Hope is not a strategy––we know this instinctively, even without Rick Page’s book that popularized the saying. However, a little-discussed but nonetheless common practice of finger-crossing is pervasive throughout the metalcasting industry. It’s a certain “hope for the best” mindset that often accompanies the handling of terms and conditions (T&Cs) sent from a large corporate casting customer to their foundry supplier––and vice versa. At times, the details can be onerous, yet the parties forge ahead with projects, knowing their T&Cs conflict. But hope without homework can put the foundry business at serious risk. 
Here’s a typical scenario: The customer purchasing department sends an auto-generated T&C document to the foundry with their PO––sometimes as much as 15 or 20 pages––comprising dozens of stipulations on a wide range of issues for which the foundry will be accountable or liable. The foundry, in turn, generally shares its own T&Cs, and these, too, can range in volume of wills and won’ts legalese designed to protect the casting supplier. Most recently, the sender of T&Cs is likely to convey its list with a simple statement: “See our terms and conditions on our website.” 

Invariably, customer and foundry T&Cs contradict each other, and what happens next hinges mostly upon the foundry’s response, especially where the customer is a major OEM … with more attorneys. First, the foundry might choose to merely skim the list, say a few Hail Marys, and take the job. If the T&Cs are carefully examined, the recipient company may acquiesce, resting in the confidence that their own T&Cs will protect them. In other cases, the foundry accepts the T&Cs and doesn’t send any of their own because they’re either lost, nonexistent, or deemed unimportant. Then, in other instances, there may be some dialog between the parties and a verbal “handshake” agreement is forged, leaving both sides potentially vulnerable in the event of a problem later on. 

During his 34-year tenure within the metalcasting industry, Greg Pickle, president of Southland Metals, a manufacturer’s representative company serving both domestic and offshore foundries, has seen all manner of T&Cs and the reactions they invoke. 

“You might tend to think, if we all actually looked closely at the terms and conditions, nobody would be doing business,” he said. “We would all say, ‘No way am I accepting this,’ and we wouldn’t be shipping product. We almost have to sweep it under the rug. A purchase order comes in from a customer and it has their terms and conditions that do not align with the manufacturers T&Cs.  

So, we send an acknowledgement and provide our terms and conditions––and they clash.  We work with our customers to develop a supply agreement that addresses issues that don’t line up in the general terms and conditions from each party.  A written document is preferred but you have to analyze and know your customer to possibly accept a gentlemen’s agreement.  

In the end, he added, “You may have to evaluate whether one specific clause is worth destroying your relationship and work toward a mutual agreement that is beneficial to both parties. Knowing your customer and communicating is the key to resolution.”
Business Reality

In days gone by, verbal agreements worked because people remained in the same job for many years if not their entire careers. But over the last few decades, a more mobile workforce demands the documenting of transactions, says Dan Beederman, a Chicago-based attorney who negotiates and drafts contracts and litigates cases for foundries, other manufacturers, and independent sales representatives. 

“Institutional knowledge isn’t there so much anymore,” he said. “You cannot rely on a verbal, ‘Let’s do what we did last year.’ Fortunately or unfortunately, people need to document their transactions to avoid ambiguities and misunderstandings. You want to avoid exposing yourself to risk and giving someone the opportunity to come after you. 
“But listen, if it’s a good customer, and the customer has a problem, the [foundry] is going to bend over backwards to try to work with that customer. They recognize it’s in their best interest, especially if the customer is reliant upon just one or two suppliers for their product. If there’s a dispute, you don’t want to burn bridges. 

“My feeling is, terms and conditions are important,” Beederman continued. “People sometimes don’t recognize their importance or dismiss their role in controlling the business relationship between the parties. If you’re not careful, it will be controlled in a manner that is contrary to the interests of your company; it could be dictated by the other side. You need your terms and conditions to adequately protect you and express your business needs. And I recommend reviewing them at least on an annual basis.”

Look for the Landmines

Call them landmines, trigger points, or hot buttons, every company, whether foundry or customer, has a few key issues that matter most to them––they’re the non-negotiables, and it’s important to identify and stick to yours, sources emphasized. 

Certainly, the big T&C topics every foundry should pay close attention to include:

Pricing. If you’re with a foundry, consider adding a clause that enables you to raise the price if your materials costs go up after the job has been accepted. 

Terms of payment. The foundry’s boilerplate T&Cs might say 30 days but they’ll accept 60. The customer says 180. Can you live with that?
Delivery. Dates matter. And who pays for shipping that’s over what was expected? 

Shipping. In an extreme case, a customer’s T&Cs mandated if the foundry was over by one piece they’d be responsible for the entire cost of freight. 

Packaging. If the customer requires special packaging, who’s paying for it?  

Warranty. Does the customer want the foundry to take the whole order back if they find one defective part? And what’s a reasonable time-frame for a part’s warranty?

Inspection––as related to warranty. The foundry wants to set a date––say a year––by which time the customer must have made a warranty claim. After that time, warranty claims are void. Will that jibe with the customer? Make sure it’s spelled out. 

Quality. Without clear definitions, this could be a subjective judgement call. See that it isn’t.

Accepting liability. Read the fine print to make sure the foundry is not being held responsible for work it didn’t do––if damage happens to castings after they leave the foundry, at a third-party machine shop, for example, make sure the T&C language doesn’t put you on the hook. 
Stored inventory. Customer wants the foundry to keep lots on hand. The foundry wants to keep none on hand. Better straighten it out from the beginning. 

Tooling ownership and storage. The subject of tooling is considered by some to be the hottest topic of the T&C hot list. While tooling is a business term rather than a legal term, it’s appropriate to clarify the who, what, where, and how much. Can the foundry put a lien on the tooling if payment for castings isn’t forthcoming? Can they destroy the tooling if the customer doesn’t pay for storage? The issue becomes especially dicey if the foundry is sold and new owners don’t have anything in writing.

Beederman adds that it’s perfectly reasonable to state in your T&Cs where a dispute will be litigated, if the battle of the forms cannot be more peaceably settled. He also recommends a clause that ensures your attorney fees will be covered if you are the prevailing party in a court case. 

Know When to Walk Away

Sources emphasized every company has to evaluate its own appetite for risk. Will Shambley, president at New England Foundry Technology near Boston and chairman of the AFS New England Chapter, says a good rule of thumb is: “If something in the T&Cs has the potential to put you out of business, don’t sign it.”

If presented with a set of terms and conditions that are heavily one-sided, the remedy comes down to this, said Shambley: “You sit down at the table and say, ‘I can’t agree to this, I can’t agree to that. And you go down the list. Sometimes, a good customer will say, ‘Okay, that’s fair.’ But if they don’t, be ready to walk away.”

Beederman concurs. “Don’t marry yourself to the future of a contract. If it’s not good, don’t accept it. If you have concerns about terms and conditions, and there’s no give on the other side, don’t think it’s all going to work out afterwards. If it’s bad at the start, it’s going to potentially be worse at the end. Sometimes you have to walk away from a potential opportunity because it may not be worth it. But that requires you to spend the time and effort to dig into the document to see whether or not you can live with those terms ... If it takes someone 20 pages to write them, you’ve got a problem.”

Shambley adds that a good way to manage risks associated with extreme T&Cs is to continually build and fill the foundry pipeline with new customers. “There are a lot of foundries that have been making the same parts for 20 years and haven’t gone out to get a new customer, he said. “And that can put you in a really bad position where you can’t walk away if you’re given new terms and conditions.”

A Foundry’s Point of View

At Canekast, CEO and owner Reg Zeller and President and COO Josh Schultz take a conservative and cautious view of terms and conditions. The company is comprised of six foundries––Ermak Foundry & Machining in Chaska, Minnesota, Northwest Casting in St. Paul, Minnesota, Superior Aluminum Castings in Independence, Missouri, Cushman Foundry in Cincinnati, Ohio, as well as Patriot Foundry & Castings and RDS Dock Hardware both in Franklin, New Hampshire––and its management duo have blended Zeller’s large corporate background with Schultz’s small business experience to shape a straightforward protocol. If the T&Cs of a customer conflict with Canekast’s, they are quick to tell the customer they can’t accept the purchase order until they amend the T&Cs and why.

A common area of disagreement, said Shultz, has to do with lead times and stocking. “The customer wants you to have a year’s worth on hand at all times, and we want to have none on hand at all times––so somewhere between those two desires, you get terms and conditions.”
But they assert that it’s the technical aspect of casting products that consume at least half of the T&C issues they encounter. When and why a customer can return a part and how much money has to be refunded––these discussions always link back to the technical specifications. 

“There is absolutely no way you can separate your technical specs, and all the things that are required in your drawings from your terms and conditions,” said Zeller. “It’s impossible. T&Cs are an incomplete story without talking about the specs.”

The company is careful to work with part designers and educate them about manufacturability, what’s possible and what’s not possible.

Management is also very clear about not accepting red-lined specifications or mark-ups that may have been verbally agreed to over a period of decades. Occasionally, after acquiring a foundry, they’ve come across drawers of these drawings and discover the foundry is no longer to spec a part. 
“We really ensure that we don’t operate off of red-line drawings,” said Shultz. “This is a way that you can easily get burned. At some point, it’s no longer the person that you worked with for 30 years; they got bought out by a big corporation, and now they’re going to bring their lawyers to bear––and you’re going to lose every time.” 

One way they circumvent T&C- and PO-related conflict is to obtain a written exception signed off from a customer manager acknowledging certain clauses won’t be applied to the job. In one case, the customer T&Cs held the foundry responsible for defects that the foundry couldn’t measure because the customer did the machining. 

“We we’re able to accept the PO, but we have an exception that references all future POs for this part,” said Schultz. “At some point, you have to say okay, we’re going to go forward and cross our fingers. But it’s nice to at least have this in writing. We saw ahead of time this would be a problem, so we had them sign off. Customers will usually sign it if you’re reasonable.” 

Zeller and Schultz said they see a correlation between economic conditions and a rise in some customers using T&Cs as a means to return parts. They pointed to instances of parts sitting on a customer’s dock for over a year without being inspected and then the company wanting to send parts back for a refund. But Canekast states in its T&Cs they’ll solve problems within 90 days.

“After that, you should have found the problem by now,” said Schultz. “You do get customers that get pinched on cash––we’ve got two big names right now that are trying to return a lot of parts that are good, but now they want a lower inventory. It seems like they are trying to find a reason to send them back. So again, we go back to the technical aspect. Are we technically correct? It comes up quite a lot.”

“Back in 2013, in one of my former businesses,” Shultz added, “the industry had a big pullback, and all of a sudden, everybody cared about the terms and conditions of a PO. I think what you’re seeing is just a little bit of a tighter time today, and people are looking for ways to return parts or to get a discount by exercising some clause in the terms and conditions.” 

In the end, when customer and foundry T&Cs don’t match up, Canekast employs another tool that serves as a buffer from potential legal action. 

“We send out an open order report that specifically says, ‘This is what we’re what we’re talking about on price and date, and it goes out every week,” said Schultz. “This is way to counter terms conditions or a PO that the customer won’t change. We send out an open order report that basically says, ‘These are the dates and the terms that we’re agreeing to. It’s not what you had on yours, but this is what we can do. We need you to change it.’ And if they don’t, we can say, ‘Hey listen, we emailed you every Friday with this date and it went right to you. We’ve been telling you this was a thing, and you never got a hold of us.’ That has saved us many times.” 

While putting things in writing is essential, Schultz is also all about the call. Talking to customers personally can diffuse situations and keep them from escalating. 

“It always helps to get on the phone,” he said. “I might get a rude email from a customer saying they’re returning 100 parts. So, I get on the phone with them, and, what do you know, 10 minutes later, there’s four bad parts––they were just having a bad day and wanted to scrap the whole shipment.” 

“You’re probably not going to change major things that way, but you can smooth over a lot of issues by talking to them.”