I'm finishing up a proposal for a compact fluorescent immunoassay instrument, and am getting to the thorny issue of how to handle productizing the demo system--whether to suggest the client (1) hand that part off to a contract engineering outfit, or (2) hire their own ME and software people and send the completed design to a contract manufacturer.
I'd much prefer option (2), because the lines of authority would be much clearer and it would be much easier for me to supervise. I've only worked with one CE outfit, who made a big mess because they refused to listen to me until it was too late. On the other hand, I've always collaborated very happily with clients' in-house engineers.
I'd be very interested in experience/war stories/advice about handling CE/CM relationships.