With the high cost of manufacturing, many companies turn to contract manufacturing to keep costs down. Contract manufacturing companies allow you to outsource the process to them and they provide the facility, staff, materials, and other necessities to create your product.
After choosing your contract manufacturing partner, you’ll enter into a contract manufacturing services agreement. This agreement will include plenty of things, which you should understand. Here are some of the things typically found within a service agreement for contract manufacturing.
What is a Contract Manufacturing Agreement?
The basic agreement between the contract manufacturing company and your business is known as a contract manufacturing services agreement. This agreement establishes the service arrangements between the manufacturers and you, the product creator or developer. It will also set the terms of the agreement for the production of the product, including pricing, delivery mode, deadlines, etc.
A Few Key Components of a Contract Manufacturing Services Agreement
Before you sign any type of agreement with a contract manufacturing company, you should fully understand the key components of the agreement. There are several things defined throughout this agreement, which may include the following:
Confidential Information – This section will likely define how any confidential information will be handled when it comes to the technology, formula, software, concepts, and other things you may want to protect.
- Minimum Order Quantities – Also known as MOQ, this section will define the minimum order you will need to place with the contract manufacturer.
- Intellectual Property Rights – This section will define which party will retain the rights to the intellectual property including designs, trade secrets, patents, etc.
- Agreement to Manufacture – This section of the contract manufacturing service agreement will spell out the terms the contract manufacturer will agree to when it comes to the finished product during the initial term.
- Pricing – The agreement will include a section, which will define the price you will pay the contract manufacturer for their services, along with any cost reductions and price reviews.
- Product Testing – The contract manufacturer may provide product testing and quality control for your product. If so, they will define what they provide and what you have agreed upon in a section known as product testing.
Many other sections are found throughout the agreement, which will help to define what you’re agreeing to with your contract manufacturing partner. There will likely be a section defining any refund policies; along with a section defining how/when the contract will be terminated.
Hiring an Attorney to Review the Contract
While most contract manufacturing services agreements are pretty straight forward, they can be long and very boring to read. Hiring an attorney to review the contract is always a good idea, even if you trust your contract manufacturing partner. An attorney will be able to explain anything you don’t understand and make sure you’re satisfied with the agreement.
The contract manufacturing agreement will stand as the most important document between you and your new manufacturing partner. After you find the right partner for you, this agreement will be necessary and it protects you just as much as it will protect the contract manufacturing company.