Use our manufacturing contract to outline the scope of manufacturing services an independent contractor will provide.
Updated May 27, 2024
Written by Josh Sainsbury | Reviewed by Brooke Davis
A manufacturing contract is a business agreement for a manufacturer to provide specific services to a client. A company or an individual may hire a manufacturer as an independent contractor to construct their product, so they use this document to outline details relating to their services. It can help you set expectations and create a binding legal agreement.
Contract manufacturing is when a business relies on an independent contractor to handle a company’s production processes. The manufacturer specializes in making specific products or components so the business can focus on other aspects of its operations.
A company provides specifications for the product they want the manufacturer to create. If the manufacturer warrants it, clients may have access to customizable solutions, allowing them to tailor their products accordingly.
Explore the pros and cons of contract manufacturing for businesses:
Companies can use well-written contract manufacturing agreements to mitigate the risks of contract manufacturing and reap its benefits.
Several industries and individual examples help illustrate contract manufacturing.
The pharmaceutical industry commonly uses contract manufacturing to create products. Some drug companies don’t have large-scale production capacities. A smaller drug company may, for example, partner with a larger one to produce its medication.
This partnership allows a single-drug company to use the assets of a large multinational corporation to get its medication to market. The smaller company could then market the drug under its name or engage in private-label services with the larger company.
Contract manufacturing is especially prevalent in the food industry. Food manufacturers must often use several components or ingredients to make their final product. A company that creates a specific food for sale may not make every ingredient itself.
Most food manufacturers outsource some parts of their manufacturing process. In most cases, the product is eventually sold under a single brand name, while the contract manufacturers receive payment for their work.
Most major automobile companies use contract manufacturing throughout their business model. One company may use dozens of contractors and subcontractors to construct the various parts of an automobile, including the braking system, engine, transmission, and infotainment system.
Motor vehicles are highly complex products. Partnering with different manufacturers provides flexibility and scalability for automakers to create the best possible product.
Manufacturing computers and other high-end electronics usually requires multiple manufacturers working together. Each component requires specialized knowledge and machinery to make. Working together with a manufacturing contract can help reduce costs and difficulties in getting a new product to market.
Implement the following tips when choosing a contract manufacturer to use:
Create a list of desired traits in a manufacturer. They’ll vary in experience, capabilities, and price, so you should consider the factors that matter most to your business. From there, you can research and consider multiple manufacturers to find the one that’s right for your product.
Talk to multiple manufacturers to determine how they perform their services. Ask about the techniques they use to maximize efficiency and the consistency they achieve with product deliveries. During your discussions, you can also negotiate the cost of their services to get the best price.
Consider the pros and cons of each company to determine which will give you the best return on investment.
A contract manufacturing agreement is a legally binding agreement outlining the key conditions and terms of the business arrangement. It creates and governs the relationship between a manufacturer and their client. It sets mutual expectations and responsibilities as part of an outsourcing agreement between the two parties.
Explore common elements within this document:
This contract describes what services the contractor will provide, the cost of those services, and other pertinent details specific to your situation. It should include product guidelines and specifications. You can also consider turnaround times and specific production dates in your agreement.
Your manufacturing independent contractor agreement should outline the fee structure for creating the product. It should also set the due date and how the client will pay it.
Specify if the manufacturer should send a sample to the client before completing the larger order. This way, the client can determine if the contractor’s work meets their standards.
Outline the process for delivering and accepting the products. Specify how long the client has to inspect the products. Include details for returns if the client has to send the products back due to quality issues.
Your agreement should include confidentiality provisions, non-disclosure agreements, and other protections for intellectual property. It should also include indemnification clauses for any damage or danger the manufacturer causes.
Many manufacturing contracts last for years. Your agreement should clearly state the length of the contract and the conditions for renewal or termination.
Your contract should spell out what constitutes a breach of the agreement and what can happen if one party breaches it. You may consider an arbitration clause or choice of law provision as well.
Download a manufacturing contract template as a PDF or Word file below.
