Manufacturing Agreements

What should Manufacturing Agreements include?

1. Delivery

Consideration should be given to the terms around the delivery of the products

There are a number of factors that need to be taken into account, such as who will book the delivery and who will bear the cost of delivery and any additional charges that come with it like, taxes, insurance and freight handling costs. 

Also, if you are not able to receive delivery of the products, would you wish to nominate a third party to receive them on your behalf?

2. Product warranties

It’s in your interests to include in the manufacturing agreement that the manufacturer provides certain warranties about the products it produces.  

The following warranties should be included:  

  • That the manufacturer will comply with the requirements of the agreement and the specifications provided and with all applicable Laws, rules, and regulations which apply to the specifications of the products.
  • That the products will be of merchantable quality and, fit for purpose.  
  • That the products will be free from any defects in design, material and workmanship.

3. Defective products handling process

It can be very costly if one or all of the products you order from a manufacturer are defective or faulty. 

You would miss out on making sales from those products and having to re-order the products would double the costs. 

For this reason it should be stated in the agreement that in circumstances where a product is found to be defective, the manufacturer is obligated to either:  

  • repair the defective products; 
  • replace the defective products; or 
  • provide a full refund for any defective products. 

Generally, manufacturers will require that you provide photographic evidence of the defective product and any other information requested by the supplier, and allow the manufacturer to inspect the product, if possible, to determine whether they are defective.  

Its usually noted in the agreement that the manufacturer won’t be liable for any product defect or damage where, such defect was caused by you, amounts to fair wear and tear or in circumstances where you alter or attempt to repair the product without first consulting the manufacturer 

4. Product liability

In the unfortunate event that the manufacturer provides you with products that have a defect, which results in a lawsuit against your business, it’s crucial to include in the agreement that in such circumstances the manufacturer will be liable for the costs, damages or claims against your business that are attributable to the manufacturer.   

5. Passing of title and risk

You should consider when the title” (that is, ownership) of the products and risk will pass from the manufacturer to you 

Generally, title passes when you have paid all amounts owning for the products and risk passes on delivery of the products.  

Under this arrangement, the manufacturer would be liable if the products were damaged prior to delivery to you 

6. Manufacturer warranties

It’s important to obtain certain warranties from the manufacturer to ensure that:  

  • they have the power to enter into the agreement;
  • they are trading solvent and that no administrator or liquidator has been appointed;  
  • no proceedings have been brought or threatened for the purpose of bankrupting or winding up the manufacturer; and 
  • no partner, director or shareholder of the manufacturer is bankrupt, a discharged bankrupt or in any form of receivership, administration or liquidation. 

7. Intellectual Property

Your business’ intellectual property, including trademarks and logos that are incorporated in your products, should be protected. 

It should be stated in the agreement that each party acknowledges that the intellectual property rights of any materials developed by a party prior to the engagement of the manufacturer’s services or that is created independently of the agreement remain the sole property of the owner 

Any materials created by the manufacturer in producing the products should be acknowledged as your business’ intellectual property and that you claim ownership over such materials.  

8. Confidential information

Since you are sharing information about your business and its products, it’s wise to have a confidentiality clause in the agreement stating that any information, materials or documents you provide is treated as strictly confidential and must not be disclosed to a 3rd party.  

9. Jurisdiction

Ideally, its in your business’ best interests to have the jurisdiction of the agreement as the State or Territory in Australia in which your business is based, as it makes things easier in the event you need to bring proceedings against the other party, so you don’t need to engage in legal proceedings in another State or Territory

It’s also advantageous if you’re engaging an overseas manufactureras the contract would be interpreted in accordance with Australian Law

However, this is a matter for you to negotiate with the manufacturer, as not all manufacturers would be receptive to this request. But there’s no better time to do that then prior to the agreement being struck. They’re obviously far more likely to agree to various terms before you’ve paid any deposit monies. 

Manufacturing Agreements: Key Takeaways

Having a legally drafted Manufacturing Agreement ensures that all key areas of the agreement discussed above are comprehensively covered and allow for both parties to be clear on their rights and obligations under the agreement.  

It’s also a great way to prevent any potential disputes down the track and provide you with confidence that all the areas that are important to your business are at least legally covered

Manufacturing Agreements: Cost

We charge a fixed fee of $1,200 + GST for a standard Manufacturing Agreement tailored to your business’ needs.