Inspired by a LinkedIn discussion on this subject, I thought it would be good to talk about it here. The question was (paraphrased and edited slightly):
If a contractor approaches you with a production proposal, is it okay that the contractor charges for the initial sample? How about if they say that if you place an order, they will refund the cost? Shouldn’t this be a cost of doing business? What are your thoughts?
With over 100 comments (although some are spam, typical of LI), this has been controversial to say the least. I think the better question is: if you approach a contractor with the idea of doing business with them, should you pay for the initial sample? The reason I think my question is better is because it is basically the same thing. The issue of who made the approach is immaterial once you sift through the pros and cons.
Even though there are tiny operations out there that only exist to generate revenue making crappy samples, I think you should pay. Not that you should pay the former, that’s what due diligence -and escrow- is about. You should pay for these reasons:
1. To be taken seriously and set yourself apart from people who only pretend to be customers; those looking for free product that they then shop around to someone else. Tell me, if you’re a provider that offers free samples and you’re burnt more times than not, are you going to put your best faith effort into a sample? Probably not.
2. It is in your best interest to pay for patterns and samples otherwise you hold no rights to them. If you decide to switch horses and go with another provider and you haven’t paid, there is nothing to keep the first party from using the patterns and samples they made for you, for another party. It is only your property if you paid for it (work for hire). Of course you own your sketches but it is a simple enough matter for someone to create new sketches from the pattern and sample. Besides, even “free” samples cost you time and maybe even grief.
3. If you go with a vendor that provides free samples, the production order is usually a package price, meaning costs aren’t itemized so you don’t know how the costing figures were determined. At the outset, these prices are always favorable but once dependency sets in, costs can increase but without itemization, you have little idea where you have cost cutting options. This doesn’t happen over night; it’s very much like a honeymoon. What you need is cost transparency but the culture of the relationship you’ve established is one of concealment. Later on you could end up over a barrel, unable to get any solid costing information and to get any leverage, you’ll have to retain a hired gun to renegotiate all your contracts. Think I’m kidding? There are a lot of multi-million dollar firms in exactly this position.
What’s worse is you won’t be able to do much about it because they have “your” patterns. You know, the patterns you didn’t pay for, the costs of which were rolled into the package price. Meaning, it will be an arduous process of finding another contractor because you’ll have to start over again with sampling.
Now, if you’re yet another multi-million or billion dollar firm with leverage to get costing information as a condition of placing the contract, that’s great but most people aren’t. This is why I think your best protection lies in paying for the pattern and sample because you own it. If you pay for it be sure to get a copy of the pattern on file -NO EXCEPTIONS. Do not leave the file storage of your patterns to the provider. You don’t want to end up like the guy I wrote about recently whose relationship with his pattern provider suddenly went south. Since he never had those files, he has nothing to show for the $500,000 he spent on patterns over the past 8 years. Personally I think he should have been doing patterns in house considering his service needs but that’s another story.
Another benefit of paying for sampling (I guess this is the fourth reason) is that you have more control over the process. For example, the contractor sends you a sample that does not meet the specifications you sent -you need to go back to them and say “why did you send me this? This is not what I ordered, it doesn’t meet spec.” You shouldn’t pay for that; they need to send you another. Look at it this way, if they can’t meet spec on a one off, there is little chance they can do it for a production run either. If you didn’t pay for the sample, you’re not entitled to as much. The contractor can say they will fix it for production and since the contractor has to pay for the sample he or she will sweet talk you into the deal without redoing the sample -and in which case, how can you know it will be fixed in production?
The thing to know is that it is becoming much less common for product development work to be done on spec. My advice to service providers is to avoid it because there is nothing to prevent the “customer” (read: party who expresses interest in development work) from going to someone else with a lower price -assuming of course this is work done in anticipation of a soup to nuts production order. Of course I understand the constraints of providers who are really hungry for the work and will do it anyway but if you are a contractor and decide to pursue such course, do not forward any patterns or samples to the “customer” if they haven’t paid for it because there is nothing to keep them from going elsewhere.