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What are the main points to address in a contract for engineering services?

Posted: 2011-07-05

Full Question

In regards to engineering services (i.e., design, testing, analysis, etc.), what are common pain points that should be addressed (i.e., work for hire, ownership, IP)?

Answer

My friend Paul is a Dutch engineer based in China, at www.VentureTech.net. He outlines two common pain points in China dealing with Intellectual Property and Design Bias. So as you draft your terms and conditions, you may want to keep the following in mind.

Unfortunately, leaving the engineering to the Chinese manufacturer is not the best option for the following reasons:

a.  Intellectual Property Concerns! Non-Disclosure/ Non-Compete Agreements are very hard to monitor and enforce with Chinese companies. Even if the supplier is paid for their engineering, they will feel a sense of ownership. That is very dangerous if you decide to change suppliers or stop production unilaterally. Some manufactures will even leverage the engineering work done for your project to land other clients who may be your competitors.
b.  Biased Designs! The manufacturer will engineer the product as they see fit in a way that benefits them, rather than you, the most. That means engineering to Chinese standards rather than international standards. The engineering will also be tailored to the production methods of that particular factory, which may or may not be the design that leverages the best production efficiencies and technologies available in China at a national level. Furthermore, the engineering may be tailored for the Minimum Order Quantity that the factory desires, rather than the expected order size of the customer.

Hope this warning helps some of the readers avoid the problems I have run into above when contracting engineering in China!

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