A Manufacturing Agreement sets out the terms on which the manufacturer will manufacture goods for a customer. The Agreement will include both parties’ obligations as well as the various details and specifications of the goods to be manufactured. The schedule in your Manufacturing Agreement outlines the relationship between the parties, including the term, the commencement date and the location where the goods will be manufactured. Importantly, the schedule will include the payment terms. This series of articles will unpack what a Manufacturing Agreement should contain, and what each of the provisions means.

Duration of the Agreement

The duration of a Manufacturing Agreement varies depending on its nature but generally, the term is three to five years.  The agreement will set out that the customer agrees to engage the manufacturer, and the manufacturer agrees to provide the goods to the customer. It is not uncommon for the Agreement to contain a provision explicitly stating that signing the agreement does not form an agency relationship or joint agreement between the parties.

Exclusive Relationship versus Non-Exclusive Relationship

The Agreement will also indicate whether the relationship between the parties is exclusive. Manufacturers will most likely want a non-exclusive relationship, where as customers will want an exclusive relationship. It will then be prudent for both parties to negotiate this term to reach a mutual agreement.

Intellectual Property Protection

As a customer, it is important that you ensure you protect your intellectual property. You may choose to include a clause whereby the manufacturer does not produce any similar products to yours. You may also consider adding a time frame after the agreement ends in which they cannot produce similar products. It is best first to ask your manufacturer if they would object to including this clause in the Agreement.

Minimum Orders

If you are the manufacturer, you will most likely want a minimum number of orders over a month or a year. You may also want your Agreement to include a minimum purchase amount per order. If you are a customer, however, you will not want to be restricted by a minimum number of orders that you are required to place or purchase.

Ordering Procedure

The Agreement should outline how customers will order the products and the time the manufacturer will require to satisfy the order. For example, will the orders be made through an online system or a purchase order? Some Agreements also require the customer to provide expected upcoming orders to allow the manufacturer adequate time to prepare the goods.

Use of Sub-Contractors

The Manufacturing Agreement should state whether the manufacturer can use sub-contractors for part of or all the work. The manufacturer will most likely require permission to do this. If you are a customer, you should ensure that the manufacturer is still required to meet his or her obligations, and indemnify you even if they do use a subcontractor.

Conclusion

Drafting a comprehensive Manufacturing Agreement is important. It sets out the terms of the Agreement, and how parties will make payment. LegalVision’s contract lawyers have extensive experience drafting Manufacturing Agreements.

We can draft a Master Agreement for you, which includes a schedule so that you can conveniently update the Agreement for each manufacturer you work with. So if you’re in need of legal advice, get in touch with us today on 1300 544 755!

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