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Tooling Agreements: Essential Guide for Businesses and Manufacturers

Learn how tooling agreements protect your business interests when outsourcing manufacturing. Essential information for startups, small businesses, and established companies expanding their supply chain.

Introduction

A Tooling Agreement is a critical legal document that defines the ownership, use, and maintenance of tools, molds, dies, and other equipment used in manufacturing your products. Whether you're a startup founder with an innovative product, a small business owner, or an established company expanding your supply chain, this agreement protects your investment in specialized manufacturing equipment while establishing clear expectations with your manufacturing partners. This document helps prevent disputes over who owns the tooling, how it can be used, and what happens to it when your business relationship ends.

Key Things to Know

  1. 1

    Tooling agreements establish clear ownership of manufacturing tools and equipment, typically ensuring that you (the customer) retain ownership of tooling you've paid for.

  2. 2

    These agreements prevent manufacturers from using your custom tooling to produce products for your competitors or themselves.

  3. 3

    A good tooling agreement addresses maintenance responsibilities, storage conditions, and quality standards for the tooling.

  4. 4

    The agreement should specify what happens to the tooling if the manufacturing relationship ends or if the manufacturer goes out of business.

  5. 5

    Pricing terms should be clearly defined, including initial costs, payment schedules, and any ongoing maintenance fees.

  6. 6

    Intellectual property protections are crucial, especially for proprietary designs embedded in the tooling.

  7. 7

    Insurance and liability provisions protect your investment if tooling is damaged, lost, or stolen.

Key Decisions

Small Business Owner

Startup Founder with Innovative Product

Established Company Expanding Supply Chain

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TOOLING AGREEMENT

This Tooling Agreement (the "Agreement") is made and entered into as of [DATE] (the "Effective Date")

BETWEEN:

[CUSTOMER NAME], a [ENTITY TYPE] organized and existing under the laws of [JURISDICTION], with its principal place of business at [CUSTOMER ADDRESS] (hereinafter referred to as the "Customer"),

AND:

[SUPPLIER NAME], a [ENTITY TYPE] organized and existing under the laws of [JURISDICTION], with its principal place of business at [SUPPLIER ADDRESS] (hereinafter referred to as the "Supplier").

Customer and Supplier may be individually referred to as a "Party" and collectively as the "Parties."

RECITALS:

WHEREAS, Customer wishes to engage Supplier to design, develop, manufacture, and/or maintain certain tooling for use in the production of Customer's products;

WHEREAS, Supplier has the expertise, facilities, and capabilities to design, develop, manufacture, and maintain such tooling in accordance with Customer's specifications and requirements; and

WHEREAS, the Parties wish to establish their respective rights and obligations with respect to the ownership, use, maintenance, and disposition of such tooling.

NOW, THEREFORE, in consideration of the mutual covenants, terms, and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

1. DEFINITIONS

1.1 "Confidential Information" means any non-public information disclosed by one Party to the other Party in connection with this Agreement, including but not limited to technical data, trade secrets, know-how, research, product plans, products, services, customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing or finance documents, and any other information that is designated as "confidential" or should be reasonably understood to be confidential given the nature of the information and the circumstances of disclosure.

1.2 "Deliverables" means all items to be delivered by Supplier to Customer under this Agreement, including the Tooling and any related documentation, designs, or specifications.

1.3 "Dies" means devices used to cut, shape, or form materials in manufacturing processes, including cutting dies, forming dies, drawing dies, and any other similar devices used in the production of Customer's products.

1.4 "Fixtures" means devices used to hold, support, or position workpieces during manufacturing operations, including jigs, clamps, and any other similar devices used in the production of Customer's products.

1.5 "Intellectual Property Rights" means all patent rights, copyright rights, mask work rights, moral rights, rights of publicity, trademark rights, trade secret rights, and any and all other intellectual property rights as may exist now or hereafter come into existence, and all applications and registrations, renewals and extensions thereof, under the laws of any state, country, territory, or other jurisdiction.

1.6 "Molds" means hollow forms or matrices into which material is placed to produce a desired shape in manufacturing processes, including injection molds, compression molds, blow molds, and any other similar devices used in the production of Customer's products.

1.7 "Products" means the products manufactured by or for Customer using the Tooling, as specified in Exhibit A.

1.8 "Specifications" means the technical specifications, drawings, designs, and requirements for the Tooling as set forth in Exhibit B.

1.9 "Tooling" means all tools, molds, dies, fixtures, gauges, jigs, patterns, castings, and other equipment developed, manufactured, or procured by Supplier for the purpose of manufacturing Customer's Products, as more particularly described in Exhibit B. For clarity, "Tooling" includes any modifications, repairs, or replacements of such items.

2. OWNERSHIP AND TITLE

2.1 Ownership of Tooling. Unless otherwise specified in Exhibit A, all Tooling paid for by Customer, whether in whole or in part, shall be and remain the sole and exclusive property of Customer. Title to the Tooling shall pass to Customer upon the earlier of: (a) Customer's payment in full for the Tooling; or (b) delivery of the Tooling to Customer or to a location designated by Customer.

2.2 Intellectual Property Rights. All designs, specifications, drawings, and other technical information provided by Customer to Supplier for the development or manufacture of the Tooling, as well as any modifications or improvements thereto made by either Party, shall be and remain the sole and exclusive property of Customer. Supplier hereby irrevocably assigns to Customer all right, title, and interest in and to any modifications or improvements to the Tooling or to Customer's designs, specifications, drawings, or other technical information that Supplier may develop in the course of performing under this Agreement.

2.3 No Security Interest. Supplier shall not pledge, mortgage, encumber, or otherwise create or allow to exist any security interest, lien, or encumbrance on the Tooling.

2.4 Tooling Identification. Supplier shall clearly mark all Tooling as the property of Customer using permanent markings, asset tags, or other identification methods specified by Customer. Such identification shall include, at a minimum, the following information: (a) "Property of [CUSTOMER NAME]"; (b) Customer's part number or tool identification number; and (c) any other information reasonably requested by Customer. Supplier shall not remove, obscure, or alter any such identification without Customer's prior written consent.

2.5 Bailment Relationship. Supplier acknowledges and agrees that its possession of the Tooling is as a bailee only. Supplier shall exercise reasonable care in the safekeeping of the Tooling and shall be liable to Customer for any loss of or damage to the Tooling while in Supplier's possession or control, except for normal wear and tear.

2.6 No Transfer of Rights. Nothing in this Agreement shall be construed as transferring to Supplier any ownership interest in, or license to use, the Tooling or any Intellectual Property Rights embodied therein, except as expressly provided herein.

3. PAYMENT TERMS

3.1 Tooling Costs. Customer shall pay Supplier for the design, development, and manufacture of the Tooling in accordance with the pricing and payment schedule set forth in Exhibit C. Unless otherwise specified in Exhibit C, all prices are exclusive of applicable taxes, duties, and shipping costs, which shall be the responsibility of Customer.

3.2 Payment Schedule. Unless otherwise specified in Exhibit C, payment for the Tooling shall be made as follows: (a) [PERCENTAGE]% of the total Tooling cost as a non-refundable deposit upon execution of this Agreement; (b) [PERCENTAGE]% of the total Tooling cost upon Customer's approval of the Tooling design; (c) [PERCENTAGE]% of the total Tooling cost upon completion of the Tooling and submission of sample parts for Customer's approval; and (d) The remaining balance upon Customer's final approval of the Tooling and sample parts.

3.3 Invoicing. Supplier shall submit invoices to Customer for each payment due under Section 3.2. Each invoice shall reference this Agreement, identify the specific milestone achieved, and include any supporting documentation reasonably requested by Customer. Customer shall pay all undisputed amounts within [NUMBER] days of receipt of a properly submitted invoice.

3.4 Cost Overruns. Supplier shall promptly notify Customer in writing if it anticipates that the actual cost of designing, developing, or manufacturing the Tooling will exceed the agreed-upon price. Such notice shall include a detailed explanation of the reasons for the cost overrun and a revised cost estimate. Supplier shall not proceed with any work that would result in a cost overrun without Customer's prior written approval. Customer shall not be responsible for any cost overruns that are not approved in writing in advance.

3.5 Disputed Invoices. If Customer disputes any portion of an invoice, Customer shall notify Supplier in writing of the disputed amount and the basis for the dispute within [NUMBER] days of receipt of the invoice. The Parties shall use good faith efforts to resolve the dispute promptly. Customer shall pay the undisputed portion of the invoice in accordance with Section 3.3.

3.6 Taxes. Customer shall be responsible for all sales, use, excise, value-added, and other taxes, duties, and charges imposed by any federal, state, local, or foreign governmental authority on the Tooling, except for taxes based on Supplier's net income, personnel, or property.

4. DEVELOPMENT AND APPROVAL

4.1 Tooling Development Process. Supplier shall design, develop, and manufacture the Tooling in accordance with the Specifications and the development timeline set forth in Exhibit D. Supplier shall provide Customer with regular progress reports and shall promptly notify Customer of any delays or issues that may affect the development timeline.

4.2 Design Review and Approval. Before commencing manufacture of the Tooling, Supplier shall submit detailed designs and specifications to Customer for review and approval. Customer shall review and provide feedback on the designs within [NUMBER] business days of receipt. Supplier shall incorporate Customer's feedback and resubmit the designs for final approval. Supplier shall not proceed with the manufacture of the Tooling until it has received Customer's written approval of the final designs.

4.3 Modifications. Any modifications to the Specifications or the approved designs requested by either Party shall be documented in a written change order signed by both Parties. The change order shall specify the nature of the modification, any adjustments to the development timeline, and any adjustments to the Tooling cost. Supplier shall not implement any modifications without a signed change order.

4.4 Testing and Validation. Upon completion of the Tooling, Supplier shall conduct testing and validation in accordance with the testing procedures set forth in Exhibit E. Testing shall include, at a minimum, the production of sample parts using the Tooling. Supplier shall provide Customer with the test results and sample parts for review and approval.

4.5 Acceptance Criteria. Customer shall evaluate the Tooling and sample parts against the acceptance criteria set forth in Exhibit E. Customer shall notify Supplier in writing of its acceptance or rejection of the Tooling within [NUMBER] business days of receipt of the test results and sample parts. If Customer rejects the Tooling, Customer shall provide a detailed explanation of the deficiencies, and Supplier shall promptly correct such deficiencies at its own expense and resubmit the Tooling for approval.

4.6 Final Acceptance. Final acceptance of the Tooling shall occur when Customer provides written notice to Supplier that the Tooling meets all Specifications and acceptance criteria. Final acceptance shall not relieve Supplier of its warranty obligations under Section 11.

4.7 Delays. If Supplier anticipates any delay in meeting the development timeline, Supplier shall promptly notify Customer in writing, specifying the cause of the delay and the anticipated duration. Supplier shall use commercially reasonable efforts to minimize the delay and shall propose a revised timeline for Customer's approval. If the delay is caused by factors within Supplier's reasonable control and exceeds [NUMBER] days, Customer may, at its option, (a) accept the revised timeline, (b) modify the Specifications to avoid the delay, or (c) terminate this Agreement pursuant to Section 13.2.

5. USE AND RESTRICTIONS

5.1 Permitted Uses. Supplier shall use the Tooling solely for the purpose of manufacturing Products for Customer in accordance with Customer's purchase orders and specifications. Supplier shall not use the Tooling for any other purpose, including but not limited to manufacturing products for any third party or for Supplier's own account, without Customer's prior written consent.

5.2 Production Capacity. Supplier represents and warrants that the Tooling, when properly maintained, is capable of producing Products at the rate of [NUMBER] units per [TIME PERIOD] (the "Rated Capacity"). Supplier shall maintain the Tooling in a condition that enables production at the Rated Capacity throughout the term of this Agreement.

5.3 Minimum Production Commitment. Customer agrees to purchase from Supplier a minimum of [NUMBER] units of Products per [TIME PERIOD] during the term of this Agreement, subject to Supplier's compliance with all quality, delivery, and other requirements set forth in the applicable purchase orders and specifications.

5.4 Maximum Production Commitment. Supplier agrees to produce up to [NUMBER] units of Products per [TIME PERIOD] using the Tooling, provided that Customer gives Supplier at least [NUMBER] days' advance notice of any production requirements exceeding the Rated Capacity.

5.5 Exclusivity. Unless otherwise specified in Exhibit A, the Tooling shall be used exclusively for the manufacture of Products for Customer. Supplier shall not use the Tooling to manufacture products for any third party without Customer's prior written consent.

5.6 No Reverse Engineering. Supplier shall not reverse engineer, disassemble, or decompile the Tooling or any part thereof, nor shall Supplier attempt to derive the composition or underlying information, structure, or ideas of the Tooling, except as necessary for maintenance and repair as permitted under this Agreement.

5.7 No Modifications. Supplier shall not modify, alter, or improve the Tooling without Customer's prior written consent. Any modifications, alterations, or improvements made with Customer's consent shall be the property of Customer and shall be subject to the terms of this Agreement.

5.8 Compliance with Specifications. Supplier shall use the Tooling in strict accordance with the operating procedures and specifications provided by Customer or the Tooling manufacturer. Supplier shall not operate the Tooling in a manner that exceeds its designed capacity or that otherwise could reasonably be expected to damage or reduce the useful life of the Tooling.

6. MAINTENANCE AND STORAGE

6.1 Maintenance Responsibilities. Supplier shall be responsible for the routine maintenance and repair of the Tooling at its own expense, in accordance with the maintenance procedures set forth in Exhibit F and the manufacturer's recommendations. Routine maintenance includes, but is not limited to, cleaning, lubrication, adjustment, and replacement of consumable parts.

6.2 Preventive Maintenance. Supplier shall perform preventive maintenance on the Tooling at the intervals specified in Exhibit F. Supplier shall maintain detailed records of all preventive maintenance activities and shall provide such records to Customer upon request.

6.3 Repairs. Supplier shall promptly repair any damage to or malfunction of the Tooling, regardless of cause, to ensure minimal disruption to production. If the estimated cost of any single repair exceeds $[AMOUNT], Supplier shall notify Customer before proceeding with the repair and shall obtain Customer's approval of the repair cost. Customer shall reimburse Supplier for the reasonable cost of repairs necessitated by normal wear and tear, provided that such repairs are approved in advance and properly documented.

6.4 Replacement of Worn Components. Supplier shall replace worn Tooling components as necessary to maintain the Tooling in good working condition. Customer shall bear the cost of replacing components that wear out due to normal use, provided that (a) the component has been used for at least [PERCENTAGE]% of its expected useful life, (b) the replacement is approved by Customer in advance, and (c) the worn component is returned to Customer upon request.

6.5 Storage Requirements. When not in use, Supplier shall store the Tooling in a clean, dry, and secure location that protects the Tooling from damage, deterioration, and unauthorized access. Supplier shall comply with any specific storage requirements set forth in Exhibit F or provided by the Tooling manufacturer.

6.6 Inventory of Tooling. Supplier shall maintain an accurate inventory of all Tooling in its possession, including the location, condition, and maintenance history of each item. Supplier shall provide Customer with an updated inventory report upon request, but no less frequently than once per [TIME PERIOD].

6.7 Inspection Rights. Customer shall have the right to inspect the Tooling and review maintenance records at any time during Supplier's normal business hours upon reasonable advance notice. Supplier shall provide Customer with access to the Tooling and shall cooperate with Customer's inspection.

6.8 Costs for Maintenance and Storage. Except as otherwise provided in this Agreement, Supplier shall bear all costs associated with the routine maintenance, storage, and insurance of the Tooling. Customer shall reimburse Supplier for non-routine maintenance and repairs as provided in Sections 6.3 and 6.4.

6.9 End-of-Life Tooling. When Tooling reaches the end of its useful life and can no longer be economically repaired or refurbished, Supplier shall notify Customer in writing. Upon Customer's written authorization, Supplier shall dispose of the end-of-life Tooling in accordance with Customer's instructions and all applicable laws and regulations. Customer shall be responsible for the cost of replacement Tooling, unless the Tooling reached the end of its useful life prematurely due to Supplier's failure to properly maintain it.

7. INSURANCE AND RISK OF LOSS

7.1 Insurance Requirements. Supplier shall, at its own expense, procure and maintain insurance coverage for the Tooling in an amount not less than the replacement value of the Tooling. Such insurance shall include, at a minimum: (a) Property insurance covering all risks of physical loss or damage to the Tooling; (b) Commercial general liability insurance with limits of not less than $[AMOUNT] per occurrence and $[AMOUNT] in the aggregate; (c) Workers' compensation insurance as required by applicable law; and (d) Such other insurance as may be reasonably required by Customer.

7.2 Insurance Policies. All insurance policies required under this Agreement shall: (a) Name Customer as an additional insured and loss payee with respect to the Tooling; (b) Provide that the insurer will give Customer at least thirty (30) days' written notice before any cancellation, non-renewal, or material change in coverage; (c) Be primary and non-contributory with respect to any insurance carried by Customer; and (d) Be issued by insurers with an A.M. Best rating of A- or better.

7.3 Certificates of Insurance. Supplier shall provide Customer with certificates of insurance evidencing the required coverage within ten (10) days of the Effective Date and upon renewal of any policy. Supplier shall provide Customer with copies of the insurance policies upon request.

7.4 Risk of Loss. Supplier shall bear all risk of loss or damage to the Tooling while it is in Supplier's possession or control, regardless of the cause of such loss or damage, except for normal wear and tear. In the event of any loss or damage to the Tooling, Supplier shall promptly notify Customer and shall, at Customer's option, either (a) repair or replace the Tooling at Supplier's expense, or (b) reimburse Customer for the replacement value of the Tooling.

7.5 Waiver of Subrogation. Supplier shall cause its insurers to waive all rights of subrogation against Customer and its affiliates, officers, directors, employees, and agents with respect to any claim, loss, or damage covered by Supplier's insurance.

7.6 No Limitation of Liability. The insurance requirements set forth in this Section 7 shall not limit Supplier's liability under this Agreement or otherwise.

8. TERM AND TERMINATION

8.1 Term. This Agreement shall commence on the Effective Date and shall continue for a period of [NUMBER] years (the "Initial Term"), unless earlier terminated as provided herein. Thereafter, this Agreement shall automatically renew for successive [NUMBER]-year periods (each, a "Renewal Term"), unless either Party provides written notice of non-renewal to the other Party at least [NUMBER] days prior to the expiration of the then-current term. The Initial Term and any Renewal Terms are collectively referred to as the "Term."

8.2 Termination for Convenience. Customer may terminate this Agreement or any part hereof for convenience at any time by providing at least [NUMBER] days' prior written notice to Supplier. In the event of such termination, Customer shall pay Supplier for: (a) All Tooling completed and accepted by Customer prior to the effective date of termination; (b) The reasonable costs incurred by Supplier for work-in-progress on the Tooling as of the effective date of termination; and (c) Any reasonable wind-down costs incurred by Supplier as a direct result of the termination.

Supplier shall use commercially reasonable efforts to mitigate all costs related to the termination.

8.3 Termination for Cause. Either Party may terminate this Agreement for cause if the other Party materially breaches this Agreement and fails to cure such breach within [NUMBER] days after receiving written notice of the breach. If the breach is not capable of being cured within [NUMBER] days, the breaching Party shall have a reasonable time to cure the breach, not to exceed [NUMBER] days, provided that the breaching Party commences to cure the breach within [NUMBER] days and diligently pursues the cure to completion.

8.4 Termination for Insolvency. Either Party may terminate this Agreement immediately upon written notice if the other Party (a) becomes insolvent or admits its inability to pay its debts generally as they become due; (b) becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law; (c) is dissolved or liquidated or takes any corporate action for such purpose; (d) makes a general assignment for the benefit of creditors; or (e) has a receiver, trustee, custodian, or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business.

8.5 Disposition of Tooling upon Termination. Upon termination or expiration of this Agreement for any reason: (a) Supplier shall immediately cease using the Tooling for any purpose; (b) Supplier shall, at Customer's option and expense, either (i) deliver the Tooling to Customer or its designee, or (ii) store the Tooling for a period not to exceed [NUMBER] months pending instructions from Customer; (c) If Customer elects to have the Tooling delivered, Supplier shall prepare the Tooling for shipment in accordance with Customer's instructions and industry standards, and shall deliver the Tooling to the location designated by Customer within [NUMBER] days of receiving Customer's instructions; (d) If Customer elects to have the Tooling stored, Supplier shall store the Tooling in accordance with Section 6.5 and shall charge Customer a reasonable storage fee not to exceed $[AMOUNT] per [TIME PERIOD]; and (e) If Customer fails to provide instructions for the disposition of the Tooling within [NUMBER] months of termination or expiration, Supplier may, upon [NUMBER] days' written notice to Customer, dispose of the Tooling in a commercially reasonable manner and remit any proceeds to Customer, less Supplier's reasonable costs of disposition.

8.6 Survival. The provisions of Sections 2 (Ownership and Title), 7.4 (Risk of Loss), 8.5 (Disposition of Tooling upon Termination), 10 (Confidentiality), 11 (Warranties and Representations), 12 (Indemnification and Liability), 14 (Dispute Resolution), and any other provisions that by their nature should survive, shall survive the termination or expiration of this Agreement.

9. FORCE MAJEURE

9.1 Force Majeure Events. Neither Party shall be liable or responsible to the other Party, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay in fulfilling or performing any term of this Agreement, when and to the extent such failure or delay is caused by or results from acts beyond the affected Party's reasonable control, including, without limitation: (a) Acts of God; (b) Flood, fire, earthquake, epidemic, pandemic, or explosion; (c) War, invasion, hostilities (whether war is declared or not), terrorist threats or acts, riot, or other civil unrest; (d) Government order, law, or action; (e) Embargoes or blockades in effect on or after the date of this Agreement; (f) National or regional emergency; (g) Strikes, labor stoppages or slowdowns, or other industrial disturbances; (h) Shortage of adequate power or transportation facilities; and (i) Other similar events beyond the reasonable control of the affected Party.

9.2 Force Majeure Procedure. The Party claiming force majeure shall give notice to the other Party within [NUMBER] days of the force majeure event, stating the period of time the occurrence is expected to continue. The affected Party shall use diligent efforts to end the failure or delay and ensure the effects of such force majeure event are minimized. The affected Party shall resume the performance of its obligations as soon as reasonably practicable after the removal of the cause.

9.3 Extended Force Majeure. If a force majeure event continues for a period exceeding [NUMBER] consecutive days, the unaffected Party may terminate this Agreement upon [NUMBER] days' written notice to the affected Party. Such termination shall be treated as a termination for convenience under Section 8.2.

10. CONFIDENTIALITY

10.1 Confidentiality Obligations. Each Party (the "Receiving Party") acknowledges that in connection with this Agreement it will gain access to Confidential Information of the other Party (the "Disclosing Party"). The Receiving Party shall: (a) Protect and safeguard the confidentiality of the Disclosing Party's Confidential Information with at least the same degree of care as the Receiving Party would protect its own Confidential Information, but in no event with less than a commercially reasonable degree of care; (b) Not use the Disclosing Party's Confidential Information, or permit it to be accessed or used, for any purpose other than to exercise its rights or perform its obligations under this Agreement; and (c) Not disclose any such Confidential Information to any person or entity, except to the Receiving Party's representatives who need to know the Confidential Information to assist the Receiving Party, or act on its behalf, to exercise its rights or perform its obligations under this Agreement.

10.2 Exceptions. The obligations set forth in Section 10.1 shall not apply to any Confidential Information that: (a) Is or becomes generally available to the public other than as a result of the Receiving Party's breach of this Agreement; (b) Is or becomes available to the Receiving Party on a non-confidential basis from a third-party source, provided that such third party is not and was not prohibited from disclosing such Confidential Information; (c) Was in the Receiving Party's possession prior to the Disclosing Party's disclosure hereunder; (d) Was or is independently developed by the Receiving Party without using any of the Disclosing Party's Confidential Information; or (e) Is required to be disclosed pursuant to applicable law, regulation, or court order, provided that the Receiving Party gives the Disclosing Party prompt written notice of such requirement and cooperates with the Disclosing Party to seek a protective order or other appropriate remedy.

10.3 Duration of Confidentiality Obligations. The confidentiality obligations set forth in this Section 10 shall remain in effect during the Term and for a period of [NUMBER] years thereafter.

10.4 Return or Destruction of Confidential Information. Upon the termination or expiration of this Agreement, or upon the Disclosing Party's request at any time, the Receiving Party shall promptly return or destroy all Confidential Information of the Disclosing Party in its possession or control, including all copies, and shall certify in writing to the Disclosing Party that it has complied with this obligation.

11. WARRANTIES AND REPRESENTATIONS

11.1 Supplier Warranties. Supplier represents and warrants to Customer that: (a) The Tooling shall conform to the Specifications and shall be free from defects in design, materials, and workmanship; (b) The Tooling shall be fit for the particular purpose for which it is intended, as specified in the Specifications; (c) The Tooling shall comply with all applicable laws, regulations, and industry standards; (d) Supplier has the right to enter into this Agreement and to perform its obligations hereunder; (e) Supplier has the necessary expertise, facilities, and equipment to design, develop, manufacture, and maintain the Tooling in accordance with this Agreement; (f) The Tooling and its use by Customer will not infringe or misappropriate any Intellectual Property Rights of any third party; and (g) Supplier shall perform all services related to the Tooling in a professional and workmanlike manner, consistent with industry standards.

11.2 Warranty Period. The warranties set forth in Section 11.1(a) and (b) shall remain in effect for a period of [NUMBER] months from the date of final acceptance of the Tooling (the "Warranty Period"). All other warranties shall remain in effect during the Term.

11.3 Remedy for Breach of Warranty. If during the Warranty Period the Tooling fails to conform to the warranties set forth in Section 11.1(a) or (b), Supplier shall, at Customer's option and at no cost to Customer, promptly repair or replace the non-conforming Tooling. If Supplier fails to repair or replace the non-conforming Tooling within [NUMBER] days of receiving notice of the non-conformity, Customer may, at its option, (a) repair or replace the Tooling itself or have a third party do so, and charge Supplier for the reasonable cost thereof, or (b) terminate this Agreement pursuant to Section 8.3.

11.4 Customer Warranties. Customer represents and warrants to Supplier that: (a) Customer has the right to enter into this Agreement and to perform its obligations hereunder; (b) Customer owns or has the right to use and to authorize Supplier to use any Intellectual Property Rights embodied in the Specifications or other materials provided by Customer to Supplier; and (c) To the best of Customer's knowledge, Supplier's use of the Specifications or other materials provided by Customer will not infringe or misappropriate any Intellectual Property Rights of any third party, provided that Supplier uses such materials strictly in accordance with this Agreement.

11.5 Disclaimer. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT, EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW.

12. INDEMNIFICATION AND LIABILITY

12.1 Supplier Indemnification. Supplier shall defend, indemnify, and hold harmless Customer and its affiliates, and their respective officers, directors, employees, agents, successors, and permitted assigns, from and against any and all losses, damages, liabilities, deficiencies, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including reasonable attorneys' fees, that are incurred by or awarded against Customer arising out of or resulting from: (a) Any breach of this Agreement by Supplier or its representatives; (b) Any negligent or willful act or omission of Supplier or its representatives in connection with the performance of this Agreement; (c) Any bodily injury, death, or damage to real or tangible personal property caused by the acts or omissions of Supplier or its representatives; (d) Any claim that the Tooling, or any part thereof, infringes or misappropriates any Intellectual Property Rights of any third party, except to the extent such claim arises from Supplier's compliance with Specifications or other materials provided by Customer; or (e) Any failure by Supplier or its representatives to comply with applicable laws or regulations in the performance of this Agreement.

12.2 Customer Indemnification. Customer shall defend, indemnify, and hold harmless Supplier and its affiliates, and their respective officers, directors, employees, agents, successors, and permitted assigns, from and against any and all losses, damages, liabilities, deficiencies, actions, judgments, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including reasonable attorneys' fees, that are incurred by or awarded against Supplier arising out of or resulting from: (a) Any breach of this Agreement by Customer or its representatives; (b) Any negligent or willful act or omission of Customer or its representatives in connection with the performance of this Agreement; (c) Any bodily injury, death, or damage to real or tangible personal property caused by the acts or omissions of Customer or its representatives; (d) Any claim that Supplier's use of the Specifications or other materials provided by Customer infringes or misappropriates any Intellectual Property Rights of any third party, provided that Supplier uses such materials strictly in accordance with this Agreement; or (e) Any failure by Customer or its representatives to comply with applicable laws or regulations in the performance of this Agreement.

12.3 Indemnification Procedure. The Party seeking indemnification shall promptly notify the indemnifying Party in writing of any claim, action, or proceeding for which indemnification is sought and shall cooperate fully with the indemnifying Party in the defense or settlement thereof. The indemnifying Party shall have sole control over the defense and settlement of any such claim, action, or proceeding, provided that the indemnifying Party shall not enter into any settlement that admits fault on behalf of the indemnified Party or imposes any non-monetary obligations on the indemnified Party without the indemnified Party's prior written consent, which shall not be unreasonably withheld, conditioned, or delayed.

12.4 Limitation of Liability. EXCEPT FOR BREACHES OF SECTION 10 (CONFIDENTIALITY) OR OBLIGATIONS UNDER SECTION 12 (INDEMNIFICATION AND LIABILITY), IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY THIRD PARTY FOR ANY LOSS OF USE, REVENUE, OR PROFIT, OR FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, EXEMPLARY, SPECIAL, OR PUNITIVE DAMAGES WHETHER ARISING OUT OF BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, REGARDLESS OF WHETHER SUCH DAMAGE WAS FORESEEABLE AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

12.5 Cap on Liability. EXCEPT FOR BREACHES OF SECTION 10 (CONFIDENTIALITY) OR OBLIGATIONS UNDER SECTION 12 (INDEMNIFICATION AND LIABILITY), IN NO EVENT SHALL EITHER PARTY'S AGGREGATE LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT, WHETHER ARISING OUT OF OR RELATED TO BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE), OR OTHERWISE, EXCEED THE TOTAL AMOUNT PAID OR PAYABLE BY CUSTOMER TO SUPPLIER UNDER THIS AGREEMENT IN THE [NUMBER] MONTH PERIOD PRECEDING THE EVENT GIVING RISE TO THE CLAIM.

13. COMPLIANCE WITH LAWS

13.1 General Compliance. Each Party shall comply with all applicable federal, state, local, and foreign laws, regulations, and standards in the performance of its obligations under this Agreement.

13.2 Export Control. Each Party shall comply with all applicable export control laws and regulations, including but not limited to the U.S. Export Administration Regulations and the International Traffic in Arms Regulations, in the performance of this Agreement. Neither Party shall export or re-export any technical data, products, or services received from the other Party, or the direct product of such technical data, products, or services, directly or indirectly, to any destination prohibited or restricted by applicable law without first obtaining any required governmental authorization.

13.3 Anti-Corruption. Each Party shall comply with all applicable anti-corruption laws, including but not limited to the U.S. Foreign Corrupt Practices Act and the UK Bribery Act, in the performance of this Agreement. Neither Party shall offer, promise, give, or authorize the giving of anything of value, directly or indirectly, to any government official or other person to influence official action or secure an improper advantage in connection with this Agreement.

13.4 Environmental Compliance. Supplier shall comply with all applicable environmental laws and regulations in the design, development, manufacture, maintenance, and disposal of the Tooling. Supplier shall provide Customer with information regarding the environmental impact of the Tooling, including but not limited to the presence of hazardous materials, upon request.

13.5 Labor and Employment. Supplier shall comply with all applicable labor and employment laws and regulations in the performance of this Agreement, including but not limited to laws and regulations relating to wages, hours, working conditions, and child labor. Supplier shall not use forced, compulsory, or child labor in the performance of this Agreement.

13.6 Health and Safety. Supplier shall comply with all applicable health and safety laws and regulations in the performance of this Agreement. Supplier shall maintain a safe and healthy work environment for its employees and shall take reasonable precautions to prevent accidents and injuries.

13.7 Permits and Licenses. Each Party shall obtain and maintain all permits, licenses, and other authorizations required for the performance of its obligations under this Agreement.

14. DISPUTE RESOLUTION

14.1 Negotiation. The Parties shall attempt in good faith to resolve any dispute arising out of or relating to this Agreement promptly by negotiation between executives who have authority to settle the controversy. Either Party may give the other Party written notice of any dispute not resolved in the normal course of business. Within [NUMBER] days after delivery of the notice, the receiving Party shall submit to the other a written response. The notice and response shall include a statement of each Party's position and a summary of arguments supporting that position. Within [NUMBER] days after delivery of the response, the executives of both Parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to attempt to resolve the dispute.

14.2 Mediation. If the dispute has not been resolved by negotiation as provided in Section 14.1 within [NUMBER] days after delivery of the initial notice of negotiation, or if the Parties failed to meet within [NUMBER] days after delivery, the Parties shall endeavor to settle the dispute by mediation under the then-current CPR Institute for Dispute Resolution Mediation Procedure. Unless otherwise agreed, the Parties will select a mediator from the CPR Panels of Distinguished Neutrals.

14.3 Arbitration. Any dispute arising out of or relating to this Agreement, including the breach, termination, or validity thereof, which has not been resolved by negotiation or mediation as provided herein within [NUMBER] days after initiation of the mediation procedure, shall be finally resolved by arbitration in accordance with the CPR Institute for Dispute Resolution Rules for Non-Administered Arbitration by three arbitrators, of whom each Party shall designate one, with the third arbitrator to be appointed by the two Party-appointed arbitrators. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof.

14.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of [STATE], without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any jurisdiction other than the State of [STATE].

14.5 Venue. Each Party irrevocably and unconditionally agrees that it will not commence any action, litigation, or proceeding of any kind whatsoever against the other Party in any way arising from or relating to this Agreement in any forum other than the courts of the State of [STATE] sitting in [COUNTY] County, and any appellate court from any thereof. Each Party irrevocably and unconditionally submits to the exclusive jurisdiction of such courts.

14.6 Continued Performance. Pending final resolution of any dispute, the Parties shall continue to fulfill their respective obligations under this Agreement, unless this Agreement has been terminated or has expired.

15. ASSIGNMENT AND SUBCONTRACTING

15.1 Assignment. Neither Party may assign, transfer, or delegate any or all of its rights or obligations under this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that either Party may assign this Agreement without the other Party's consent to an affiliate or to a successor in interest by reason of merger, consolidation, acquisition, sale of all or substantially all assets, or operation of law. Any purported assignment, transfer, or delegation in violation of this Section 15.1 shall be null and void.

15.2 Subcontracting. Supplier shall not subcontract any of its obligations under this Agreement without Customer's prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed. Supplier shall remain fully responsible for the performance of any approved subcontractor and shall ensure that any approved subcontractor complies with all the terms and conditions of this Agreement. Supplier shall be liable for the acts and omissions of its subcontractors as if such acts and omissions were performed by Supplier.

16. NOTICES

16.1 Notices. All notices, requests, consents, claims, demands, waivers, and other communications hereunder shall be in writing and shall be deemed to have been given: (a) When delivered by hand (with written confirmation of receipt); (b) When received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) On the date sent by email (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient; or (d) On the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid.

Such communications must be sent to the respective Parties at the addresses set forth below (or to such other address as may be designated by a Party from time to time in accordance with this Section 16.1):

Customer: [CUSTOMER NAME] [CUSTOMER ADDRESS] Attention: [CONTACT PERSON] Email: [EMAIL ADDRESS]

Supplier: [SUPPLIER NAME] [SUPPLIER ADDRESS] Attention: [CONTACT PERSON] Email: [EMAIL ADDRESS]

17. MISCELLANEOUS

17.1 Entire Agreement. This Agreement, including all exhibits, schedules, and attachments hereto, constitutes the sole and entire agreement of the Parties with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter.

17.2 Amendments. This Agreement may only be amended, modified, or supplemented by an agreement in writing signed by each Party hereto. No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the Party so waiving.

17.3 Severability. If any provision of this Agreement, or any portion thereof, is held to be invalid, illegal, void, or unenforceable by any court or tribunal of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect to the maximum extent permitted by law. The Parties agree that any such invalid, illegal, void, or unenforceable provision shall be modified and limited in its effect to the extent necessary to cause it to be enforceable, or if such modification is not possible, shall be deemed severed from this Agreement. In such event, the Parties shall negotiate in good faith to replace any invalid, illegal, void, or unenforceable provision with a valid, legal, and enforceable provision that corresponds as closely as possible to the Parties' original intent and economic expectations. The invalidity or unenforceability of any provision in one jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction.

17.4 Waiver. No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the waiving Party. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach, or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege.

17.5 No Third-Party Beneficiaries. This Agreement is for the sole benefit of the Parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other person or entity any legal or equitable right, benefit, or remedy of any nature whatsoever under or by reason of this Agreement.

17.6 Relationship of the Parties. The relationship between the Parties is that of independent contractors. Nothing contained in this Agreement shall be construed as creating any agency, partnership, joint venture, or other form of joint enterprise, employment, or fiduciary relationship between the Parties, and neither Party shall have authority to contract for or bind the other Party in any manner whatsoever.

17.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, email, or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.

17.8 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.

17.9 Further Assurances. Each Party shall, upon the reasonable request of the other Party, execute such documents and perform such acts as may be necessary to give full effect to the terms of this Agreement.

18. EXHIBITS

The following Exhibits are attached hereto and incorporated herein by reference:

Exhibit A: Products and Tooling Ownership Exhibit B: Tooling Specifications Exhibit C: Pricing and Payment Schedule Exhibit D: Development Timeline Exhibit E: Testing Procedures and Acceptance Criteria Exhibit F: Maintenance Procedures

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date.

CUSTOMER: [CUSTOMER NAME]

By: ________________________ Name: [NAME] Title: [TITLE] Date: ________________________

SUPPLIER: [SUPPLIER NAME]

By: ________________________ Name: [NAME] Title: [TITLE] Date: ________________________

EXHIBIT A

PRODUCTS AND TOOLING OWNERSHIP

  1. Products The following Products shall be manufactured using the Tooling: [PRODUCT DESCRIPTION]

  2. Tooling Ownership [SPECIFY OWNERSHIP ARRANGEMENTS]

  3. Exclusivity [SPECIFY WHETHER TOOLING IS EXCLUSIVE TO CUSTOMER OR MAY BE USED FOR OTHER CUSTOMERS]

EXHIBIT B

TOOLING SPECIFICATIONS

  1. Technical Specifications [DETAILED TECHNICAL SPECIFICATIONS]

  2. Drawings [REFERENCE TO ATTACHED DRAWINGS]

  3. Performance Requirements [PERFORMANCE REQUIREMENTS]

  4. Materials [MATERIAL SPECIFICATIONS]

  5. Dimensions and Tolerances [DIMENSIONS AND TOLERANCES]

  6. Finish Requirements [FINISH REQUIREMENTS]

EXHIBIT C

PRICING AND PAYMENT SCHEDULE

  1. Tooling Costs [DETAILED BREAKDOWN OF TOOLING COSTS]

  2. Payment Schedule [PAYMENT MILESTONES AND AMOUNTS]

  3. Invoicing Instructions [INVOICING INSTRUCTIONS]

EXHIBIT D

DEVELOPMENT TIMELINE

  1. Design Phase [DESIGN PHASE TIMELINE AND MILESTONES]

  2. Manufacturing Phase [MANUFACTURING PHASE TIMELINE AND MILESTONES]

  3. Testing Phase [TESTING PHASE TIMELINE AND MILESTONES]

  4. Delivery and Installation [DELIVERY AND INSTALLATION TIMELINE]

EXHIBIT E

TESTING PROCEDURES AND ACCEPTANCE CRITERIA

  1. Testing Procedures [DETAILED TESTING PROCEDURES]

  2. Sample Requirements [SAMPLE REQUIREMENTS]

  3. Acceptance Criteria [DETAILED ACCEPTANCE CRITERIA]

  4. Rejection Procedures [PROCEDURES FOR HANDLING REJECTED TOOLING]

EXHIBIT F

MAINTENANCE PROCEDURES

  1. Routine Maintenance [ROUTINE MAINTENANCE PROCEDURES AND SCHEDULE]

  2. Preventive Maintenance [PREVENTIVE MAINTENANCE PROCEDURES AND SCHEDULE]

  3. Storage Requirements [STORAGE REQUIREMENTS]

  4. Maintenance Records [MAINTENANCE RECORD REQUIREMENTS]

Mississippi Requirements for Tooling Agreement

Uniform Commercial Code Compliance (Mississippi Code § 75-2-101 et seq. and § 75-9-101 et seq.)

The agreement must comply with Mississippi's adoption of the Uniform Commercial Code (UCC), particularly Article 2 governing sales of goods and Article 9 covering secured transactions, which would apply to tooling ownership and security interests.

Statute of Frauds (Mississippi Code § 75-2-201)

For tooling agreements valued at $500 or more, the agreement must be in writing to be enforceable under Mississippi's Statute of Frauds provisions in the UCC.

Title and Ownership Rights (Mississippi Code § 75-2-401)

Clear provisions establishing title and ownership rights to the tooling, consistent with Mississippi property law and UCC provisions on transfer of title.

Intellectual Property Protection (35 U.S.C. § 1 et seq. (Patents); 15 U.S.C. § 1051 et seq. (Trademarks); 17 U.S.C. § 101 et seq. (Copyrights))

Compliance with federal patent, trademark, and copyright laws to protect any intellectual property embodied in the tooling design or functionality.

Trade Secret Protection (Mississippi Code § 75-26-1 et seq.)

Provisions to protect trade secrets in accordance with Mississippi's adoption of the Uniform Trade Secrets Act, including confidentiality requirements for tooling designs and specifications.

Bailment Provisions (Mississippi Common Law)

Compliance with Mississippi common law of bailment when tooling is in the possession of a manufacturer but owned by another party, establishing care standards and liability for damage.

UCC Security Interests (Mississippi Code § 75-9-310 et seq.)

Proper perfection of security interests in the tooling under UCC Article 9 if the tooling serves as collateral or if ownership is retained as security for payment.

Warranty Provisions (Mississippi Code § 75-2-312 through § 75-2-318)

Compliance with UCC warranty provisions, including express warranties, implied warranties of merchantability and fitness for particular purpose, and any warranty disclaimers.

Risk of Loss (Mississippi Code § 75-2-509)

Clear allocation of risk of loss for the tooling in accordance with UCC provisions, particularly during transportation or while in the manufacturer's possession.

Insurance Requirements (Mississippi Code § 83-1-1 et seq.)

Provisions requiring adequate insurance coverage for the tooling, consistent with Mississippi insurance regulations and common law requirements for commercial reasonableness.

Limitation of Liability (Mississippi Code § 75-2-719)

Provisions limiting liability must comply with Mississippi common law on unconscionability and public policy limitations on exculpatory clauses.

Dispute Resolution (9 U.S.C. § 1 et seq.; Mississippi Code § 11-15-1 et seq.)

Arbitration or mediation provisions must comply with the Federal Arbitration Act and Mississippi law on alternative dispute resolution.

Choice of Law and Venue (Mississippi Common Law; U.S. Const. Art. IV, § 1)

Provisions designating governing law and venue must comply with Mississippi's conflict of laws principles and constitutional requirements for minimum contacts.

Termination Rights (Mississippi Code § 75-2-106, § 75-2-309)

Clear provisions on termination rights and procedures, consistent with Mississippi contract law and UCC provisions on termination of contracts.

Indemnification (Mississippi Common Law)

Indemnification provisions must comply with Mississippi common law requirements for clarity and reasonableness, particularly regarding third-party claims related to tooling use.

Force Majeure (Mississippi Common Law; Mississippi Code § 75-2-615)

Force majeure provisions must align with Mississippi common law on impossibility, impracticability, and frustration of purpose as excuses for non-performance.

Environmental Compliance (42 U.S.C. § 6901 et seq. (RCRA); Mississippi Code § 49-17-1 et seq.)

Provisions addressing compliance with federal and Mississippi environmental regulations for the use, maintenance, and disposal of tooling that may involve hazardous materials.

Worker Safety (29 U.S.C. § 651 et seq.; Mississippi Code § 71-1-1 et seq.)

Provisions ensuring compliance with OSHA and Mississippi workplace safety regulations for the operation and maintenance of tooling equipment.

Confidentiality and Non-Disclosure (Mississippi Code § 75-26-1 et seq.)

Provisions protecting confidential information exchanged during the tooling relationship, in compliance with Mississippi's adoption of the Uniform Trade Secrets Act and common law protections for confidential business information.

Assignment and Delegation (Mississippi Code § 75-2-210)

Provisions governing the assignment of rights and delegation of duties under the tooling agreement must comply with Mississippi UCC and common law requirements.

Frequently Asked Questions

A tooling agreement is a contract between a customer (the company that needs products manufactured) and a supplier (the manufacturer) that defines the ownership, use, payment terms, and maintenance responsibilities for the specialized equipment ('tooling') used to manufacture the customer's products. This tooling might include molds, dies, jigs, fixtures, patterns, or other custom manufacturing equipment that is specific to the customer's product. The agreement ensures that both parties understand who owns the tooling, how it can be used, who is responsible for maintaining it, and what happens to it when the manufacturing relationship ends.

For startups with innovative products, a tooling agreement is crucial because it: 1) Protects your investment in expensive custom tooling; 2) Prevents manufacturers from using your tooling to create competing products; 3) Ensures you can retrieve your tooling if you need to switch manufacturers; 4) Clarifies who pays for tooling maintenance and repairs; 5) Establishes quality standards for the tooling and resulting products; and 6) Protects your intellectual property embedded in the tooling design. Without this agreement, you risk losing control of your manufacturing capabilities and potentially your competitive advantage.

In most tooling agreements, the customer (your business) retains ownership of the tooling if you've paid for it. This is often referred to as 'customer-owned tooling.' However, ownership arrangements can vary based on negotiation. Sometimes, the manufacturer might retain ownership but grant you exclusive use rights, or there might be a shared ownership arrangement. The key is to explicitly define ownership in the agreement to avoid disputes later. For startups and small businesses, maintaining ownership of your tooling is typically advantageous as it gives you more control over your supply chain.

Common payment structures include: 1) Upfront payment - where you pay the full cost of the tooling before production begins; 2) Amortized payment - where tooling costs are spread across a certain number of production units; 3) Milestone payments - where you pay in installments as the tooling is designed, built, and tested; 4) Hybrid approaches - combining elements of the above. The agreement should clearly specify payment terms, including any ongoing maintenance fees. For small businesses with cash flow concerns, negotiating an amortized payment structure can be beneficial, though this may affect ownership rights until fully paid.

To protect your intellectual property (IP) in a tooling agreement: 1) Include confidentiality provisions that prevent the manufacturer from disclosing your designs; 2) Explicitly prohibit the manufacturer from using your tooling to produce products for themselves or other customers; 3) Specify that any improvements or modifications to the tooling belong to you; 4) Require the manufacturer to implement security measures to protect your tooling; 5) Include provisions for the return or destruction of technical documentation when the agreement ends; and 6) Consider filing for patent protection for innovative aspects of your product or manufacturing process before sharing designs with manufacturers.

A well-drafted tooling agreement should include clear provisions for what happens if you decide to switch manufacturers. Typically, if you own the tooling, the agreement should: 1) Establish your right to take possession of the tooling upon request; 2) Specify the timeframe within which the manufacturer must return the tooling; 3) Address who pays for removal, shipping, and reinstallation costs; 4) Require the manufacturer to maintain the tooling in good condition until transfer; and 5) Prohibit the manufacturer from holding the tooling hostage in case of disputes. For established companies expanding their supply chain, having these provisions is essential for maintaining flexibility.

Important maintenance and storage provisions include: 1) Who is responsible for routine maintenance and repairs; 2) Standards for proper storage conditions (temperature, humidity, etc.); 3) Requirements for preventative maintenance schedules; 4) Procedures for documenting the condition of tooling; 5) Who bears the cost of repairs due to normal wear versus negligence; 6) Requirements for insurance coverage on the tooling; and 7) Procedures for notifying you about significant maintenance issues. These provisions ensure your tooling remains in good condition and extends its useful life, which is particularly important for small business owners who need to maximize their investment.

For products with multiple variations, your tooling agreement should: 1) Clearly identify and catalog all tooling components for each variation; 2) Specify ownership for each component; 3) Address how modifications or additions to tooling for new variations will be handled and paid for; 4) Establish protocols for switching between different tooling configurations; 5) Define storage requirements for tooling not currently in use; and 6) Include provisions for scaling up additional tooling as your product line expands. This is especially relevant for established companies with complex product lines or startups planning to expand their product offerings.

Key insurance provisions should address: 1) Requirements for the manufacturer to maintain adequate insurance covering your tooling against damage, theft, or loss; 2) Naming your company as an additional insured or loss payee on relevant policies; 3) Minimum coverage amounts based on the replacement value of the tooling; 4) Types of coverage required (property, casualty, etc.); 5) Procedures for making claims if tooling is damaged; 6) Requirements for providing certificates of insurance; and 7) Consequences if the manufacturer fails to maintain proper insurance. These provisions protect your investment and ensure you can recover financially if something happens to your tooling.

To ensure quality standards: 1) Specify acceptance criteria for the completed tooling; 2) Include provisions for testing and validation before final acceptance; 3) Define expected tooling lifespan or production capacity; 4) Establish performance metrics for products produced using the tooling; 5) Require regular inspection and reporting on tooling condition; 6) Specify remedies if tooling fails to meet quality standards; and 7) Include provisions for tooling modifications if quality issues arise. For innovative products, maintaining precise quality standards is essential to preserve your competitive advantage and brand reputation.

Tooling Agreements: Essential Guide for Businesses and Manufacturers - Mississippi