Legal Question in Business Law in South Carolina

Re: Manufacturing Contract

Hello,

This is a common concern of business owners in the same situation as yourself. There are a couple of ways you can protect yourself:

1) Do you have a patent over the product being manufactured? If not, you should talk to a patent attorney immediately about getting a patent.

2) You need a contract with the manufacturer that would govern the terms you specified. It is not unusual to ask for such protection when working with a manufacturer. Although I highly recommend getting an attorney to draft this for you, you can also draft the contract yourself by detailing the issues you addressed above. Make sure you include the following:

a) who defines what is a quality product? You will be most protected if you have an objective standard (this will depend on whether such standards exist for the product in question) or if you specify that you have the right to refuse any product that does not meet your standards of quality;

b) non-compete: You are licensing your design to them, and they have the right to use this license only to manufacture the product for you, not for themselves and not for any third-party, unless specifically authorized in writing by you;

c) not sure what your concerns are for cost control: if you have an agreement in place as to what they are charging you for the production of the product, it does not matter to you whether they make money producing your product or not. If your product is made with materials that fluctuate in price, and your price from them is dependent on that fluctuation, you should lock down the terms of the fluctuation, e.g., product will be produced at a price of x; but if the price of y increases, price of x will increase by z%. Price of y will be as indicated by [a third-party standard].

d) on-time delivery: Products will be delivered on the following schedule: xxxxx. Any failure to meet the production schedule will result in a decrease in price to the Buyer as follows: 10 days late, 10% reduction in price to Buyer; 20 days late, 20% reduction, etc.

3) As far as a ready-made contract, I am sure that they exist. Any existing producting or manufacturing contract could be altered to include your terms.

Of course, the above are just examples. How you define the terms of your agreement will depend on the nature of your product and how much a delay in delivery will damage your business.

As I said above, you can always draft a contract yourself, but you will be better protected if you have an attorney draft the document for you, one who knows the confines of contract law and how to draft an effective contract. It should not be very expensive, plus you guard yourself against the risk of drafting an unenforceable contract or drafting provisions that inadvertently benefit the other party. It could end up costing you more to enforce a poorly-drafted contract later than it would have to have an attorney draft it effectively the first time.

Hope that helps!

Diana