Small problems or legal nightmares? The devil's in the detailsSmall problems or legal nightmares? The devil's in the details

Standardize your good business practices, and you can avoid spending valuable time and resources on legal action.

Most major legal problems that molders or moldmakers run into with their customers start out as minor ones, and are very often preventable by implementing a few good business practices. Mark Mahoney, attorney and friend to the plastics industry, told attendees at the American Mold Builders Assn. annual convention in Amelia Island, FL the steps they can take to prevent small problems from becoming legal nightmares.

Put it in Writing!

Mahoney, who hails from Yucca Valley, CA and worked in the plastics industry while attending college, knows firsthand the problems that molders and moldmakers get into because of a lack of documentation.

“It’s surprising how many contracts consist of no more paperwork than a quote, a purchase order, and an invoice,” Mahoney said. “Disputes that arise regarding the terms of a contract often come about after the original negotiators have transferred to other employment or have otherwise relocated when the company or a product line is sold outright. The new purchasing agents and engineers will only know what has previously been put into writing.”

Everything that is negotiated, including price, delivery time, change orders, and modifications, should be in writing. Negotiations and changes made over the telephone should always be followed with a confirming memo that binds both “professional buyer and seller” unless the confirming document is objected to within 10 days of receipt. One of the primary causes of nonpayment for engineering changes or modifications is that verbal instructions come without issuance of a P.O. through proper channels.

“All changes and modifications must be in writing,” Mahoney emphasized. “This slows down the guys who are in an unproductive rush or want to give you numerous change orders over the phone.”

It’s critical that all paperwork be read when received, and that one person in a company be in charge of reading all paperwork to ensure that what is confirmed by the buyer is what the seller understands to be correct, and to object in writing to those terms that conflict with that understanding.

“Many times the receptionist opens the mail and sends all purchase orders to the sales department, all invoices to accounts payable, and ECOs to engineering, with no one in charge of reading the fine print with regard to terms and conditions,” Mahoney noted.

It’s important to implement these standards for doing business from the outset of the relationship. “What you’ve done in the past sets the standard for the way you do business in the future,” Mahoney said.

To Warrant or Not to Warrant

Another major issue that can cause problems for molders and moldmakers is warranties on the mold. There are two types of warranties: an express warranty and an implied warranty. An implied warranty may be given by suggesting a particular type of mold steel, a specific type of plastic resin, the number of cycles, or cycle time. “Don’t let a recommendation become a warranty,” Mahoney advised. “Include an express warranty according to SPI standards and a statement that ‘the written quotation supercedes and excludes all prior oral representations.’” There should also be a written exclusion of implied warranties, such as “there are no warranties of fitness for a particular purpose” or “there are no warranties beyond those set forth in this written quotation.”

Mahoney recommends that molders and/or moldmakers provide mold warranties that limit the warranty to normal customs and practices of the plastics industry. Wally Schaub, co-owner of Pro Mold & Die in Roselle, IL, commented from the audience that he requires his customers to keep a written record of the mold’s preventive maintenance program to keep his warranty in effect.

Always attach your terms and conditions to every outgoing document. Make that a standard practice to prevent your customers from using the excuse that they didn’t know your terms. If your customer’s payments are beyond your credit terms, send shipments C.O.D. “Do not give new credit in exchange for payment on old invoices, or other fancy repayment schemes,” said Mahoney.
Editor’s note: For a copy of Mark’s Rules, a list of 15 critical rules for molders and moldmakers, write to Mark at [email protected].