Dual sourcing is a standard resilience requirement and a standard board commitment. It is also, frequently, undeliverable, and the reason is rarely capacity. It is that the agreement with the incumbent supplier never gave the buyer the right to have the part made by anyone else, and nobody discovered that until the second source programme was already funded.
The confusion usually comes from a reasonable assumption. The buyer owns the product design, paid for the tooling, holds the drawings and has a clause assigning improvements. That feels like control. What it omits is the supplier’s background process knowledge, which is what turns a drawing and a tool into a conforming part, and which the supplier has every commercial reason to keep.
This guide covers how background and foreground intellectual property should be separated in a supply agreement, what a usable license-back actually contains, and how to hold the resulting terms so that a sourcing team can answer the dual-source question from a field rather than from a legal review.
The five IP terms that decide sourcing flexibility
These five appear in most supply agreements in some form. The gap is usually not that they are absent but that they are drafted without reference to each other, so the combination does not deliver what any individual clause implies.
- Background IP definition, what each party brings, with a record of the specific technology contributed where joint development is contemplated.
- Foreground IP ownership, who owns what is created during performance, with joint ownership avoided in favour of allocation plus a broad licence.
- The license-back grant, scope, field of use, whether standing or triggered, and critically whether it includes a have made and sublicensing right.
- Technical information access, the drawings, parameters, process documentation and quality methods needed to make the licence exercisable in practice.
- Survival and assignment, whether the licence survives expiry and termination, including for buyer breach, and whether it binds a transferee of the supplier’s IP.
A sourcing team reading those five together can tell you whether a second source is possible. A sourcing team reading only the tooling clause cannot, which is how programmes get approved on the strength of an asset ownership statement that does not answer the question.
A licence permitting the buyer to make the part, without a have made or sublicensing right, is unusable for its main purpose, because almost no buyer intends to manufacture the part itself. It intends to appoint a contract manufacturer. Suppliers will often concede a have made right bounded by field of use more readily than they will widen the scope, so this is usually an achievable negotiation if it is raised deliberately rather than at the end.
Making the terms operational
IP clauses are static text, but the information needed to rely on them is not. Four or five practices keep the position usable across a supply base of thousands of parts.
- Hold the IP position as fields per agreement. Foreground ownership, licence present, scope, have made right, survival and assignment binding, recorded as structured values rather than left in the document
- Link the position to the part, not just the supplier. Sourcing decisions are made at part level. Mapping the IP position through to the part numbers covered is what makes the data usable in a resilience review
- Track technical information deposits. Where the agreement requires process documentation to be deposited or made available, treat it as an obligation with a due date and an artefact, not a standing promise
- Review on supplier change of control. A supplier acquisition is the event that tests the assignment and survival terms. Make it a trigger for review rather than discovering the position later
- Record background IP contributions at project start. For joint development, capture what each party contributed when it is still known. This single record prevents the most intractable category of later dispute
A five-step roadmap for closing the dual-source gap
Step 1, identify the single-source critical parts
Start from the parts where a supply failure would stop production or breach a customer commitment, and where only one supplier is currently qualified. This is usually a short list relative to the supply base, which makes the rest of the exercise tractable.
Step 2, read the five IP terms for each
For every agreement covering those parts, record foreground ownership, whether a license-back exists, its scope, whether it carries a have made right, and whether it survives termination and binds assignees. Expect a significant proportion to fail on one of the last two.
Step 3, fix the template and the negotiation position
Update the standard supply agreement so the five terms are drafted as a set, and give reviewers a clear minimum position on each. The have made right and survival are the two that should not be conceded quietly for commercial expedience.
Step 4, remediate by criticality, using commercial moments
Amendments to IP terms are hard to obtain mid-term and much easier at renewal, price negotiation or new programme award. Keep the required language ready so it can be introduced when a commercial moment opens rather than as a standalone request.
Step 5, record the position where sourcing can see it
Put the resulting IP position on the part and supplier record so a resilience review can be answered from data. The value of this work is lost if the answer still requires a lawyer to read an agreement each time the question is asked.
Answer the dual-source question from data
Aavenir holds IP ownership, licence scope, have made rights and survival terms as fields on the supplier agreement and the parts it covers.
Where the gap usually gets discovered
Three moments expose it. A supply disruption, when the buyer tries to qualify an alternative and finds it cannot lawfully use the process knowledge required. A supplier insolvency, when the tooling can be recovered but the know-how cannot. And a supplier acquisition, where a new owner takes a different view of an obligation that was never clearly binding on assignees. In each case the remedy available afterwards is negotiation from a weak position, which is expensive and slow. Manufacturers that already track supplier quality and PPAP commitments have the record structure to hold the IP position alongside them.
IP term, risk if absent and what to record
The table pairs each term with the exposure it creates when missing and the value worth holding as data. The right-hand column is what a sourcing or resilience review should be able to query.
| IP term | Risk if absent | Field to hold | Review trigger |
|---|---|---|---|
| Background IP definition | Improvement ownership disputed | Defined or undefined | New development project |
| Foreground ownership | Buyer cannot use its own design freely | Buyer, supplier or joint | Programme award |
| License-back grant | Second source legally impossible | Present, scope, field of use | Resilience review |
| Have made right | Only buyer could manufacture | Yes or no | Resilience review |
| Survival and assignment | Licence lost on termination or sale | Survives, binds assignees | Supplier change of control |
The practical lesson is that resilience commitments should be tested against the IP clause before they are made, not after. A dual-sourcing programme approved on the basis of tooling ownership can fail entirely at the licence, and the failure appears late, after qualification work has been funded. Reading five terms as a set, holding the answers as fields on the part record, and introducing the required language at commercial moments rather than as isolated requests turns this from a recurring surprise into a known position. Manufacturers running broader obligation management for manufacturing already have somewhere to put it.
For related guidance, see Price adjustment clauses in direct material contracts, ESG and supply chain due diligence clause tracking and Incoterms, title and risk in supply contracts.
