Clients often ask me to walk them through the things that need to be negotiated when buying or selling a big piece of equipment. Here is a very brief version of what I tell them:

1. Deliverables

What is actually being sourced, produced and delivered?

  • Specs. Identify the technical and functional specifications for Deliverables
  • Preparation and Due Diligence. What due diligence needs to be done before the sourcing or production can happen (e.g. plant visits, technical and engineering consultation, etc.
  • Work Schedule. What is the work schedule and delivery schedule. Deadlines are critical.

2. Installation

How will the equipment get installed, who will install it and what are the parameters?

3. Commissioning and Testing

  • Once the equipment is essentially turned on, what has to happen? What testing procedures will you follow and what will have to happen for the work to “conform” to the specs? What will “approval” look like?
  • Operations Manual. Don’t forget this. The supplier ought to furnish a manual.
  • Training. Sometimes training is required. Sometimes the supplier will charge a fee. Often, limits should be placed on training.

4. Buyer’s Obligations

What does the buyer have to do to facilitate the supplier’s ability to deliver? This can be anything from making dock space available to hiring engineer support (or a million other things).

5. Risk of Loss and Title

Risk of loss means who is responsible for damage or disappearance at certain points in time. Title means ownership. Usually, risk of loss and title pass when the thing is delivered and/or installed, but that can certainly change.

6. Warranty

What kind of warranty will be given on the equipment and for how long?

7. Support and Maintenance

What types of support services and periodic maintenance has to be performed, who will supply it and how much will it cost?

8. Compensation

How will everybody get paid?

  • Will there be a total equipment purchase price or will it be broken into pieces?
  • Will there be time and materials charges and rates?
  • When are payments due

9. Term and Termination

How long does the contract last and how can it be terminated?

10. Intellectual Property.

  • a. What intellectual property rights does the buyer need to get or be given to use the equipment?
  • b. Who owns the designs to the equipment?
  • c. Who owns the intellectual property related to the equipment?

11. Confidentiality

What do the parties have to keep silent and on what terms?

12. Representations, Warranties and Indemnities

Representations and warranties are promises you make in a contract about the condition or status of something. (I may not have the business people negotiate this.)

  • What promises will the parties give to each other regarding ownership, title, etc?
  • Will there be indemnifications for breaches and if so, for what and for how long?

13. Insurance

Who has to take out insurance, what types and in what amounts?

14. Limitation of Liability and Disclaimers

What limits of liability and disclaimers will you agree to or do you want? (I may not have the business people negotiate this.)

2 Comments

  • February 16, 2011 Reply

    @profitandlaws

    Term Sheet Checklist to Buy Capital Equipment: Clients often ask me to walk them through the… http://goo.gl/fb/Kmdkn

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