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What is a Manufacturing Agreement?
A manufacturing agreement is a contract between two parties wherein a manufacturer agrees to manufacture products according to the specifications provided by the client. It gives an outline of the terms that should be followed and the conditions that should be observed by the parties in the performance of their obligations.
A Product Specification is typically attached to a manufacturing agreement to provide a detailed description of the products to be manufactured. By clearly describing the products to be manufactured, the client is secured that the products will be produced according to his instructions and specifications.
In writing a manufacturing agreement, the parties must ensure that the terms of the agreement are clearly stated and leave no room for interpretation. Doing so will help the parties in the performance of their obligations and in resolving possible disputes.
The agreement must also not be one-sided; the terms must be fair to both parties. The rights of the parties must be protected in the agreement and all their obligations must be clearly listed. The manufacturing agreement must anticipate any legal questions that the parties may encounter in the course of the transaction and provide answers for them.
Why do I need a manufacturing agreement?
Agreements to manufacture products usually involve large-scale productions. Therefore, a party may suffer greater damage and losses compared to other transactions. A manufacturing agreement lessens the risk of incurring damages by providing an outline of the terms agreed upon by the parties. It helps prevent miscommunication over the terms of the agreement and ensures that the products will be produced following the special instructions of the client.
Therefore, it lessens the chance of having disputes since there is written proof of the terms of the agreement.
A manufacturing agreement also gives another layer of protection over the rights of the parties. It ensures that the obligations of the parties are clearly listed and provides the conditions that should be observed by both parties. The liabilities of the parties and the remedies available to them are also included in a manufacturing agreement.
What are the key clauses in a manufacturing agreement?
In writing a manufacturing agreement, the following clauses must be included:
Parties – Who is the manufacturer and who is the client?
Products – What are the products to be manufactured? How many should be manufactured? Over what time period.
Specifications – a detailed description of the products to be manufactured, should be set out.
Order Procedure – What is the process of making an order for the production of the products?
Price – How much should the client pay the manufacturer?
Materials – The parties may agree on the materials to be used in manufacturing the products.
Payment Terms – When should the client pay the manufacturer?
Non-Payment – What will happen if the client fails to pay the manufacturer?
Transfer of Title – When is the title over the products passed to the client?
Risk of Loss – When is the risk of loss transferred to the client?
Date of Completion – When is the production expected to be completed?
Delivery – When and where should the products be delivered? How should they be delivered? Who is to insure the products during delivery.
Acceptance Process and Defects – How are the products accepted by the client? What are the remedies of the client in case there are defects in the products manufactured?
Warranties – The warranties of the parties will depend on the agreement of the parties. In writing a manufacturing agreement, it is best to state and limit the warranties agreed upon by the parties to prevent liability over implied warranties.
Force Majeure –A party is not liable for the non-fulfillment of his obligation if he is prevented from performing his obligation by circumstances beyond his control. However, the parties may agree otherwise.
Intellectual Property – Who has intellectual property rights over the products manufactured? How about the intellectual property rights over the manufacturing process?
Confidential Information – They parties must respect the confidentiality of all confidential information that they may come across in the course of performing their obligations.
Exclusivity – Can the manufacturer produce the same products for another client?
Indemnification – Who will be liable for damages incurred in connection with the manufacturing agreement?
Limitation of Liability – The parties may limit the liability over losses and damages incurred in connection with the manufacturing agreement.
Termination – How can a party terminate the manufacturing agreement? What are the causes that justify the termination of the agreement? What are the consequences of terminating the agreement?
Disputes – What is the process to be followed in resolving disputes?
Laws – What laws are applicable to the manufacturing agreement?
Jurisdiction – Which courts will have jurisdiction over cases filed in connection with the manufacturing agreement?
Due to the nature of manufacturing transactions, a manufacturing agreement is necessary to set the terms of the contract between the parties. If you need help in writing a manufacturing agreement, call us The Contract Company 1800 355 455 and let us know how we can help.
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