Protecting your business means having the proper legal documents in place. Manufacturing agreements are one of the most important contracts for businesses, especially in the retail industry. This article sets out what a manufacturing agreement is, and important provisions to include to limit your liability.
What is a Manufacturing Agreement?
A manufacturing agreement is a contract between a retailer and a manufacturer. It is a legally binding document that sets out the rights and responsibilities of each party, and the terms on which goods are supplied.
Businesses should ensure that their agreements are detailed and tailored to avoid legal consequences. It is important to clearly state the details of the arrangement, including:
- names and details of the manufacturer and retailer;
- products to be provided;
- length of arrangement;
- date and time for provision of products; and
- payment details.
While these are relatively straightforward, businesses can often overlook key legal provisions as set out below.
1. Intellectual property clauses
Too often, businesses fail to include important intellectual property clauses within in their manufacturing agreements. Intellectual property rights protect unique aspects of your business, including your trade marks, product designs, patents, copyright, trade secrets and other confidential information. Manufacturing agreements should clearly set out who can use your intellectual property. In most cases, you will want to prevent the manufacturer from producing your products for other retailers, or otherwise infringing on your intellectual property rights.
Importantly, businesses should have multiple avenues towards protecting their intellectual property. This includes:
- initial registration of assets like trade marks and designs;
- ongoing protection such as trade mark watching;
- protection via legal documents such as in your manufacturing agreement; and
- internal processes for intellectual property protection such as confidentiality training for employees.
2. Warranties and consumer guarantees
Businesses should ensure that their manufacturing agreement includes certain warranties from the manufacturer. These may include that the products supplied to you align with the specifications agreed upon, and are free from any defects.
Importantly, manufacturers must comply with their obligations under the Australian Consumer Law (ACL). The consumer guarantees in the ACL apply automatically, and it is illegal to contract out of these laws. Any attempt to exclude the consumer guarantees in your manufacturing agreement will be void and unenforceable.
It may be a good idea to include clauses in your manufacturing agreement which set out how the manufacturer must deal with claims brought against them by customers under the ACL. Your agreement may also provide for who bears responsibility for replacing, repairing or refunding the goods under the ACL. In drafting your manufacturing agreement, it is important to consider transactional risks and outcomes. For example, what happens if a replacement is not provided to the customer within a specified time? Clearly drafted provisions in your manufacturing agreement can help to limit your liability in these situations, should any dispute arise.
3. Overseas agreement clauses
Retailers often enter into manufacturing agreements with foreign businesses. While these arrangements can build valuable international relationships, there can be risks which businesses should address in their contracts. Importantly, manufacturing agreements with overseas companies should set out the applicable jurisdiction. As Australian and international trading legislation can vary significantly, it is critical that your manufacturing agreement states which law applies to the arrangement. This helps protect your business if any dispute about the applicable laws arises in the future.
Businesses may also wish to ensure that any goods manufactured overseas are done so in accordance with ethical working conditions. You may consider having a separate Ethical Sourcing Policy which the manufacturer must agree to before entering into the arrangement, or include provisions on ethical work and sourcing within your manufacturing agreement.
A manufacturing agreement is a contract between a retailer and manufacturer which sets out the terms on which products are supplied. Importantly, retailers should ensure that their manufacturing agreements include clauses about:
- product specifications and logistics of the arrangement;
- assignment and protection of intellectual property rights;
- manufacturer guarantees and warranties;
- the applicable laws to the arrangement; and
- ethical sourcing and working arrangements.
What should I do next?
- Businesses should review of their current manufacturing agreements, checking that the above clauses have been included or considered.
- It may be helpful to speak to a legal professional about transactional risks and liabilities and confirm that any existing manufacturing agreements are maximising your legal protection.
Gladwin Legal are specialists in manufacturing and supply agreements and have extensive experience advising businesses. We can help with drafting, reviewing and negotiating agreements. Feel free to contact us at or 1300 033 934.