Quality Specifications

💡 Plain English Explanation

Quality specifications encompass the standards, procedures, and performance metrics that define what constitutes an acceptable product. This includes testing methodologies, acceptance criteria, defect classifications, and the statistical data that demonstrates your manufacturing capability. Quality data reveals both your standards and your actual performance, which can be sensitive information.

In manufacturing, quality specifications often exceed regulatory minimums and represent competitive differentiation. Your ability to consistently achieve tighter tolerances, lower defect rates, or superior performance may be why customers choose your products over competitors.

This clause typically protects:

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  Quality standards: Internal specifications, tolerance requirements, and acceptance criteria that may exceed industry or regulatory minimums.
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  Testing procedures: Inspection methods, test protocols, sampling plans, and measurement techniques used to verify product quality.
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  Performance data: Defect rates, yield data, process capability indices, and quality trend information that reveals actual manufacturing performance.

⚠ Why This Clause Matters

For the Disclosing Party: Quality specifications reveal your competitive positioning. High-quality requirements show capabilities; actual performance data shows consistency. A competitor with access to your quality data understands exactly what standard they need to meet to compete with you, and may learn that your actual capabilities exceed your public claims.

For the Receiving Party: Quality standards often reference industry standards (ISO, ASTM, SAE, etc.) or are commonly used across the industry. You need clarity on what is truly proprietary versus what represents general quality management practices you already employ.

Regulatory Context: Some quality data may be subject to regulatory reporting requirements or customer audit rights. Your NDA should not conflict with legitimate regulatory or contractual disclosure obligations.

📄 Clause Versions

"Quality Specifications" means confidential information relating to the Disclosing Party's quality management systems, standards, and performance, including but not limited to:

(a) Quality Standards: Product specifications, dimensional tolerances, material requirements, performance criteria, and acceptance standards that are proprietary to the Disclosing Party and exceed or differ from applicable industry standards;

(b) Testing Procedures: Inspection methods, test protocols, measurement techniques, sampling plans, and verification procedures specific to the Disclosing Party's products or processes;

(c) Performance Data: Defect rates, yield statistics, process capability data (Cp, Cpk, Pp, Ppk), first-pass yield, scrap rates, and quality trend data specific to the Disclosing Party's operations;

(d) Quality Systems: Quality management system documentation, quality plans, inspection instructions, and control plans that are specific to the Disclosing Party's operations; and

(e) Defect Information: Defect classifications, failure mode analyses, root cause investigation results, and corrective action records specific to the Disclosing Party's products.

The Receiving Party agrees to maintain Quality Specifications in confidence and to use such information only for the purposes specified in this Agreement.

This clause does not restrict the Receiving Party's use of:
(i) Industry-standard quality practices and methodologies (ISO, ASTM, SAE, etc.);
(ii) General statistical quality control techniques commonly used in manufacturing;
(iii) Quality knowledge and skills possessed by the Receiving Party's personnel prior to this Agreement; or
(iv) Quality practices independently developed by the Receiving Party without reference to the Disclosing Party's information.

"Quality Specifications" means all information, in any form, relating to the Disclosing Party's quality management, quality control, quality assurance, and product or process quality, including without limitation:

(a) All quality standards, specifications, and requirements, including product specifications, material specifications, dimensional tolerances, surface finish requirements, performance criteria, reliability requirements, and acceptance standards, whether based on industry standards or proprietary to the Disclosing Party;

(b) All testing and inspection information, including test methods, test procedures, inspection instructions, measurement protocols, sampling plans, gage R&R studies, measurement system analyses, and equipment calibration procedures;

(c) All quality performance data, including defect rates, yield data, scrap rates, rework rates, first-pass yield, rolled throughput yield, parts per million (PPM) defect rates, process capability indices, and historical quality trends;

(d) All statistical process control information, including control charts, control limits, process capability studies, and statistical analyses;

(e) All quality system documentation, including quality manuals, quality plans, procedures, work instructions, control plans, inspection and test plans, and PPAP documentation;

(f) All failure and defect information, including defect classifications, defect Pareto analyses, failure mode and effects analyses (FMEA), root cause analyses, 8D reports, and corrective and preventive action records;

(g) All customer quality information, including customer complaints, warranty claims, field failure data, and customer satisfaction metrics;

(h) All supplier quality information, including supplier quality ratings, incoming inspection data, supplier corrective actions, and supplier audit results;

(i) All quality audit information, including internal audit results, customer audit findings, and regulatory inspection results; and

(j) All quality improvement information, including Six Sigma projects, kaizen results, and quality improvement initiatives.

The Receiving Party acknowledges that Quality Specifications, including actual performance data, constitutes highly sensitive competitive information. The Receiving Party agrees not to use Quality Specifications to:
(i) Benchmark its own quality performance;
(ii) Establish quality targets or specifications for competing products;
(iii) Market or represent to customers that it can match or exceed the Disclosing Party's quality; or
(iv) Identify quality weaknesses or opportunities to compete against the Disclosing Party.

"Quality Specifications" means only the following information, when provided in writing and clearly marked as confidential:

(a) Product specifications that exceed applicable industry standards (ISO, ASTM, SAE, etc.) and are documented as proprietary to the Disclosing Party;

(b) Custom testing procedures developed specifically by the Disclosing Party that are not based on standard test methods; and

(c) Actual defect rate data and process capability data specific to identified products or processes, when such data is specifically designated as confidential at the time of disclosure.

The following shall expressly NOT constitute Quality Specifications:

(a) Industry-standard specifications, tolerances, and requirements, including those specified by ISO, ASTM, SAE, military, and other standards organizations;

(b) Standard quality management practices, including those described in ISO 9001, IATF 16949, AS9100, or similar quality management standards;

(c) Common statistical quality control methods, including standard control charting techniques, capability analyses, and acceptance sampling plans;

(d) Standard testing methods published by industry organizations or equipment manufacturers;

(e) General quality management knowledge and skills possessed by the Receiving Party's quality professionals;

(f) Quality specifications required to meet regulatory requirements or customer-mandated specifications;

(g) Information about the Disclosing Party's quality certifications, which are matters of public record; and

(h) Quality information that becomes generally known in the industry through no fault of the Receiving Party.

The Receiving Party retains the unrestricted right to:
(a) Apply standard quality management practices and statistical techniques;
(b) Develop quality specifications for its own products and processes;
(c) Use the skills and experience of its quality professionals; and
(d) Meet or exceed industry-standard quality levels through its own efforts.

Nothing in this Agreement shall be construed to prevent the Receiving Party from achieving quality levels comparable to or exceeding those of the Disclosing Party through independent development and standard industry practices.

💬 Key Considerations

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  Distinguish proprietary from standard. Many quality practices are industry-standard. Focus protection on what truly differentiates your quality program from general industry practice.
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  Consider customer requirements. Customers often require quality data for supplier qualification. Ensure your NDA permits necessary customer disclosures while protecting against competitive use.
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  Address audit situations. Quality audits involve sharing detailed quality information. Define how audit findings and observations are handled under the NDA.
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  Protect performance data separately. Actual quality performance data (defect rates, capability indices) may be more sensitive than quality standards themselves. Consider enhanced protection for performance metrics.
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  Account for regulatory requirements. Some industries require quality data disclosure to regulators. Ensure your NDA includes appropriate exceptions for mandatory regulatory reporting.