. Weighing the business goals with the the agreements and the suppliers, like, the practical nature of these agreements in business. Right? So a lot of times, we're talking about indemnities. I'm like, you can give me the broadest, best, world's most amazing indemnity, but if you can't stand behind it, if something goes south, then it's it's useless. Right? And so then playing into the insurance provisions that you're committing to and and all of those things. So I would just think make sure that you're guiding your your clients, and the business around the goals as well as the practical nature of, engaging with suppliers and them making commitments in the agreement. Fantastic point. How about you, Andy? I think if there was one general piece of advice in something like this, I would say something I said earlier, sign the risk to the party most able to manage it. Let that be your guiding principle, and then you'll have a fair contract that works.