Setting Up a New Manufacturing Relationship in the United States

For a manufacturing relationship in the US, you typically need: (1) a Manufacturing Agreement that outlines production terms, quality standards, and delivery schedules; (2) a Non-Disclosure Agreement to protect confidential information; (3) a Quality Agreement specifying quality control procedures; (4) a Supply Agreement if you're providing materials; and (5) potentially a Licensing Agreement if intellectual property is involved. Having these documents professionally drafted by an attorney familiar with manufacturing law is highly recommended.

Protect your intellectual property by: (1) filing for appropriate patents, trademarks, or copyrights before disclosing designs; (2) using robust confidentiality provisions in your agreements; (3) including clear ownership clauses for any IP created during the relationship; (4) limiting access to your proprietary information; (5) implementing specific marking requirements for confidential materials; and (6) including non-compete clauses where legally enforceable. Consider consulting with an IP attorney to develop a comprehensive protection strategy.

Key liability issues include: (1) product liability (who's responsible if products cause harm); (2) warranties and representations about product quality; (3) indemnification provisions; (4) limitation of liability clauses capping potential damages; (5) insurance requirements; (6) compliance with regulations and standards; and (7) force majeure provisions for unforeseeable circumstances. These provisions should be carefully negotiated and drafted to appropriately allocate risk between parties.

US manufacturing regulatory compliance varies by industry but generally includes: (1) OSHA workplace safety regulations; (2) EPA environmental regulations; (3) industry-specific regulations (FDA for food/medical, CPSC for consumer products, etc.); (4) state and local permits/licenses; (5) labor and employment laws; (6) import/export regulations if using international components; and (7) tax compliance. Consider conducting a regulatory audit specific to your industry and engaging compliance specialists.

Effective payment terms should include: (1) clear pricing structure (fixed, variable, or hybrid); (2) payment timing (advance deposits, milestone payments, or net terms); (3) currency and payment methods; (4) price adjustment mechanisms for material cost changes; (5) volume discount structures if applicable; (6) late payment consequences and interest; and (7) dispute resolution procedures for payment disagreements. Balance your cash flow needs with maintaining a positive supplier relationship.

Robust quality control provisions should specify: (1) detailed product specifications and tolerances; (2) testing methodologies and frequency; (3) inspection rights and procedures; (4) acceptance/rejection criteria; (5) remedies for quality failures; (6) continuous improvement expectations; (7) documentation requirements; and (8) compliance with industry standards or certifications. Consider creating a separate Quality Agreement that can be updated without amending the main contract.

Your agreement should include termination provisions covering: (1) termination for cause (material breach, insolvency, etc.); (2) termination for convenience with appropriate notice periods; (3) wind-down procedures; (4) handling of work-in-progress and inventory; (5) return of confidential information and tooling; (6) transition assistance requirements; and (7) survival of certain provisions post-termination. Having clear exit strategies prevents costly disputes if the relationship needs to end.

Yes, requiring insurance is essential. Your agreement should specify: (1) types of required coverage (general liability, product liability, property, workers' compensation, etc.); (2) minimum coverage amounts; (3) rating requirements for insurers; (4) naming your company as an additional insured; (5) certificate of insurance requirements; (6) notice requirements for policy changes; and (7) consequences for non-compliance. Insurance requirements protect both parties from potentially catastrophic losses.

Protect against customer poaching by: (1) including non-solicitation provisions prohibiting direct sales to your customers; (2) clearly defining confidential information to include customer lists and information; (3) limiting the manufacturer's knowledge of end customers where possible; (4) including non-compete provisions where enforceable (note that enforceability varies by state); (5) implementing contractual penalties for violations; and (6) maintaining regular communication with your customers to strengthen relationships.