Continuous Improvement, Continuous Investment

The Bottom Line: When evaluating capital expenditure decisions, window and door companies should carefully consider warranty terms, performance expectations and the need for equipment or software optimization to protect their continuous improvement goals.

As lawyers for window and door companies, we spend a lot of time pondering the nuances of damage limitations and exclusions relative to claims for products as assembled by manufacturers. Contemplating your company’s own capital expenditures can present a different sort of challenge when weighing contractual provisions and determining potential impacts to your company’s investments. Here, we will cover three important considerations for any window and door company to consider when evaluating a potential capital expenditure (capex) transaction.

1. Warranty and managing risks

When it comes to warranty terms and protections, it’s certainly not an apples-to-apples comparison when shifting the focus to warranty coverage for your capex investment. While a typical fenestration product warranty may offer terms and exclusions that make sense to address a straightforward window or door product issue, the same can’t be said for protections offered to your company’s capex purchase.

The potential for significant exposure can arise from even a small deviation with far-reaching consequences. For example, you acquire new equipment to integrate into your manufacturing processes. What if something goes wrong? What avenues are offered for resolution? What protections are in place to make your company whole in the event there is an issue causing defects or delays in your manufacturing process? Be careful to consider the “what ifs” that may get lost in the excitement of a new acquisition.

With large expenditures, there is usually more room to negotiate those protections and resolutions to address your specific concerns. Never assume what will happen if something fails to work as anticipated; instead, identify the potential risks and points of failure in advance, and include the avenues to resolve those issues to eliminate uncertainty as much as possible.

2. Identify and negotiate performance expectations

Like warranty considerations, any major expenditure will be made with the expectation that a certain level of performance can be achieved and provide for contractual resolutions should those targets not be possible. Negotiating that performance into your contract should be part of such transactions regardless of the nature of the capex investment.

3. Do your homework—further invest in your investment

A new piece of equipment or software may boast all kinds of bells and whistles, but typically even the best capex investment is not a plug-and-play situation. Take the time and make further investment to ensure this new asset is optimized to meet your company’s actual needs. A thorough internal review and implementation should be undertaken to identify what will be required to achieve the full potential of your new investment, both before and after the capex transaction occurs. Sometimes this can be done through allocation of internal resources to make the appropriate determinations and return on investment analysis.

A more significant capex investment may benefit from retaining external input if specific expertise or analysis is needed, particularly for software and technology investments that could have widespread impacts on your company, considering the actual day-to-day impacts to the ultimate users.

Enticing upgrades and new technologies are investments that must be made with care.

Never back off from negotiating for the specific protections you require for your company. Full consideration of the positive and negative outcomes that should or could arise from moving forward with those investments is essential to protecting your company’s goal of continuous improvement.