Regelung zur Weiterbelastung von lieferantenverursachten Feld- und 0km-Beanstandungen

The English translation is solely for purposes of convenience and intended to facilitate, not replace,
thorough study of the German text, which is alone binding.

Guidelines for transferring

costs associated with
supplier-caused field and
0km complaints

Revised: 11/1/2014
Regelung zur Weiterbelastung von lieferantenverursachten Feld- und 0km-Beanstandungen
The English translation is solely for purposes of convenience and intended to facilitate, not replace,
thorough study of the German text, which is alone binding.

Foreword

The document before you is the “Guidelines for transferring costs associated with supplier-
caused field and 0km complaints” of the Volkswagen brand companies. The approach
presented here for dealing with bought-in parts provides details on existing warranty
agreements and the quality management agreements described in the “Q-specific formula
publications”. On order acceptance on the part of the supplier, the content of the
“Guidelines for transferring costs associated with supplier-caused field and 0km
complaints” is considered legally binding.

VOLKSWAGEN AG

Group Quality Assurance

Frank Tuch i.V. Günter Randel

Revised: 11/1/2014 2
Regelung zur Weiterbelastung von lieferantenverursachten Feld- und 0km-Beanstandungen
The English translation is solely for purposes of convenience and intended to facilitate, not replace,
thorough study of the German text, which is alone binding.

1 Procedure for identifying the responsible party for

field complaints for bought-in parts within the VW
brand companies (hereinafter referred to as
“VW brand”).

1.1 Principles for determining Technical Factors for defective parts

in the field
Allocating field complaints to the responsible party and the resulting sharing of costs with the
supplier is determined by a random sample. The components from this sample are analyzed
and the results are jointly confirmed by the VW brand and the supplier. The result is a Technical
Factor (TF), which is a mathematically whole-number percentage which represents the
supplier's share of responsibility for the analyzed cases of damage.

∑ 𝐚𝐜𝐜𝐞𝐩𝐭𝐞𝐝 𝐬𝐮𝐩𝐩𝐥𝐢𝐞𝐫 𝐜𝐚𝐬𝐞𝐬 𝐨𝐟 𝐝𝐚𝐦𝐚𝐠𝐞 × 𝟏𝟎𝟎

𝐓𝐅 (%) =
∑ 𝐚𝐧𝐚𝐥𝐲𝐳𝐞𝐝 𝐜𝐚𝐬𝐞𝐬 𝐨𝐟 𝐝𝐚𝐦𝐚𝐠𝐞

A prerequisite for determining a TF from a sample is the correct labeling of a component

according to VW Standard 10500 ff. If the manufacturer code (HCD) is missing, the TF is 100%,
since the component does not meet the component requirements of the VW brand. The
expense arising from non-labeling of the component is to be borne by the supplier.

The TF must be determined for components of a VW brand company. VW brand Quality

Assurance is responsible for determining the TF. For carry-over parts, which are used in several
VW brand vehicles or projects or in other Volkswagen Group companies, the Quality Assurance
department, which first used or approved the parts, determines the TF together with the
supplier. The VW brand companies can adopt this TF or determine their own. Vehicle or project-
specific specifications for carry-over parts must be met in consultation with the Quality
Assurance department which first used or approved the carry-over parts. The approach
described in this paragraph also applies if components/modules/systems are installed in VW
brand vehicles/modules/systems which were ordered by another company.

Once the VW brand has confirmed the TF via the Quality Assurance department responsible,
the specified TF is communicated by form to the department processing the recourse.

1.2 Random sampling criteria for determining Technical Factors

The defective parts that are taken for analysis in the sample fall within the valid supplier
warranty time period.

The sample relates to a specified damage period within the warranty time period agreed with
the supplier.

The defective parts are labeled by the trade as damage-causing and not as defect-consequent
losses.

The random sample contains only defective parts from one supplier.

Revised: 11/1/2014 3
Regelung zur Weiterbelastung von lieferantenverursachten Feld- und 0km-Beanstandungen
The English translation is solely for purposes of convenience and intended to facilitate, not replace,
thorough study of the German text, which is alone binding.

Non-analyzable components in the case of which the causative reason for failure can no longer
be determined (e.g. subsequent damage to the component) are removed from the sample.

The random sample consists of defective parts from the reference market. Unless otherwise
agreed, this is the home market of the VW brand company.

In the process of product observation and determining the TF, the first 20 defective parts of a
part number for each new model year from the reference market are requested and provided to
the VW brand Quality Assurance department for analyses with the supplier. Beyond the Default
20 procurement process (D20 process), additional defective parts from the reference market or
from other markets can be requested upon consultation with the VW brand Quality Assurance
department.

1.3 Determining Technical Factors, validities and settlement

with the supplier
The approach to be selected for determining the TF in relation to the component scope and the
resulting settlement with the supplier is determined by the department responsible that
processes the recourse upon consultation with the Quality Assurance department from the VW
brand company plant which first used the component.

A distinction is to be made between the two following variants.

a) The basis for determining the TF is the defective part in question (part number). The state of
disassembly of assemblies is determined by the replacement parts used. The agreements,
analyses and cost transfers occur with the supplier of the defective part/replacement part in
each case. This also applies if Volkswagen does not obtain the components directly, but
through a 1st-tier supplier.

b) The basis for determining the TF is the defective part in question (part number) or assemblies
in accordance with the as-supplied condition. Agreements are made with the 1st-tier supplier.
The n-tier supplier is included in the defective parts analysis upon consultation with the 1st-tier
supplier. Further allocation and settlement of cost transfers with the subcontracted suppliers of
individual parts takes place through the 1st-tier supplier as a fundamental principle. As a rule this
also applies to scopes from directed parts suppliers.

All defective parts from the sample that are available for analysis must be inspected according
to the VDA Volume “Field Failures Analysis”, and the analysis result must be prepared in a
corresponding analysis report, which must be sent by the supplier to the VW brand Quality
Assurance department responsible within 28 days. The analysis deadline can, if required, be
extended (e.g. additional analyses with subcontracted suppliers) in consultation with the VW
brand Quality Assurance department responsible. Acknowledged components will pass to the
ownership of the supplier. This excludes exchange parts. After consultation with the VW brand
Quality Assurance department, non-approved components must be sent back to the VW brand
Quality Assurance department at the supplier's expense.

Analysis in accordance with VDA should lead to a clear allocation of responsibility. In the case
of components for which no clear allocation of the cause of the failure is possible (analysis
result after standard and cost transfer testing = NTF), the share of the defect is always divided
in equal parts between the VW brand and the supplier (NTF liability = 50/50) as part of a
customer-orientated quality liability until final establishment of the cause through further
analyses.

Revised: 11/1/2014 4
Regelung zur Weiterbelastung von lieferantenverursachten Feld- und 0km-Beanstandungen
The English translation is solely for purposes of convenience and intended to facilitate, not replace,
thorough study of the German text, which is alone binding.

In the case of new component phase-ins (new part numbers and index increases) or production
relocations (new HCD/supplier number), the supplier is always charged on the basis of a TF of
100% until a TF is determined.

A supplier may make one request for a 1st factor based on technical analyses. After the 1st
factor, subsequent factors will be formed up to EOP (End of Production). Afterwards an EOP
factor that is valid until revoked is agreed. The minimum factor is 1%.

The 1st factor and subsequent factors are valid for a maximum of 12 months. Outside of the
validity period, the TF is 100%. The supplier must contact the VW brand Quality Assurance
department responsible no later than 3 months prior to expiry of a TF to request a new TF
based on analyses. A TF shall be agreed on being countersigned by the supplier and the VW
brand company in question. A retroactive TF agreement for a maximum of 12 months is only
permissible with the calculation of the 1st factor. Otherwise determining a retroactive TF is
excluded.

If expenditure for fault clusters exceeds the usual level, the VW brand companies have the
option of canceling the agreed TF and setting the TF at 100% from the point of the cancellation.
Afterwards a new TF based on technical analyses must be agreed upon. This is valid
retroactively up to the date of cancellation but in any case for no more than 12 months
retrospectively from completion of the technical analyses.

The supplier liability for failures in the field during the warranty time period can be determined
differently if the defect can be rectified without parts exchange. Costs are refunded in the same
way as the procedure for repairs with parts exchange.

The supplier's account is debited with the worldwide failures in the field on a monthly basis. The
amount charged is based on the number of failures in the field, the respective costs per damage
case, and the TF at the time of the debiting.

1.4 Criteria for determining the supplier share

a) Material defects on the defective part.
b) Assembly and processing defects at the supplier.
c) Design responsibility, generally governed by the KVV (with the KV rate).
d) Components with additional damage from the trade if the causative reason for failure was
on the part of the supplier (e.g. defective part incurred further damage whilst being
removed).
e) Allocation of a party responsible for causing the defect due to product or process changes
not notified or not approved by Volkswagen or production relocation.
f) No clear allocation of the cause of the failure (NTF liability = 50/50).

1.5 Criteria for determining the VW share

a) Damage caused by the customer.
b) Assembly and process faults at the VW brand.
c) Design responsibility, fundamentally governed by the KVV (with the KV rate).
d) No clear allocation of the cause of the failure (NTF liability = 50/50).

Revised: 11/1/2014 5
Regelung zur Weiterbelastung von lieferantenverursachten Feld- und 0km-Beanstandungen
The English translation is solely for purposes of convenience and intended to facilitate, not replace,
thorough study of the German text, which is alone binding.

2 Procedure for transferring costs associated with

supplier caused 0km complaints as they pertain to
purchased parts

2.1 Principles for determining the responsible party with 0km faults
The faulty components must be submitted for each 0km complaint case for the settlement to be
made. The submission of the faulty components is governed according to individual agreement
for CKD parts.

Essential sorting and rectification work is usually carried out by the supplier or by a sorting firm
contracted by the supplier and agreed upon with the VW brand Quality Assurance department
responsible. The VW brand may instigate unavoidable immediate measures for maintaining
production at the supplier's expense, provided that these measures cannot be carried out by the
supplier themselves, or if there is an immediate danger of production line stoppages. The
supplier must be informed of this immediately.

Acknowledged components will pass to the ownership of the supplier.

2.2 Costs transfer for deficiencies caused by the supplier

Cost transfer in respect of 0km complaints is made based on acknowledged cases which result
from the technical analyses the results of which are jointly born by the supplier and the VW
brand Quality Assurance department responsible.

Material reimbursement corresponds to the original equipment (EA) volume production price.

Removal and installation costs, as well as any additional costs incurred, will be reimbursed by
the supplier according to unavoidable expense where defects are only determined after
installation. The costs may not exceed the usual expenses incurred with similar applications. If
necessary a joint determination takes place, also taking into account the situation with similar
vehicles of the same basic design made by other manufacturers.

The costs transfer for the removal and installation costs is charged according to the current
internal hourly rate of the cost center performing the service.

Costs for any vehicle movements on the spaces outside of or within the plants are incurred at
the supplier's expense. The supplier bears the travel costs for sorting and rectification work
carried out on spaces and ports in outside locations.

Costs for activities caused by the supplier and carried out by the VW brand at the supplier will
be charged individually to the supplier. This includes repeat audits caused by the supplier and
2 days' production, as well as activities designed to safeguard the process due to product
defects in the case of 0km faults.

Component analyses on defective parts with the purpose of researching the defect are charged
at the supplier's expense if the supplier was determined as the cause.

Additional expenditures for component approvals caused by the supplier, such as repeated
sample inspections, missing Q-identification in pilot series production and missing material data

Revised: 11/1/2014 6
Regelung zur Weiterbelastung von lieferantenverursachten Feld- und 0km-Beanstandungen
The English translation is solely for purposes of convenience and intended to facilitate, not replace,
thorough study of the German text, which is alone binding.

sheets/IMDS entry are charged at a fixed rate at the supplier's expense. The fixed rate is
composed of personnel and logistics expenditures.

The costs for logistics, management and handling are reimbursed according to the current
internal hourly rate of the cost center performing the service. Transport, packaging and shipping
costs and, in cases where it is particularly justified, also air freight costs, are passed on
according to the respective proven expense for replacement deliveries and return
consignments.

Revised: 11/1/2014 7