Webinar Summary: Key Contracts Every Manufacturing Business Needs (and How to Get Them Right)

Roisin: Welcome to our webinar on key contracts every manufacturing business needs and how to get them right.

A couple of introductions to begin. I’m Roisin, I’m our co-host on today’s webinar, and our speaker today is Rob Nay, who is our Head of Legal here at LegalVision.

Just before we begin, a couple of quick housekeeping items. You will receive the recording and the slides in your email. You can submit your questions in the Q&A box and we’ll answer them towards the end. We always love to hear your feedback, so please complete the feedback survey after the webinar.

By viewing this webinar, you’re also eligible to receive a complimentary consultation with LegalVision to discuss how we can help your business. To claim, just leave your details in the survey that appears at the end of the webinar, or you can contact us via our website as well.

So today we’ll be discussing a few items. We’ll be going over manufacturing contracts with clients, supplier and procurement agreements, premises and equipment contracts, employment contracts and health and safety policies, as well as insurance considerations. Then of course we have the Q&A towards the end. I’ll hand over to Rob.

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Rob: Perfect. Thanks so much, Roisin. Hi everyone. Hope you’re all having a good day so far. I will try to keep this as flexible as possible in terms of covering different types of arrangements. I’ll assume that some of you are companies where you’re doing self-manufacturing and contracting directly with clients, whether in a B2B or B2C context. I’ll also try to address it from a manufacturing company’s perspective where you are manufacturing other businesses’ products. So I’ll try to keep it quite flexible and cover all bases.

What I’d like to start off with today is your key client contracts.

So, as I said, that could be the agreement that you have directly with your customers, whether they’re consumers or businesses, or it could be where you are manufacturing on behalf of other businesses who are then on-selling the products that you’ve manufactured to their customers.

So what’s really important in a manufacturing contract is to be really clear on what the scope of the manufacturing services is, being really clear as to the specifications that you’re manufacturing in accordance with. What I always say is, from a supplier or manufacturer’s perspective, it’s really important to be as tight as possible with the scope so that at the end of the day you know that what you have priced on the basis of is accurate. It minimises the risk of what I often refer to as scope creep, where your customer is expecting you to deliver more than what you’ve priced for. Where the scope isn’t abundantly clear, you can end up with an argument with a customer as to whether something is within or outside scope and whether there’s a need for a variation or not.

Usually that is set out in a commercial schedule, really defining exactly what you are doing and the extent of your services as well. Are you manufacturing? Are you drop-shipping? Where are you delivering to? What are the quality standards that you’re expected to meet? Is there an acceptance criteria as well?

So often what we’ll see in a manufacturing context is either a testing regime. That could be on your premises, it could potentially be on the customer’s premises as well. But having really clear parameters about when a product is deemed to be accepted is really critical. You’ll often see acceptance split up into two components: one being acceptance of a delivery and an obligation on a customer to flag any material issues with an order, counting the number of boxes and making sure that the order has been delivered correctly, but also in terms of actually commissioning a piece of equipment that’s been manufactured or where there’s an installation component.

So you’ll often see quite detailed acceptance regimes. From a manufacturer’s perspective, ideally there would be strict timeframes in terms of those acceptance tests and then, if a customer doesn’t raise any issues, a deemed acceptance regime, where they haven’t said anything for a period of time and it’s deemed accepted. Often then your ability to be paid, which is the second item on the slides there, will be tied into acceptance.

With respect to pricing, obviously in a contract you can set up pricing however you want. It could be lump sum, it could be based on a schedule of rates, there could be milestone payments, a deposit when an order is made and then stage payments during the manufacturing process. There also could be price adjustment mechanisms.

So if you’re thinking about a multi-year engagement, sometimes what we see is an annual price review mechanism, which could be tied to a particular index, the Retail Prices Index or CPI. Otherwise, one of the other ways that you can look to better protect yourself as a manufacturer is also to have what we call a rise and fall clause, which is essentially if the price of raw commodities or any other supplies in your supply chain increase or fluctuate based on things that are beyond your reasonable control. So if, for example, the price of steel increases, then essentially allowing you to pass on those increases to your customer so that, in effect, when you’re accepting an order it doesn’t necessarily mean that that pricing is locked and you have a bit of comfort in the event that there are changes in commodities which could drastically increase the cost in actually manufacturing.

Obviously, if those price adjustment or price review mechanisms are not in the contract, then you’re in a bit of a tricky position where ultimately you’re relying on the customer’s goodwill in terms of agreeing on a variation. Worst-case scenario, you’re having to stomach the cost of those increased supply or raw material costs.

Another aspect, which is probably quite obvious but worthwhile stepping through, is delivery obligations in a manufacturing contract. How is delivery captured? Is it based on an Incoterm, particularly relevant in an international manufacturing context? Where are you delivering to? Are you delivering to port, to a customer’s premises, or drop-shipping to an end customer’s location?

What happens from a title and risk perspective? Ownership of the goods, when does that transfer to the customer? Ideally that’s only on payment in full, but sometimes it’s the case that because a customer needs to own the goods to be able to on-sell them, that can be upon delivery of the goods. From a risk perspective, you want a really clear line in the sand as to when you’re responsible for loss, damage or theft to products or goods that you’re manufacturing and when that transfers over to your customer.

Obviously as well, we went through COVID, which really emphasised the need for force majeure clauses, things that are beyond your reasonable control. From a manufacturer’s perspective, you want force majeure to be as wide as possible in terms of how it’s defined. Sometimes what I see is other events or circumstances bundled into a force majeure clause to better protect a manufacturing company, issues related to their supply chain. From a client’s perspective, I don’t think that’s necessarily reasonable because at the end of the day you as the manufacturer have the relationship with your suppliers. But from a manufacturer’s perspective, if you can keep force majeure as broad as possible, the better.

Perfect. Those were more commercial factors that play into the legal concepts in the contract. Some more legal points: intellectual property is really critical. If you are manufacturing other companies’ products, then being really clear on who owns the designs or the specifications, and what if there are improvements made to them. Typically it would be the company that you’re working for, but what you’ve also got to look at is whether there are restrictions on the use of their intellectual property. You need to be careful about how widely those are drafted, because chances are you would be manufacturing in a particular industry or for a particular type of product or goods and you want to avoid precluding yourself from working with competitors of your client or other businesses in other areas.

So having a look at the IP provisions and the confidentiality provisions to make sure that entry into a manufacturing contract with one client isn’t going to impact your arrangements more broadly with the rest of your client base.

Quality control. I talked about this, but aside from acceptance, inspection and testing, some other things that are really important in a manufacturing contract with your client are in relation to defects, recalls and warranties.

What happens if there is a defect? There’s often an obligation on a client to look at the goods when they’re initially delivered and flag any defects that are obvious. There will usually also be a further period where, if there are defects or issues or errors, they can be flagged and typically you would have a responsibility to repair or replace the products. Sometimes those remedy obligations can go beyond that. Sometimes what I see in clauses, which is problematic from a manufacturer’s perspective, is where it doesn’t actually give you a right to inspect and fix things yourself. It allows a client to go elsewhere, to another manufacturer, fix the issue and then charge those costs back to you, noting that those costs could be a lot higher than the cost of you just fixing your own work.

Recalls are particularly relevant in a B2C context or where the ultimate end customer is a consumer. Obviously there are product safety laws whereby if there is an issue with product safety that could be a health concern, there are statutory obligations and liability that you could have. So what happens in the event of a recall? Who bears the costs of assisting in a recall? Ideally you should only be responsible for what you’ve done, only for your breach, and any flowing cost implications.

And then warranties. How long are you going to be responsible for defects? Is it 12 months? Is it 12 years? Being really clear on when claims can be brought in relation to defects.

Now, limitations of liability. This is a big one in any commercial contract, but in a manufacturing context really important to have what we call a liability cap. That is the maximum you can be liable for under a contract, so far as legally you’re allowed to limit or exclude liability. Personal injury or death caused by negligence you can’t cap, but generally speaking otherwise you can have a financial cap.

Secondly, excluding things like loss of profit, revenue, reputational damage, loss of goodwill, consequential losses — losses that are indirect. Generally speaking you would seek to expressly exclude them in your manufacturing contract with your client.

Also with respect to indemnities. As the supplier, it’s probably more reasonable that you have indemnification obligations compared to the client who is paying and providing designs. But they have a more narrow set of obligations. You need to be thinking about what you’re willing to indemnify your customer for and try to narrow those down so that ideally your insurance will still respond to a claim.

Lastly, termination. Are there grounds for cancellation of an order for any reason, for convenience? If that is the case, ideally there’s not, but if a client can cancel an order you want to make sure that at the end of the day you’re still paid for what you’ve done up until cancellation. Otherwise they cancel and you’re running at a loss and you may not be able to on-sell the products. If it’s a fixed-term arrangement, say a 12-month contract, and six months through you suddenly lose it, you lose that expectation of orders. Being really clear on when a party can terminate and what the implications are after termination is really important.

Perfect. We’ve talked about contracts with your clients. Now we’ll talk about downstream agreements, agreements with your suppliers. That could be suppliers of components you incorporate into manufacturing, agreements with commodity providers, anyone you rely on as a supplier or subcontractor.

As far as possible, where you’ve got a chain of contracts, you want to pass through as much risk as possible. If you face a claim from your customer and it’s not you who is at fault, ideally you want to pass that claim through to your supplier. From a legal perspective, in order to bring a contractual claim it needs to be against a party to the contract. Your customer won’t have direct access to sue your supplier. They would have to sue you, and then it would be your responsibility to bring a claim against your supplier.

So things to think about with suppliers: if you are making commitments to customers in terms of maintaining stock levels, supply requirements or delivery dates, you need to make sure you’ve got comfort from suppliers that they are meeting those requirements or going beyond them, so you can rely on them to meet your obligations to customers.

Sometimes it’s the case you’re dealing with larger entities where it’s not always possible to flow down all risk, just based on leverage. That ties back into the importance of your contract with your customer and making sure that what you’re committing to, you’re confident you can actually do.

Otherwise, in supplier and procurement agreements, you need to align your upstream obligations with what you can rely on your suppliers to deliver. If there is a rise and fall clause in a supplier agreement allowing a supplier to increase price by notifying you, but you don’t have a similar clause upstream with your customer, there’s a gap risk and you’ll wear that risk.

With respect to quality assurance, do you have an ability to send defective products back to a supplier? Who bears the costs? If suppliers are overseas, is that feasible? Do they have an obligation to attend your customer’s premises to check things? All of that should be clearly documented.

Also insurance requirements. Ideally you require suppliers to have the same or better levels of insurance than you. Again, making sure you’re not overselling what you’ve got in terms of insurance when contracting with your customer.

Perfect. We’ve covered the two main contracts, with customers and suppliers. There are other contracts relevant to the business as a whole. If you’re manufacturing, you’re likely going to need a lease. Having that lease reviewed: rent review mechanisms, tenant obligations in terms of repairs and dilapidations, permitted use of the premises, assignment rights, whether you can get someone else to take over the lease. All of those things should be reviewed to make sure you can operate from the premises without affecting your business.

You may also have agreements for utilities and services. Often non-negotiable, but we can highlight key risks and implications.

On the equipment hire front, there could be equipment ancillary to manufacturing, forklifts, scaffolding or other plant equipment. If you’re hiring from third parties, be clear on the hire agreement: who maintains the equipment, who insures it, what happens at the end of the hire period, return condition versus fair wear and tear, ability to upgrade, cancellation provisions, early termination fees. Making sure you know your obligations and worst-case scenarios.

Okay, those are your key commercial contracts. I’ll briefly touch on employment contracts and health and safety.

From an employment perspective, looking at how staff are engaged: employees full-time or part-time, contractors, or via an employer of record. When we’re talking about employees, do you know your obligations in terms of minimum wage, statutory leave and so on? Is that clearly documented in employment or contractor agreements? Do you have key policies in place? Generally every business should have a staff handbook covering policies from IT security to health and safety to privacy.

From a health and safety perspective, make sure you’re complying with obligations to employees and protecting their health and safety. If you don’t have policies and aren’t properly managing health and safety, the regulator can inspect, audit and impose fines. So making sure you’re doing risk assessments and annual audits to cover risks as best as possible.

In employment contracts, are there restrictive covenants, restrictions on employees going to a competitor after leaving, protections over IP they’ve developed being owned by your business, so they can’t use it to create a rival or leak IP? All of that is covered in employment or contractor agreements.

Just conscious of time and wanting to get to Q&A. If you’ve got any questions, pop them in the Q&A box.

From an insurance perspective, what’s really important is to have a chat with an insurance broker. They’re best placed to advise on policies you need, whether statutory like employers’ liability or industry-specific like public and product liability. If you’re manufacturing products, you would likely need it. If you’re doing design services, whether you need professional indemnity. Also transit or shipping insurance where you bear risk in loss, theft or damage. Making sure you have protection to rely on in worst-case scenarios.

Then with your insurance, what policies you need is one thing, but when contracting with customers, if you’re saying you have public liability insurance up to £5 million, making sure you actually have that level of cover. Not signing up to higher levels than you have, because increasing cover means higher premiums and sometimes you can’t get certain levels.

Also making sure you’re aware of exclusions and ideally adjusting your contract to reflect that. Insurers want contracts to look a certain way, but commercially that’s not always possible. By getting contracts reviewed, you try to ensure that if you face a claim, you can rely on insurance, because often you won’t have the assets to meet a claim and that’s where the insurer steps in.

Back to you, Roisin.

Roisin: Thank you, Rob. That concludes the main part of our webinar. You might find our publication useful, Legal Essentials for UK Manufacturing and Logistics Businesses. You can find that in the resources tab on our website or download it by scanning the QR code below.

You may also be interested in our upcoming events. This is on 2026 employment law changes and what your business needs to know, tomorrow at 11:00 am. You can register via the link below.

So we’re going to answer your questions shortly. While you submit them, we’ll take a minute to tell you about LegalVision’s membership. By becoming a LegalVision member, your business gets access to unlimited support across our full team of specialist lawyers for all of your business-as-usual legal needs. Our team can assist with unlimited document drafting and review of business contracts, unlimited legal advice consultations, unlimited domestic trade mark registrations and much more. The real beauty of the membership is predictable costs through fixed monthly billing, so you don’t have to worry about unpredictable legal fees. You can think of it as having your own in-house legal counsel. We take care of business-as-usual legal work so you can focus on running your business. If you are an in-house counsel, we also offer a dedicated service to manage high-volume business-as-usual legal tasks. If you’re interested in learning more about how the membership or our desk extension can help you, you can request a free consultation when the survey appears at the end.

We’ll hand back to Rob now to answer your questions. While we do that, you’ll see a poll question pop up. We’d appreciate if you can answer it. Over to you, Rob.

Rob: Perfect. Thanks, Roisin. The poll there is essentially how you currently handle your day-to-day legal needs. Just pop in a response whenever you can. In terms of the Q&A, I’ve got a couple of questions here which I’ll get to, but anyone else, now’s your chance. We still have plenty of time, so just pop questions into the Q&A box and I’ll try to get to them. We also have a fact sheet there that you can access via the QR code.

First question is in relation to getting funding or investment as a startup manufacturing business and what contracts are most important. It’s a really good question and one we get all the time at LegalVision. A lot of our clients are startups and SMEs.

There are probably two aspects. One is to attract investors you need to demonstrate you have a pipeline of deals. You need to show not only a good product but a customer base or potential customer base that will purchase it. You need to demonstrate you can make money to justify them investing. That could be contracts with clients, but even if you’re not at full production, you could have heads of terms or binding letters of intent to demonstrate a pipeline.

More generally, investors will look at whether you’ve done your legal due diligence: is your intellectual property ring-fenced, do you own the IP you’re using, how is your business structured, have you incorporated, do you have a dual company setup, registered trade marks. In an investment process there will be due diligence where they look behind the curtains at how the business is operating, your contracts, whether you’ve locked down suppliers and can fulfil what you’re selling. A lot of what we do is help put a roadmap in place so that when you seek investment or exit, you’re in the best place possible.

Next question: how big does your business have to be to access advice? Do you cover sole traders? Yes, absolutely. We offer business-as-usual legal advice to businesses of all sizes, startups, SMEs, sole traders through to large enterprises. We approach legal support differently from the traditional hourly model, with a fixed monthly fee so you know your legal spend. I’d recommend jumping on one of our free consultations and we can talk through your business, whether you’re a sole trader or incorporated.

Still got a couple more questions. If anyone else has any, feel free to pop them in now. We’ve got about five minutes.

I’ve got a question about typical challenges seen in a manufacturing context. I think it’s interesting. I was working in the space during COVID. Manufacturing was heavily impacted. That demonstrated the importance of reviewing contracts and what they say, force majeure clauses, whether you have relief in global events and are protected. Also pricing: tariffs worldwide, whether there are rise and fall clauses for price relief.

Those are more rare scenarios. Otherwise what’s important is making sure what you’re committing to you can deliver. As the manufacturer, in terms of delivery timing, KPIs or minimum supply obligations, you want them as loose as possible to give leeway. Ideally you don’t have binding delivery dates and everything is an estimate, though that’s not always possible. On the flip side, as discussed with scope, make sure orders are really clear on quantities, specifications and what you’re supplying, so you know exactly what to deliver to avoid breach and claims.

Any other questions?

There was one last one on IP. Typically the customer whose products they are will own the IP, then license it to the manufacturer to allow manufacturing. You need to be conscious of the scope of that licence, how broad it is, any restrictions tied into use of IP, conflicts, disclosure to third parties. If you need to provide your customer’s IP to a supplier designing a component, do you have the ability to sub-license it? It’s important to work with legal advisers on those IP provisions to protect yourself in that arrangement and not jeopardise relations with other customers.

I think that’s all we’ve got, Roisin. I’ll throw it back to you to wrap up.

Roisin: Fantastic. Thanks, Rob. That’s all we have time for today. As Rob mentioned, by viewing this webinar you get access to a complimentary consultation. Feel free to submit your details in the survey at the end for assistance with any unanswered questions or to learn more about how our membership can help. While this is a free webinar, we always value your feedback, so please take 30 seconds at the end to complete the survey. Thank you all so much for joining us.

Rob: Thanks everyone. Take care. Bye.