If your business relies on third parties to produce goods, a manufacturing agreement is one of the most important contracts you’ll sign. It defines the relationship between your company and the manufacturer, setting expectations for quality, timing, pricing, and risk allocation. 

Whether you’re launching a new product line or scaling production, a clearly written agreement helps prevent miscommunication, delays, and costly legal disputes.

Key Components of a Manufacturing Agreement

A comprehensive manufacturing agreement outlines everything from product specifications to payment terms. Some of the most important provisions include:

• Product specifications: The contract should include detailed descriptions of the goods being produced, including dimensions, materials, tolerances, and compliance standards. This ensures consistency and reduces the chance of disputes over quality.
• Production schedules: Timelines for manufacturing, delivery, and lead times should be clearly defined. Agreements often include milestone dates, late delivery penalties, and procedures for handling delays.
• Pricing and payment terms: This section should specify unit pricing, payment schedules, and any conditions for price adjustments, such as changes in raw material costs or currency fluctuations.
• Quality control: Inspection and testing rights are critical. Agreements may grant the buyer access to production facilities or allow for third-party quality checks. The contract should also explain what happens if the goods fail inspection.
• Intellectual property: If you’re providing proprietary designs, molds, or technology, it’s vital to address ownership and use rights. This section should clarify that the manufacturer has no claim to your IP and must return or destroy it after the relationship ends.
• Confidentiality: A strong confidentiality clause can protect trade secrets, pricing strategies, and product development details from being disclosed or misused.
  

Each of these elements should be tailored to reflect your specific business needs and the nature of the product being manufactured.

Managing Risk Through Liability and Indemnity Provisions

Manufacturing contracts must address what happens if something goes wrong. Liability and indemnification clauses define who is responsible in the event of product defects, delivery failures, or third-party claims. For example, the manufacturer may be required to indemnify the buyer if defective goods lead to consumer lawsuits or regulatory violations.

It’s also common to include limitations on liability, such as caps on damages or exclusions for consequential losses, as well as warranties related to performance or merchantability. These provisions help allocate risk fairly and limit financial exposure for both parties. Insurance requirements may also be addressed to ensure adequate coverage in case of accidents or product failures.

When Do You Need a Manufacturing Agreement?

Any time you outsource the production of goods, especially at scale or over a long-term period, a manufacturing agreement is recommended. Even if you’ve worked with a manufacturer before or have a close relationship, formalizing the terms in writing protects both sides.

Manufacturing agreements are particularly important when:

• You’re launching a new product
• You’re working with an overseas manufacturer
• Intellectual property is involved
• Large quantities or ongoing deliveries are expected
• You need legal remedies for missed deadlines or quality issues

Verbal agreements, purchase orders, or templates often leave gaps that can create problems later. A well-drafted contract gives you leverage, clarity, and legal protection.

What to Do Before Signing a Manufacturing Agreement

Before entering into a manufacturing relationship, work with legal counsel to ensure your intellectual property is protected, your delivery expectations are enforceable, and you’re not exposed to unreasonable liability. Clear terms upfront reduce the likelihood of costly disputes later. 

That’s where Seder Law comes in. Our attorneys help companies structure manufacturing agreements that protect assets, allocate risk, and support long-term goals. Contact us today to consult with our business transactions group.