This image helps convey that it is a manufacturing agreement

What is a Manufacturing Agreement?

A manufacturing agreement is just one example of a legal arrangement that affects retailers.  Whilst some retailers may work on a handshake deal, it’s important to consider how a manufacturing agreement can benefit your business.  This article will explain what a manufacturing agreement is, and when you may need to use one.

What is a manufacturing agreement?

A manufacturing agreement is a contract that sets out the terms on which a manufacturer will produce goods for a purchaser, and the obligations of both parties under the arrangement.

Why do I need a manufacturing agreement?

A manufacturing agreement is important in business transactions involving the production of goods, especially those which are large in scale or which are being imported into Australia. Having a properly constructed manufacturing agreement lowers the complications of any legal dispute which may arise if there are losses or damage to goods.

If you are importing your goods from overseas, under Australian law you are the ‘deemed’ manufacturer and will be liable at law for any issues with the product (for example if it is faulty, injures someone or does not comply with the law).  Having a manufacturing agreement tailored to your transaction can contractually make your manufacturer liable for those risks.

A manufacturing agreement also makes sure that there is no misunderstanding between parties relating to their obligations under the contract.  The agreement can specify what goods you are buying, what are their specifications, when you can reject them and what happens if the manufacturer does not comply.

Retailers must ensure that their manufacturing agreements are tailored, enforceable and properly constructed to avoid legal consequences and penalties. It is crucial that the terms are fair to both parties and that the contract is properly signed.

What should I include in a manufacturing agreement?

Like any other commercial law contract, a manufacturing agreement should clearly set out all the rights and obligations of the parties under the arrangement. These include:

  • Who is the manufacturer and who is the client under the contract?
  • What product is being manufactured and what is the quantity required?
  • Is this a one off order or an ongoing arrangement?
  • Who owns the intellectual property rights over the manufactured products?
  • Is the manufacturing agreement exclusive, or can the manufacturer produce goods for another client?
  • Is the manufacturer paying fair wages?
  • Can the manufacturer use sub-contractors for the work?
  • What is the time period of manufacturing?
  • How much should the client pay the manufacturer and when must payments be made, and what happens if payment does not occur?
  • Which party carries the risk of loss?
  • What is the warranty period?
  • What happens if there are defects in the products?
  • How does the manufacturer dispose of surplus, defective or rejected product? (Hopefully not ebay!)

Key takeaways

  • A manufacturing agreement is a contract which sets out the terms on which a manufacturer will produce goods for a client, and the obligations of both parties under the arrangement.
  • Manufacturing agreements should contain all key provisions of the arrangement and be properly drafted to avoid legal consequences.

Gladwin Legal are experts in commercial and business agreements. We are experienced in drafting, reviewing and advising on manufacturing agreements. If you would like to know how we can help, please contact us today.