Key Terms for Manufacturing Agreements: A Legal Guide 

Manufacturing projects can be high-stakes and present significant business risks. As a customer, you will heavily rely on manufacturers to meet your product specifications, protect your valuable intellectual property, and meet your deadlines and budgets – all of which should be laid out in a written contract. A well-structured and robust manufacturing agreement can help your business define responsibilities, manage risks, and protect itself during a manufacturing project. This article explores the importance of manufacturing agreements and key provisions to consider when engaging a manufacturer. 

Why Do You Need a Manufacturing Agreement?

Manufacturing can involve significant investment, strict deadlines, and the need for business-critical products. If issues arise (such as quality defects, delays, or unexpected costs), your business could face financial losses and operational disruptions.

Without a clear contract, your company may struggle to resolve disputes or hold the manufacturer accountable for its obligations.

Essential Manufacturing Agreement Provisions

Your business should ensure its manufacturing agreement covers key issues such as production timeframes, delivery obligations, quality control measures, and payment terms. 

If a manufacturer provides a standard agreement, your business should review it carefully to check for onerous provisions and to ensure it is fit for purpose. Unclear provisions, weak quality assurances, and limited termination rights can create risks. By reviewing and negotiating the agreement, your business can seek to secure commercially fair terms and reduce legal and financial exposure. 

Let us explore some key terms below.

Quality Control and Compliance Requirements

Your business should clearly define your desired product specifications. The contract must be clear regarding your needs and requirements so the manufacturer fully understands your expectations. Quality control measures, including inspection rights and testing procedures, can help verify compliance. The agreement should also include remedies if defects arise.

Your business should also require the manufacturer to comply with all relevant legal and industry standards. Your company could face various risks if manufactured products fail to meet applicable regulations. 

Protecting Intellectual Property Rights

Intellectual property protection is critical in manufacturing projects. Your business should retain ownership of all designs, formulas, and proprietary processes used in manufacturing. The agreement should set clear parameters and permissions around how the manufacturer uses your intellectual property rights. If the manufacturer contributes to product development, the contract must specify whether your business owns the rights to those improvements. Otherwise, you could be at risk of ownership disputes in the future. 

Manufacturers often access sensitive business information (e.g., trade secrets, know-how, and product designs). A strong confidentiality clause will help protect this information during and after the contract. 

Production and Delivery Timelines

Your business should specify production schedules, delivery milestones, and final deadlines to prevent delays. You can also seek to negotiate the consequences of missed deadlines and for managing delays if unforeseen disruptions occur. 

Pricing and Payment Terms

Your agreement should define clear pricing structures to prevent misunderstandings. It should also account for additional costs (such as shipping) and taxes so your business avoids unexpected expenses. 

Liability and Indemnities

Your business should ensure the contract clearly assigns responsibility for defective products, recalls, and damages caused by manufacturing defects. It should also limit your business’s liability where possible and require the manufacturer to maintain sufficient insurance to cover its liabilities. 

Termination and Remedies

Your business should establish clear termination rights for an exit route. You can also agree on any required post-termination obligations, including the return of tooling, materials, and confidential information. If your business needs to transition to a new manufacturer, the contract can require the manufacturer to assist in the transition to prevent disruption.

Supplier Contracts Checklist

Use this checklist to ensure your supplier contracts contain all necessary terms.

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A dispute resolution clause should define a structured approach to handling conflicts during the project. 

How Can a Lawyer Help You Negotiate a Workable Agreement?

Manufacturing agreements can be legally complex and high-risk. A commercial contracts lawyer can protect your business’s interests by reviewing your agreement, identifying risks, and, where possible, negotiating stronger terms on your behalf. While many manufacturers will provide their own standard contracts that favour them, legal oversight can help your business identify hidden risks and address them with confidence. 

Key Takeaways

A strong manufacturing agreement can significantly help protect your business from risk when engaging a manufacturer. It can give you rights and remedies in your relationship, holding the manufacturer accountable with clear, agreed-upon quality standards and production timelines.  

Taking a proactive approach to negotiating a robust contract can help ensure your project runs smoothly and that you have clear remedies if things do not go as planned. 

If you need help with a manufacturing agreement, LegalVision’s experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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