Manufacturing Agreement: Product Quality and Delivery Clause

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Table of Contents

• What Does it Do?
• Product Quality
• Conclusion

A Manufacturing Agreement more broadly sets out the terms on which a manufacturer will manufacture goods for a customer. An important practical clause included in a Manufacturing Agreement is the product quality and delivery clause.

What Does it Do?

A product quality and delivery clause outlines who owns the product’s title and, consequently, risk. It also informs the parties at which point the risk will pass from the manufacturer to the customer.

As the customer, you will typically want the title to pass to you on delivery, but the risk only to pass to you on payment. If you are the manufacturer, it is sensible to include in the Agreement that the title will only pass on full payment of the invoice, and risk passes as soon as the product leaves your premises. Your Agreement will also include the required levels of insurance each party is required to take out, and how the product will be insured in transit.

Both parties may want to consider including in the agreement who is responsible for the delivery costs. It is also sensible to explicitly outline how the manufacturer will handle packaging and labelling fragile goods. If the product is defective and the customer realises this upon, or shortly after delivery, the manufacturer must do what is commercially reasonable to replace the defective products. 

Product Quality

When drafting or reviewing your Manufacturing Agreement, both parties will need to consider closely the product quality clause. Again, if you are the manufacturer, you must meet the product requirements. You will also meet all of the specifications and perform your obligations with due care and skill.

Your Agreement should outline a number of warranties about your goods. For example, that they:

• are of merchantable quality,
• meet your specifications,
• do not have any defects (or meet the agreed upon percentage of defected products per order),
• match the description or demonstration,
• are appropriately labelled, and
• meet Australian product standards.

Customers should take steps to ensure that the manufacturer uses safe equipment and is satisfying any applicable laws or regulations. This clause is where you can address any particular requirements as to the equipment that should or shouldn’t be used.

Conclusion

It is important that your Manufacturing Agreement includes a well drafted and comprehensive clause addressing title and risk. As a customer, this will better position you to protect your business and your stock.

LegalVision’s lawyers have experience drafting and reviewing Manufacturing Agreements for a number of industries. So, if you have any questions, please get in touch with us on 1300 544 755 and speak with one of our experienced solicitors today.

We would also be delighted to assist guiding you through the process of negotiating your Manufacturing Agreement, as well as providing you with detailed advice on your legal obligations.