A Manufacturing Agreement is often used by businesses who engage an external manufacturer to produce their goods. The Manufacturing Agreement covers the end-to-end process and is important in outlining the terms at which you will work together.

The Design

The manufacturer needs to know what they will be producing and will often require specifications from you. This can come in the form of a prototype, pattern or mould that you have already produced. However, before you agree to use the manufacturer, they can also assist in producing a prototype on your behalf. The prototype or specifications you provide can be used as the basis for what will be included in the Manufacturing Agreement.

Intellectual Property (IP)

As it is highly likely that the idea or design behind the good you want manufactured was created by you, it is important to consider how the manufacturer will use your IP. This may include clauses such as ownership or licensing of IP for the purposes of manufacturing. If you are particularly concerned about protecting your IP, you may want the Manufacturing Agreement to include certain restrictions on the manufacturer’s licence on top of any confidentiality clauses.

Quality Control

You will ultimately be selling the goods that are manufactured. The Manufacturing Agreement should include clauses that require the manufacturer to reach certain obligations relating to the quality of the good. This may include the requirement of test runs and periodic quality control inspections. You may also want to consider whether you would like the manufacturer to include a warranty.

Ownership and Indemnity

To avoid any confusion, it is important for the Manufacturing Agreement to specify when ownership passes from one party to the other. This will avoid any confusion if there were to be any damages to the goods. In reference to quality control and defected goods, the Manufacturing Agreement should outline the indemnities that are to be provided by either party.

The Practical Considerations

A good Manufacturing Agreement should take into consideration all the practical aspects of your relationship with the manufacturer. For example, you may want to consider whether or not the manufacturer will have the ability to store the goods on your behalf. The manufacturer may also be able to assist with packaging the goods or adding tags so that they are ready for the market.

Ordering, Pricing and Payment

The procedure for ordering the manufacture of goods should be outlined in the Manufacturing Agreement, including whether or not there is a minimum order to be met. The pricing terms need to be outlined, especially when it comes to the use of raw materials with variable prices. Another aspect to consider is when payment will be made and if payment can be withheld on certain occasions, for example for late delay or damaged goods.

Conclusion

This is only a snapshot of the considerations a business needs to make when drafting a Manufacturing Agreement. If you are about to engage the services of a manufacturer, the LegalVision team have commercial lawyers on hand that can guide you through what should be included in your Manufacturing Agreement.

Kristine Biason

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