Manufacturing Agreements and the Law

Used under a Creative Commons Licence

Manufacturing Agreements and the Law

When Benjamin Franklin once said “The bitterness of poor quality remains long after the sweetness of low price is forgotten” what he essentially meant was that it’s better to invest in quality even if it costs more in the long run.

This is very true when it comes to manufacturing agreements.

If you’re in the business of getting products made—whether it’s skincare, clothing, electronics, wine or kombucha—the manufacturing agreement is your safeguard against sleepless nights, supply chain nightmares, and costly legal battles.

At Sharon Givoni Consulting, we’ve seen it all: from factory owners who “forgot” they were supposed to manufacture in ethical conditions to labels missing crucial allergen information that led to a full product recall.

A good manufacturing agreement is the key to making sure that if things go wrong you have legal protection in place.

So, what should a manufacturing agreement cover?

1. Be Specific (Down to the Millimetre)

This is not the place for vague descriptions. A manufacturing agreement must spell out:

• Specifications – Exact dimensions, colours, materials, durability standards and the like.
• Formulations – For cosmetics, food, or supplements, this is crucial.
• Samples & Prototypes – How many rounds of sampling before production begins?
• Defects – What’s considered a defect? A slightly darker shade of lipstick?

Example: We helped a client in the activewear industry whose manufacturer subtly changed the fabric blend to cut costs. The result? See-through leggings which was not ideal. Their manufacturing agreement didn’t specify fabric composition tightly enough and the brand owner learnt the hard way.

2. Labelling and Packaging

A well-drafted manufacturing agreement should clearly outline responsibilities around packaging and labelling, ensuring both parties understand their obligations. This includes determining whether the client or the manufacturer is responsible for packaging, as well as defining labelling requirements to comply with Australian Consumer Law (ACL) and any industry-specific regulations.

Every product has its own specifics. For example for industries like cosmetics, supplements, pet food, and medical devices, regulatory compliance and accurate Country of Origin claims are crucial, requiring manufacturing agreements to address these complexities to avoid legal and commercial risks.

Example: A skincare brand we worked came to us for advice had an existing manufacturing agreement that failed to outline who was responsible for ensuring SPF claims were backed by proper testing. This resulted in a costly regulatory headache.

3. Quality Control: “Near Enough” is Not Good Enough

A strong manufacturing agreement should address key quality control and accountability measures. We make sure that we clearly define all the terms to prevent disputes.

Example: We once had a client in the food industry whose manufacturer didn’t check allergen cross-contamination properly. We were called in to advise on the recall. A clear manufacturing agreement would have assigned liability upfront.

4. Payment Terms

Payment terms in a manufacturing agreement should be carefully structured to accord with your business needs. Things from how deposits are handled, to penalties for late deliveries. Clearly defining these terms can help protect your business from financial and logistical uncertainties.

Example: One client that came to us had manufacturing agreement with a vague payment clause. The manufacturer claimed unexpected “material price hikes” and refused to release the goods until additional payments were made. A strong agreement could have avoided this.

5. Protect Your Products and Designs

Does your manufacturing agreement clearly state:

Example: We once saw a situation where a client’s factory overseas started selling their designs under a different brand. Our redrafted version had an exclusivity clause but some damage had already been done.

6. When Things Go Badly Wrong

Then there are these questions: Who handles shipping, and what happens if delays occur? How are disruptions—like natural disasters or global events—factored into the agreement? And when does responsibility for the goods shift from the manufacturer to the client?

Example: An interior designer had a client that had their furniture stuck in a shipping port for six months due to a legal dispute in another country. Their agreement didn’t clarify responsibility for storage fees.

7. No One Wants to End Up in Court

If a dispute arises, does your agreement require mediation before litigation? Which country’s laws apply, and what are your rights if you need to walk away from the contract?

Example: We had a fashion client that came to us for help in terminating their agreement with a manufacturer. Fortunately, their contract allowed them to walk away with zero financial penalties.

Get the Legal Side Right From the Start

By now you will hopefully be getting the message that a manufacturing agreement is not just a piece of paper—it’s your insurance policy against production mishaps, unexpected costs, and intellectual property theft.

At Sharon Givoni Consulting, we help businesses draft clear agreements that minimise the chance of disputes.

Need a solid manufacturing agreement? Contact Sharon Givoni Consulting. “Legal Ease, Not Legalese”.™

Please note the above article is general in nature and does not constitute legal advice.

Please email us info@iplegal.com.au if you need legal advice about your brand or another legal matter in this area generally.