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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.

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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 before you file

Before you file a Tooling Agreement in New Mexico, a few decisions shape the document: which option to choose and what each one means. The Tooling Agreement guide walks through them.

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New Mexico Requirements for Tooling Agreement

  • Uniform Commercial Code Compliance (New Mexico Statutes § 55-2-101 et seq. and § 55-9-101 et seq.)

    The agreement must comply with New Mexico'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.

  • Intellectual Property Protection (New Mexico Statutes § 57-3A-1 et seq.; 35 U.S.C. § 1 et seq.; 17 U.S.C. § 101 et seq.)

    Provisions addressing intellectual property rights in tooling designs must comply with both federal patent, copyright, and trade secret laws, as well as New Mexico's Uniform Trade Secrets Act.

  • Contractual Formalities (New Mexico common law; New Mexico Statutes § 55-1-201)

    The agreement must satisfy New Mexico's requirements for valid contracts, including offer, acceptance, consideration, legal purpose, and capacity of parties to contract.

  • Statute of Frauds Compliance (New Mexico Statutes § 55-2-201)

    For tooling agreements exceeding $500 in value, the agreement must be in writing to be enforceable under New Mexico's adoption of the UCC Statute of Frauds provisions.

  • Warranty Provisions (New Mexico Statutes § 55-2-312 through § 55-2-318)

    The agreement must clearly state any express warranties regarding the tooling and address implied warranties under New Mexico's UCC provisions, including merchantability and fitness for particular purpose.

  • Limitation of Liability (New Mexico Statutes § 55-2-302, § 55-2-719)

    Any limitations on liability must comply with New Mexico's restrictions on unconscionable contract terms and limitations on consequential damages.

  • Dispute Resolution (New Mexico Statutes § 44-7A-1 et seq.)

    Provisions for dispute resolution must comply with New Mexico's Uniform Arbitration Act if arbitration is selected as the method for resolving disputes.

  • Choice of Law and Venue (New Mexico Statutes § 38-3-1 et seq.)

    The agreement should specify governing law and venue for disputes, consistent with New Mexico's choice of law principles and civil procedure rules.

  • Unfair Trade Practices Compliance (New Mexico Statutes § 57-12-1 et seq.)

    The agreement must avoid provisions that could be construed as unfair or deceptive trade practices under New Mexico's Unfair Practices Act.

  • Environmental Compliance (New Mexico Statutes § 74-1-1 et seq.; 42 U.S.C. § 4321 et seq.)

    Provisions addressing tooling disposal or environmental impacts must comply with New Mexico Environmental Improvement Act and federal environmental regulations.

  • Worker Safety Provisions (New Mexico Statutes § 50-9-1 et seq.; 29 U.S.C. § 651 et seq.)

    If the agreement addresses operation of tooling, it must comply with New Mexico Occupational Health and Safety Act and federal OSHA requirements.

  • Taxation Considerations (New Mexico Statutes § 7-9-1 et seq.; 26 U.S.C. § 1 et seq.)

    The agreement should address tax implications of tooling ownership, including New Mexico's Gross Receipts Tax and federal tax treatment of tooling as capital assets.

  • Confidentiality Provisions (New Mexico Statutes § 57-3A-1 et seq.; 18 U.S.C. § 1831 et seq.)

    Provisions protecting confidential information must comply with New Mexico's Uniform Trade Secrets Act and federal Economic Espionage Act.

  • Force Majeure (New Mexico common law; New Mexico Statutes § 55-2-615)

    Force majeure provisions must be consistent with New Mexico's common law principles regarding impossibility and commercial impracticability.

  • Assignment and Delegation (New Mexico Statutes § 55-2-210)

    Provisions regarding assignment of rights or delegation of duties under the tooling agreement must comply with New Mexico's UCC provisions on assignment and delegation.

  • Termination Provisions (New Mexico common law; New Mexico Statutes § 55-2-601 et seq.)

    The agreement must clearly specify termination rights and procedures in compliance with New Mexico contract law principles regarding breach and remedies.

  • Security Interests in Tooling (New Mexico Statutes § 55-9-101 et seq.)

    If the agreement creates security interests in tooling, it must comply with Article 9 of New Mexico's UCC regarding creation, perfection, and priority of security interests.

  • Export Control Compliance (15 C.F.R. § 730 et seq. (Export Administration Regulations); 22 C.F.R. § 120 et seq. (International Traffic in Arms Regulations))

    If tooling involves technology with potential export restrictions, the agreement must address compliance with federal export control laws.

  • Insurance Requirements (New Mexico Statutes § 59A-1-1 et seq.)

    Provisions regarding insurance for tooling must comply with New Mexico insurance law requirements for insurable interests and coverage.

  • Electronic Signatures (New Mexico Statutes § 14-16-1 et seq.; 15 U.S.C. § 7001 et seq.)

    If the agreement will be executed electronically, it must comply with New Mexico's Uniform Electronic Transactions Act and the federal ESIGN Act.

Frequently Asked Questions