A Statement of Work (SOW) for hardware manufacturing helps to ensure that project work by suppliers or contractors proceeds in line with specific guidelines. A SOW is an essential element for smooth project management via adherence to contractual obligations that lead to delivery of work according to expectations. The SOW for manufacturing likely followed other documentation including a Bill of Materials (BOM) and Request for Quote (RFQ) that should inform its drafting.
While this article focuses on SOW for manufacturing, there are also other related kinds of SOW that you might find useful in your hardware project: SOW for design and design + manufacturing. We will address SOW for design in a future post.
Following, we, at TechDesign, will take a look at the 16 contract requirements in a solid, complete statement of work for manufacturing. Typically, these requirements make up the various sections of a SOW.
Contract Requirements for Hardware Manufacturing Projects
1. Outline of the project objectives
Here you describe the purpose of the contract between the buyer and supplier as well as any related information. It outlines the work to be done, the purpose and objectives of the project and their import. There may be a discussion of the benefits or improvements to be made by the project or just a high-level over of the goals.
This section will define any specific terminology relevant to the contract or the work to be done, including, but not limited to delivery target, delivery notice, order, demand estimate, and specifications, etc.
3. Product specifications/project scope
What the vendor should provide needs to be specified in this section including product features, functions, and specifications.
4. Demand forecast, order, delivering notice
Here the buyer demonstrates a proposal for the estimated demand necessary for the supplier to make a production plan. Also, the section will provide order description, and delivery notification items needed so that the buyer and supplier can abide by their rights and obligations.
5. Delivery and schedule
This section assigns the rules for delivery, schedule, and arrangement of a delivery plan in addition to any other related items. Items might include processing delays in the delivery of goods, problems in cargo handling, and shipping documentation, etc.
6. Price and payment terms
Here the price provided by the supplier is explained as well as the continual optimization that should keep the price competitive. The content and requirements of the manufacturing order determine the price and payment terms.
The supplier submits a guarantee and implements a production agreement for the shipment stated in the terms of the contract. The section also spells out the buyer inspection of the guaranteed product.
8. Goods inspection and warranty responsibility
This section lays out a detailed description of the inspection of goods and defines the warranty responsibility in addition to providing instructions for the handling of defective products. Relevant industry standards compliance is listed here. Finally, testing of the product, the testing lab or other party involved in the testing, the process, equipment required, and other resources are enumerated here.
9. Change of product specifications and continued supply responsibility
The buyer and supplier agree to define the ownership of specifications changes. Change proposals need to be replied to within a specified period by the other party. Damage claims caused by unapproved specification changes are defined here. For instance, if the supplier changes the specifications causing damage to the buyer, the buyer can make damage claims to the supplier.
Continued supply responsibility covers requirements of the supplier to continue to ship out products to the buyer within the period of contractual validity unless the supplier informs the buyer of the time and reason for suspension or termination in advance of the specified time and obtains the approval of the buyer.
10. Intellectual property rights
Here, the contracted parties agree to the definition of protection, infringement, and compensation of your intellectual property rights.
11. Legal compliance
In many cases, the buyer and supplier agree that the national law of the defendant (assuming the defendant is the supplier) shall govern the contractual terms. Likewise, the contract should also be drafted, or translated, in the national language of the defendant because the district courts under the jurisdiction of the defendant’s principal place of business may not recognize foreign language documents. This section may also include clauses specific to the project requiring compliance with special legal requirements such as antitrust laws, etc.
12. Confidentiality responsibility
The primary Confidentiality responsibilities that should be defined here are what kinds of documents or materials need to be kept confidential, what kind of behavior is to be considered a breach and acceptance of claim of breach, and finally the period of validity for confidentiality.
Furthermore, legal counsel may recommend that an NNN agreement be used in place of the typical NDA and that it is created specifically to your project situation, IP considerations, and to be enforceable in the jurisdiction of the supplier. An NDA enforceable in your jurisdiction may not be enforceable in a foreign one. An NNN agreement covers Non-use, Non-disclosure, and Non-circumvention. For more information about NNNs for China contracts, please check our friends over at the China Law Blog – these principles are also likely applicable to contracts with suppliers in other foreign jurisdictions.
13. Dispute resolution
The buyer and supplier agree that contract disputes be settled via arbitration panels in the district of the defendant’s principal place of business – again for enforceability of court or arbitration decisions.
This section lays out the agreement between buyer and supplier that litigation, if necessary, should be in the district of defendant’s principal place of business – once again, to ensure the enforceability of court decisions.
15. Contract termination
In this section of the SOW, the parties agree on the following:
• Conditions for contract termination
• The requirement that one party notify the other party that it is terminating the contract via official documentation
• After termination, any valid contractual obligations that still need to be complied with for legal execution and termination of the contract.
16. Penalty of damages
The buyer and supplier agree upon damages, and payment terms if one party damages the interests of the other party or breaches the contractual terms.
Here, the parties agree to any additional terms or requirements not spelled out above or may include addendum or examples referenced in the sections above.
There you have it – the 16, no 17 requirements, for a solid statement of work for your hardware manufacturing project that will help ease your project and contract management. It is all about keeping it on time and budget and letting you focus on your product development and taking it to market.
We understand it takes time and efforts to get the documentation ready and understand all the terms in the statement of work. We are here at TechDesign willing to provide professional consultation and support to facilitate hardware innovators to find suitable manufacturers for manufacturing their electronics products.