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Creating a fair and equitable contract is critical to the success of the partnership between a brand and a contract manufacturer or copacker, especially for smaller or startup brands that may not have extensive legal resources.
While such an agreement should always be drafted or reviewed by a legal professional, there are several key points and provisions that are important to include to ensure protection for both parties, anticipate various contingencies, and address potential pitfalls. Here are some essential elements to consider:
(As with all content on this site, this should not be construed as legal advice. Anyone engaging a contract should engage with appropriate legal counsel for guidance. The purpose of this document is to provide background information on this contract topic. Anyone contemplating types and structures of contracts must perform their own due dilligence and seek trusted professional advice.)
1. Scope of Work and Services
Clearly define the services to be provided, including production, packaging, labeling, storage, and any additional services like ingredient sourcing or product development.
Specify product specifications, quality standards, and compliance requirements to ensure the product meets brand expectations and regulatory standards.
2. Production and Delivery Schedules
Outline production schedules, order lead times, and delivery deadlines to ensure timely product availability.
Include provisions for scaling production volumes up or down based on demand.
3. Pricing, Payment Terms, and Adjustments
Detail the pricing structure for all services, including any variables that could affect costs.
Specify payment terms, conditions, and methods.
Include mechanisms for adjusting prices, such as annual reviews or responses to significant changes in material costs.
4. Quality Control and Assurance
Define quality control procedures and responsibilities, including how non-conforming products will be handled.
Establish processes for regular quality audits, product testing, and certification renewals as needed.
5. Intellectual Property (IP) Protection
Clearly state ownership of any IP, including recipes, formulations, and proprietary processes, ensuring the brand retains control over its assets.
Include confidentiality and non-disclosure clauses to protect sensitive information.
6. Regulatory Compliance and Certifications
Detail the responsibility for maintaining compliance with relevant local, national, and international regulations and standards.
Specify which party is responsible for obtaining and maintaining necessary product certifications.
7. Liability and Insurance
Outline liability provisions, detailing who is responsible for damages or losses incurred at various stages of production and distribution.
Both parties are required to maintain adequate insurance coverage.
8. Termination Clauses
Specify conditions under which the contract can be terminated by either party, including breach of contract, failure to meet production quality or schedules, and insolvency.
Include terms for winding down the partnership, such as final order fulfillment and the return of IP materials.
9. Dispute Resolution
Establish a process for resolving disputes, potentially including mediation or arbitration as steps before litigation to manage conflicts more efficiently and cost-effectively.
10. Force Majeure
Include a force majeure clause that outlines how unforeseeable events outside of either party’s control, such as natural disasters or pandemics, will affect contract obligations.
11. Amendments and Modifications
Provide a mechanism for amending the contract, requiring written consent from both parties for any changes to ensure mutual agreement on adjustments.
12. Governing Law
Specify the governing law that will apply to the contract, typically the jurisdiction in which the contract is executed or where the services will be provided. Creating a comprehensive contract that addresses these points can help prevent misunderstandings, minimize risks, and ensure a successful partnership between a brand and a contract manufacturer or copacker. Remember, this guidance is not a substitute for professional legal advice. Always consult a legal expert when drafting or signing a contract to protect your interests.
By Carl Melville Managing Partner, TMG and Founder of CoPack Connect
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