There are, however, many considerations when deciding to enter into a production partnership. It is highly recommended to work with an experienced commercial lawyer to ensure that your business is fully protected, enabling you to enter into a profitable and effective partnership that delivers the desired outcome for all involved.
There are many aspects that need to be covered in a manufacturing agreement. These typically include:
This will generally include the desired specifications of the product in terms of both appearance and functionality, as well as other design and manufacturing considerations required by law.
Prior to agreeing to manufacture goods, manufacturers need to know how much they will be producing and when they will be producing it. Key considerations will include whether or not the forecast is binding or non-binding, the process of acceptance or rejection of a purchase order and whether a purchase order be cancelled or rejected.
Once a manufacturer has a forecast and a purchase order, it will be necessary for them to start procuring materials to start production. It is important to establish a clear agreement for how this process will work, considering bill of materials (BOM), approved vendors if applicable and the purchasing of parts and components. It will also be necessary to implement measures to ensure that material procurement is compliant with policies for sustainability, modern slavery, etc.
An essential part of the manufacturing agreement will be packaging, shipping and delivery. This will include how products are to be packaged, how they will be shipped and what constitutes delivery. It will also be necessary to agree who is responsible for title and risk during shipment.
As with any commercial contract, price of the products and payments terms are an essential aspect of the relationship and should be agreed in advance. Your agreement will ensure that payment terms are specified, along with details of any late payment terms or penalties.
Key considerations for the warranty include whether warranties of merchantability and/or fitness for a particular purpose apply, the process for returning or replacing defective products, remedies for defective products and what warranties should be disclaimed. It is also important to ensure that your product warranty is fully compliant with consumer law and any other regulations governing specific products.
Intellectual property is an important asset for companies and needs to be carefully protected. In a manufacturing agreement, this will typically include as a minimum who owns the products, and any Intellectual Property to the products, who owns the manufacturing process(es) and what information is deemed to be confidential.
Most manufacturing agreements will have an indemnification clause. Indemnification, by definition, is an obligation by which one party engages to save another from a legal consequence of the conduct of one of the parties, or of some other person. The limitation of liability will attempt to strike a balance of acceptable risk for each party.
Here at Nexa, we offer our clients access to a team of lawyers who have considerable expertise in commercial law and are at the forefront of the latest legal and practical developments affecting manufacturing and production. Unlike traditional law firms, we pride ourselves on providing a flexible and cost effective legal service that is designed to fit your business, meaning that you’ll have access to the very best lawyers for the job, exactly when and where you need them.
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