Meaning
Legal provisions for development expense track the costs of one time design and development work if a project is canceled or altered. Non-recurring engineering indemnification ensures that a design house or a manufacturer is paid for their initial efforts even if mass production never begins. This clause typically covers the cost of PCB layouts, specialized tooling, software audits and certification testing.
Cost Recovery
Specific milestones define when payments for development work are due. If a buyer decides to change the processor late in the design cycle, non-recurring engineering indemnification covers the labor required for the redesign. This prevents the supplier from losing money on custom work that cannot be reused for other clients.
Property Ownership
Payments for development often influence who owns the resulting designs. Under the terms of non-recurring engineering indemnification, the buyer may gain the rights to the schematics once the fees are settled. Clear language in the agreement prevents disputes over who can use the custom hardware in the future.
Risk Allocation
Splitting the burden of development costs makes complex projects more feasible for small companies. Suppliers might offer a discount on these fees if the buyer agrees to high volume purchases later. Non-recurring engineering indemnification provides the safety net that allows these commercial trade offs to occur.
