How to Create Better Contracts and Deals in Supply Chain with Will Drewery

This is the full transcript of You Can Contract's episode featuring Will Drewery, founder and CEO at Diagon, and a former lead for Tesla's supply chain segment for manufacturing equipment.  

Will talks about ways to create synergy between lawyers and supply chain managers to generate better contracts and manage risk more effectively.

This episode would be great for lawyers who want to learn how to best work with the supply chain on contracts.

Please note: this is an automatically generated transcript. Please allow for some imperfections.

Laura Frederick: Will Drewery, it's so wonderful to have you on the show. 

Will Drewery: Hi Laura. Definitely, I feel the same way. It's great to see you again. 

Laura Frederick: Yeah, you, too, you, too. For those in the audience, Will and I knew each other when we were both at Tesla and we worked together. I was excited about the idea of having him on the show because one of the things I want to do with this show is to really talk about the different people involved in contracts and how we learn. I love bringing Will on to bring in a supply chain perspective because so much of contracting is dependent on the supply chain. And the supply chain is very dependent on contracting. So, I thought this episode would be great for lawyers who are interested in learning about how to best work with the supply chain on contracts. 

Will, tell us a little bit about your background and what you're doing now? 

Will Drewery: Sure. So, I'm a supply chain manager by background. I've spent most of my career sourcing and procuring manufacturing equipment. I started my career working as a consultant for the US government. I spent some time working as a contractor for the Department of Defense. I was deployed to work in Iraq for a year. And on that project, we were working with these state-owned factories to help them source machinery and equipment to restart their operations.

It was an incredible experience. I learned a ton, got to work on some amazing projects and really fell in love with manufacturing. I really love this idea that manufacturing could be used as a tool for economic development. And I love the idea of making something tangible. So when I found myself moving to Silicon Valley a few years later, I was seeking out opportunities to use that manufacturing skillset.

And it happened that Tesla was building its first manufacturing facility in Fremont, California. There were lots of people that were sourcing and procuring parts for the vehicle, but no one that was managing spend for the factory. So at the time, I didn't even realize the skillset that I developed was a supply chain skillset.

So there are a lot of surprising things about me being on this interview today. For one, I never saw myself becoming a supply chain manager until I became one. And then through this process of working with the legal teams at Tesla, with the engineering teams, and with a good number of suppliers, I actually became very proficient at contracting.

You also asked about what I'm doing now. Over those years of sourcing machinery and equipment, getting contracts in place for the companies and the manufacturers that I work for, and negotiating pricing and the procurement process, I came to find that was actually quite a rare skillset on the market. Although there are lots of companies out there that are manufacturing and making products, there are very few people and very few tools really to help people do that. And so what I decided to do with these skills that I've developed over the years, much like yourself, Laura, is to actually build that into a technology platform.

So my new company is called Diagon Technologies. We're building the first marketplace for machinery and equipment of this type. So, if you were a manufacturer like Tesla or any of the others that I work for, you could search for, and discover the products that you want. You can procure them and manage the whole end-to-end process.

The way you can think about this is that this is the tool that I always wished I had when I was sitting in the buyer's seat. And that's a very abbreviated version of my journey. 

Laura Frederick: It shows this path that a lot of procurement folks, I think find themselves on where they didn't necessarily plan to get into contracting. They didn't come with any skillset. But being able to understand how to draft and negotiate and work with the legal team on those contracts is such an important skill. 

So, Will, tell me about what you remember about learning contracts from the beginning, like when did you first get exposed to contracts in your, in that job experience? Was it end as the DOD contractor? 

Will Drewery:  So as a DOD contractor, we spent a fair amount of time negotiating the contracts that we had with the US government.

But in my role, I didn't spend a lot of time getting terms and conditions in place with the suppliers that we were working with. We oftentimes would work with suppliers that had standard terms in place. And typically when we would procure things, we would work within the bounds of whatever they had set out.

My first exposure was really a cursory exposure to the terms that we were working with the suppliers. I would say, my first real exposure to terms and conditions really came during my time at Tesla, when we were spending so much of the company's money to source machinery and equipment that we needed to fabricate parts and automate some of these really critical processes.

Coming into that experience much like most other companies, we had a lot of standard terms in place from our suppliers, but as we were working through some of the issues that we were encountering, I realized that there was no one consistent way to handle things. So we had to start developing our own templates, our own contract paper; to start getting contracts in place with these suppliers. 

That was really my first time thinking about why companies do things the way that they do. Why it was important for us to have our own contract and then really learn what those terms were that we were asking our partners to sign up for.

It was really my first substantial experience with it. 

Laura Frederick: That transition, because a lot of smaller companies, which Tesla started working with, started out just accepting the counterparty's terms because they don't really have the expertise or the bandwidth to fully negotiate all those contracts.

But that comes at a price, which I'm sure you saw a lot of where your vendor's obligations are based on their own form. Did you have any big contract issues early on that kind of, particular incidents generally speaking of when a contractor didn't perform and you went to go find the contract and it wasn't what you needed it to be?

Will Drewery: Yeah, the things that stand out are … first it was if I could search if I went out and searched for a contract and I found it, that was actually a very good day. So, there were a lot of times when there was no contract in place. And in the cases where we had contracts in place, most of the time they were very one-sided toward the supplier's view. And so the issues that I remember coming up most frequently were late deliveries.

So when suppliers were late or not performing we didn't really have a lot of recourse to either recoup the late fees that were owed to us. And we didn't have any recourse to take any kind of action plan. So one of the things that become really apparent as you start working with suppliers is that sometimes you can keep working and you have faith that the supplier's going to finish the job and do well.

But other times where it seems like that's not the outcome that everyone's working toward, you wanna make sure that both parties have some sort of a way to be able to terminate and to make sure that both parties are treated fairly in that termination. And those were things that were just very painful in those initial days at Tesla.

I remember that pretty acutely and that being one of the drivers for us having to start managing this on our own. 

Laura Frederick: Yeah. So then as you develop terms that the company's growing, I'm sure you're adding legal resources and now you've got the bandwidth to develop terms and negotiate those with your vendors.

How did you work with legal and in what ways did you learn contracting in that work? 

Will Drewery: Yeah, so I'd say in the beginning we didn't have a very collaborative relationship. And the way that it worked was that we had a legal team that came up with some templates.

They gave those to us as a purchasing team and said, “Hey, you need to start getting this contract in place with all of the suppliers that we're doing work with.” I'm looking at my supplier list of hundred-plus suppliers that are working on these crazy projects, and I'm like, all right, great.

So on top of my day job negotiating pricing and making sure that the wheels stay on here, I now have to get contracts in place and have these very uncomfortable conversations with my suppliers. So I remembered that being the early style of relationship, but I didn't ask a lot of questions because I was, afraid of showing my own ignorance.

I remember reading through the contracts and not really understanding some of the terms like indemnification and limitation of liability. There were just kind of foreign concepts to me, and I remember also feeling like “It's funny because we just talked about some of the examples of things that go wrong when you don't have a contract, but I remember thinking, do these things actually happen?”

Like, how often do we have to worry about a force majeure event or, how often do we have to worry about these third-party liabilities? And over time, of course, you learn your lesson when you get your hand burned enough times. But as we started to work more closely with the legal team, that's really when I started to realize, okay, the team is really here to be a resource to us and to help us mitigate risk and really to make our lives easier. And we started to involve our legal team much earlier on as we were doing RFQ and getting purchase orders in place.

And I remember the weight starting to feel like it was shifting from being a pulling motion to us actually pushing and saying, “Hey, we need more support. Can you guys help us with this negotiation? Can you do this for us?” And that was really I think a watershed moment for me where I started.

I stopped seeing our legal team as an impediment and more as a resource for me and my team to get the things done that we needed to have done. 

Laura Frederick:  Yeah. And it sounds like that, both sides understood the other one more through this process of going through some of these issues and disasters and you've realized that working together can be so effective in managing that risk.

Will Drewery: Absolutely. And especially the opportunities we had when we had to bring our legal team with us to meet some of these suppliers in person, they were able to see and understand what are the things they're building for us. How can things go wrong? And what are the pain points that our counterparties have with the contracts that we're putting in place?

So in that process, I think there was just a lot of learning about what everyone's incentives are. There's this tendency to believe that your counterparties and other people all have these competing interests. And I think it really just takes getting everyone in a room and understanding what the objectives are. It’s about understanding that actually no, there's a real interest in making sure that we've got positive outcomes for getting the projects to completion and making sure that no one gets burned in the process. 

Laura Frederick: Yeah. That was a big thing for me. When I joined Tesla, I'd already been practicing for 20-plus years. I'd never been at a company in-house that was more preoccupied with the vendor's success.

Every place else, it was always “Let's squeeze 'em for a penny. Let's impose these terms.” That was just how procurement was done, and it was really refreshing for me to have the supply chain manager say “No, we're not gonna do that because these are our partners. We need them, and we need them to be strong and economically viable. We can't just beat them down and take away all their profit margins.” It was a real learning experience for me to see how the supply chain was run at Tesla because it was different than anything I'd experienced. 

Will Drewery: Yeah, I'd say that's really accurate. Especially at that stage of a company's lifetime, it's really important to see your suppliers as partners because in the end, if they fail, then you all fail. So I remember thinking we've gotta make sure that we have the procedures in place to make sure that our suppliers get the things they need in order to deliver on time.

We need to make sure that they're keeping up with their guidelines and meeting the expectations that we've all set out. And we've gotta make sure that if this project is a success, that translates to success for our company and their company. Because in the end, you wanna make sure that you can work with these people again.

I remember that being a really important thing for me, not just personally, but also for the company. 

Laura Frederick: I think, especially with contracting, so many lawyers are focused on risk shifting to the vendors or to the counterparty and the shortsighted view is to push it all to them. But the more sophisticated, nuanced view is “Let's look at what's appropriate.” And it's not a zero-sum game where the discount on the price is money in your pocket. It could be, but you're likely gonna pay that money in another form because either the vendor doesn't have the margin, so they're gonna hold your feet to the fire as the customer and be sticklers about every single thing that happens.

Whereas when it's a fair viable agreement for them and a viable relationship, they're much more likely to forgive small errors like you missing some target order that you're supposed to make that month. With a good relationship, they let that go, but not when you're being jerks about it.

Will Drewery: Yeah, totally. And in a situation where you can balance the risk instead of just shifting it all to one side there, there are certain risks that sometimes the buyer is more able to cope with and has more control over. I remember there were times when we could shift some of that risk onto our side to make sure that the pricing was reflective of reality. Otherwise, the suppliers end up charging you a pretty hefty premium to take on that risk if they've gotta take out insurance and get all these other precautions in place just to make sure that they can meet the requirements that you've set out.

That was really important I would say. Even an example of that would be in our INCOTERMS for shipping and how we manage the risk during the logistics challenges. If you're asking your supplier to deal with import duties and other things that they've never had to deal with before, chances are likely that they're going to screw it up.

But because we had experience with it already we were able to bring some of those that functionally back onto our plate. Balance out our contracts and then see that pricing be reflected accordingly. 

Laura Frederick: The other part I like about what you were talking about is about bringing lawyers in to meet the suppliers and really helping them understand what goes wrong. And I know when I first started working with manufacturing and learning about things like factory acceptance testing and quality control and how that actually works in the real world. How quality teams manage that and where it goes wrong. I think about it and I'm like, oh my God.

All those contracts I did before I really learned how that works. They're just, they weren't effective because I didn't know the risks I was supposed to be addressing in those contract provisions. And once I really learned, looked at the floor, and talked to them about how they manage quality in the manufacturing process and what goes wrong, and who should bear that risk, it was such an eye-opener for me.

Will Drewery: Yeah, I remember those times pretty acutely. So yeah. The things that I thought were always very helpful is just like making sure that as we were drafting up things, even even simple things like our request for a quote and request for a proposal I remember there being you talked about some of these concepts for deploying manufacturing lines and there are like a number of tests and inspections that can be done at that point to make sure that before they ship anything to your facility, to the site that you can take care of any issues that come up.

And I remember working with our lawyers and having them ask critical questions like, do we have a checklist for this process? How are we going to make sure that, we're looking for the right things and that we don't accept something that doesn't really meet those specs?

And how do we also make sure that both parties are signing off on that and in agreement so that later on both parties are protected by saying, Hey, we looked at this, we all agreed that this was working when we shipped it out. So now if something's not working, we, we know when that issue occurred because we had a commonly agreed upon way to handle that.

And I remember that being a pretty common sense thing. But also something that was very helpful and that saved us further down the road on a number of projects when we were trying to root cause things, we could actually go back and look at the documentation. And really I think that savvy contracting is not just in the contractual agreement in your terms and conditions, but it's also in the processes that you put in place and tying those to that contract because that's really where the rubber meets the road in terms of contracting and execution. 

Laura Frederick: Yeah, and I think that's such a great point because so often we get caught up in, okay a perfect indemnity clause has this, or a perfect delivery provision has this, but a delivery provision is really just a description of a business process and it's gotta reflect that business process. So if it doesn't and the lawyer doesn't know the business process, how is the lawyer supposed to be able to draft that? It's one of the key things I found working with the supply chain is I was an expert in contract language, how to structure it, how to word it. But I had to get my supply chain team to help me understand how they do things. And it's sometimes it's the engineering team. But what I love in particular about really great supply chain teams is they have a holistic picture.

Engineering knows their engineering things, but supply chain knows finance and accounting and logistics and legal, and then, your foot's into everywhere. So you have a much broader sense of the deal and the risk and the benefits than any individual department. The benefit for lawyers is, to me, the supply chain's your best friend if you're doing anything in procurement because it's supply chain managers really know the company and the layout and help the lawyers do their job. 

Will Drewery:  Yeah, absolutely. I'm getting an adrenaline rush just hearing you talk about it, remembering how many stakeholders we had to keep aligned. But yeah, I think that's one of the reasons why it's, it is such a critical function and a strategic function for most companies. So I think that it's really important that legal is at the table with the supply chain team as one of those trusted stakeholders. I think it's just super important because not only can that help you avoid issues from ever happening, the best contract is the one that you never have to use.

Laura Frederick: Exactly. 

Will Drewery: So it can also help you deal with the issues when the issues do arise so that when you have to open up the contract and figure out what's your path to remedy. You have a partner there that can actually help to guide you through that. 

For sure.

Laura Frederick:  So we're coming up to the end and I just wanna ask one last question, which is really about what advice you have. And I'd ask both advice for procurement folks who are learning contracts as well as for lawyers who are working with procurement teams. 

Will Drewery:  Great question. So here’s the advice that I have for supply chain managers working with their legal teams.

The most important thing is to know the specifics of your situation. It can be really daunting to try to understand everything about the legal framework that you have in place with your suppliers, but starting with the business objectives, what is it that you are trying to accomplish?

And really deeply understand your contracts and your suppliers. If you have a terms template or master services agreements and other things that you need to have in place with your suppliers, it's a really important thing to read through those and make sure that you understand all the terms and it's actually your legal team's responsibility to make sure that you understand those.

Take that as an opportunity to shore up any areas of ignorance that you might have about those contracts because, at the end of the day, you're gonna be the one relying on them. 

The other advice I would have is to document everything. And I didn't realize how important documentation was until it comes time to start pulling out the contract and charting a path to remedy.

But what I mean by that is in, if there are certain triggers within your contracts for things like late delivery, you might need to notify your supplier that they are not meeting expectations or they're not on track. And so documenting those things early on and communicating them both to the supplier and making sure that they acknowledge that communication is super important. And also just keeping the legal team in the loop as these things are happening. I found that to be very helpful. Because they would think of things that I never really thought to do in the moment. And ultimately that led to better business outcomes. 

Yeah, so the communications and understanding your situation, I think, are absolutely crucial.

Advice that I would have for lawyers in working with their supply chain teams: I would say make it easy on them. There are a lot of things that they've gotta balance between all the different stakeholders, technical, financial, legal, and the suppliers — so having terms and conditions or contracts that are easy to understand for both the supply chain manager (your internal stakeholders), and the suppliers (your external counterparties) is going to save you time in the long run because fewer questions, comments, and red lines come back when people understand the terms that they're signing up for. So that's one of those important things. And also just having an understanding of what's actually going on in the business and how you can be most helpful in those situations.

There may be things that seem, like the right thing to do in principle. But in practice, they're hard. Or sometimes things sound great on paper, but in practice, they're just very impractical. The best lawyers that I've worked with always ask me, “What's the most practical outcome? What's the thing that you hope can happen? How can you resolve this without having to take someone to court?” 

Those are great questions to ask. And the more you can find ways to work with your internal stakeholders in that type of way, the more they'll seek you out before things go off the rails rather than just waiting until after they do. 

Laura Frederick: Oh, I love all those pieces of advice. Those are consistent with my experience as well and the best relationships I had were with my supply chain team. And those are present.

And particularly I love the documentation. That's a critical part of it. Thank you so much for being on this show, Will. and I'm so excited about your new venture and looking forward to its great success. 

Will Drewery: Thank you, Laura. It's a pleasure to be here. Thank you for having me.