Manufacturing Agreement: What is a Customer and Manufacturer Obligations Clause?

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Table of Contents

• Types of Obligations in Manufacturing Agreements
• Product Safety and the Australian Consumer Law
• Customer Obligations
• Indemnity and Liability
• Conclusion

Your Manufacturing Agreement clearly outlines the obligations of both parties. If you are the manufacturer, you will be aiming to limit your obligations. If you are the customer, you will be seeking to ensure that your manufacturer agrees to a set of obligations that you feel comfortable with. When negotiating these agreements, it is important that they be realistic. This article will unpack the contents and functions of this clause in a Manufacturing Agreement.

Types of Obligations in Manufacturing Agreements

The manufacturer typically needs to meet the following requirements:

• manufacture the goods in accordance with the specs the customer provides,
• keep the goods safe and make sure that they are not damaged,
• make sure the goods are ready on time, and
• meet the order given by the customer.

If there are any issues with the goods, then the manufacturer should contact the customer and try to provide the most appropriate match to the goods that they ordered.

It is important your specifications are as clear and precise as possible. These specifications are the standard to which the manufacturers work will be held and to compare whether they did meet the specifications as required.

Product Safety and the Australian Consumer Law

Under the Australian Consumer Law, the manufacturer is obliged to ensure that the goods provided to the customer are of an acceptable quality and can be used safely (i.e. they are not defective). Failure to meet this requirement amounts to breaching a consumer guarantee and exposes manufacturers to customers taking action against them.

You cannot contract out of this obligation and so it is of paramount important that you seek any clarification about your responsibilities under this clause.

Customer Obligations

Customer obligations, although generally less onerous, will typically include:

• the customer must work with the manufacturer and provide sufficient and correct specifications, and
• the customer must pay for and collect the goods on time.

This clause will most likely set out who is responsible for dealing with customer complaints. It is prudent to include that as the customer, you should not be liable for the cost of repair and dealing with customer complaints unless otherwise required under Australian Consumer Law.

Indemnity and Liability

Critically, your Manufacturing Agreement will include clauses addressing Indemnity and Liability. If you are the customer, you should carefully read these provisions and understand to what extent the manufacturer will responsible for any issues with the product. For example, will they agree to adhere to Australian standards when manufacturing the product? The Agreement should also explicitly state when the customer is responsible and when the manufacturer is responsible for the product during the shipping process.

Conclusion

If you’re in need of legal advice in regards to drafting a Manufacturing Agreement or have questions about consumer law issues, contact LegalVision on 1300 544 755 and speak with one of our experienced solicitors.