Quality parameters to include in contract with hardware supplier
You should understand that there's a contract, and there's a reality. For contract to become the reality there should be lever to pull (respective clauses based on measurable things), and you should be able to pull this lever.

Putting several clauses into the contract guarantees nothing if you can not enforce those clauses properly.


  no quality specifications (MTBF, DOA, maximum acceptable number of returns from clients, ecc ecc)


You must review already available contract templates related to your product family, and compile the best from them, keeping in mind peculiarities like local law, legal system differences (in case of offshore contract), even accounting and finances (e.g. taxes).


  Low quality design, 1% DOA and 8% failure rate within first year.


This is about levers you really can pull against your supplier:


can you terminate contract?
can you pose penalties, and how collect-able are they?
what supplier can do to mitigate issues in the field, and how robust they are to modify design in production?
finally, what is the damage to the brands - yours and your supplier?



  we were unable to get compensated


Compensation, or penalties, may not be tied to the partner production costs, they may be tied to your customer costs, which may talk business rather than technology - for example SLA (service level agreement), system availability, including business services based on the device. You must think about which issues you will shift to supplier - only their design and production, but also business issues arising from their messing around with the design.


  unable ... to obtain the design and get it reviewed/built somewhere else.


Question - who owns intellectual property (IP) for the design? Did you pay for design development, and who is an owner of it? If it is not you, then you are totally out of control and every minute you risk to be left out of business (related to usage of the design). Consult IP lawyer to see what is the outlook and realities regarding the design ownership.

And finally - if you experience, see or feel issues with another party, you must consider termination as soon as possible; terminating at later stages will be much more painful. Be decisive about your business.

P.S. I was managing double digit $M services contracts, and kind of experienced in the subject. Actually it does not matter how much money it costs, contracting is about you knowing your business, risks in your business, and be rigorous to yourself and others around you - in the interests of your business.

Update: following your questions -


  Have the board tested to a specific ESD standard. What standard should we refer to for consumer products?


I can not answer on it, internet search shows that every country may have its own standard; also you need to mind situations when device is affected by the ESD, and when another entity is affected by your device (e.g. human gets electric shock).


  Set a maximum percentage of in-field failures that would then trigger a "free" board re desing. What is a reasonable one?


Not possible to advise anything sensible as this should account for the type of device you have, its usage, environment it is used in etc etc.

In general you must supply your customers with devices and documentation how, where and when to use these devices, and if fault occurs, there must be investigation why it occur - customer violated T&amp;C, or board is defective, or design is defective. Board is defective - you push manufacturer, design is defective, you push designer. You do not need to wait until a horde of customers scream on you and dump your brand.


  Where may I find related contract templates?


Ask your lawyers, or search internet, but you must be skilled enough to understand legal language and related matters to make a good piece.


  Root cause is bad design of the power stage. The HW design/supply tho never recognized this, if I was in charge they would never work with us again, sadly my boss` opinion is different (they are cheap) and that is why I need to get things written down really good - to protect the company and myself.


Ok, now it is clear, you are in cover-my-own-*ss mode. I wonder what is your position in this organization. Anyway, to make things right:


you design, or you request supplier to design very good user documentation which details how device should be used, when and where, covering maximal situations of misuse (aka "do not boil the watches").
in the contract, or in the terms and conditions with customers, you explicitly sign paper which states that customer has read and understood usage terms and conditions, and that if misuse is proven, customer will pay for repairs (how much - consult with suppliers).
You amend contract with supplier that (a) all devices returned from the field will be subject to their examination, RCA and conclusion if issue was related to misuse or design/manufacture defect, and (b) that all devices with conclusions showed design/device defect will be repaired/replaced by the supplier for free, with covering of shipping costs (back and forth) at the supplier account.


However doing so you risk your customers become angry, because you will need to think how to compensate them when their device is in repairs, and how to ensure supplier does not trick you and customer concluding that the case was a misuse. This is purely business and business model issue, which your boss should approve and of course is off-topic for discussion here.


  I'm an engineer in this "organization".


Some more insights then. You must not be forced to write clauses into contracts, it is just not your job - if this stance and wording is ever allowed in this organization. As an engineer your task might be to give input into the contract - the values which you requested originally - e.g. MTBF, it can be calculated basing on MTBFs of the components used - simple and stupid way, but gives at least some indication.

However, you may be smarter than that, look here. It lists the following items, which compose reliability testing and assurance framework:


Single test: each device, before shipped to customer, is being tested for DOA (you are as an engineer to develop procedure);
Test plan tailored for your product: have quick questionnaire for customer when customer thinks that device has failed, documenting what had been done, how, which symptoms showed, and what customer expects;
Life cycle approval: get input from supplier what is the lifecycle of their developed and manufactured device (very similar to MTBF);
Product benchmark: most probably you are not alone on the market, try seeing how competitor product are doing (or similar products if yours is unique) - from technical point of view (do not consider business).


Then compile presentation for your boss so that he can see your estimations and his risks.