What is it?

A manufacturing agreement is a contract between the developer or owner of a product and the person or company who makes the product. 

Application for small business people

Small business people will often come up with the idea for a product that they want to develop and take to market. However, they seldom have the machinery, space and know-how to actually make the product, especially if large volumes are required. This is where they will need to engage the services of a manufacturing company. A manufacturing agreement will set out the terms of this engagement.

It is a good idea for small businesses to ask a manufacturer to create a sample of the product (if possible) before signing a long-term manufacturing agreement ordering a large quantity of the product. The owner needs to ensure that the specifications they’ve given to the manufacturer are correct and that the product is at its optimal design.

The small business owner also needs to ensure that their intellectual property rights are protected when they hand the product designs over to a manufacturer. This should be covered in the manufacturing agreement.

Some small businesses may choose to manufacturer their products in foreign countries where supplies and labour are cheaper. Where this is the case, you may need to be aware of the local laws and have provisions in place in the manufacturing agreement for shipping and insurance of the products.

6 key things to consider

Management agreements should cover the following elements:

  1. Who is responsible for purchasing and supplying the raw materials used to make the product?
  2. Are there any confidentiality or exclusivity considerations?
  3. What is the quantity of items required? Is this a set amount or can it be revised by the purchaser over time?
  4. What happens if the manufacturing is unable to meet the demand or deadlines?
  5. Is the purchaser entitled to change the quantity ordered at any time?
  6. Who is liable for defects in the product?