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    Manufacturing (Agreements)

 

  • Experience drafting, negotiating, managing, amending and litigating many types of domestic and international manufacturing agreements for small-scale (such as family-owned) to large-scale (such as Fortune 100 and 500) business-to-business (B2B) and business-to-consumer (B2C) legal entities, involving numerous types of items to be manufactured across numerous business sectors, such as aerospace, agriculture, beverages, bio-tech, building materials, chemicals, consumer products, engines, foods, forest products, furniture, gas, glass, health, heavy machinery, industrial machinery, life sciences, medical devices, metal fabrications, military machinery, military technologies, nutritional supplements, oil, oncology, paper products, pharmaceuticals, research & development (R&D), steel, transportation, technologies, vehicles, and the like.

 

  • Experience with numerous issues related to manufacturing agreements, such as: advertising; alternate dispute resolution (ADR); arbitration; bid protests; claims; compliance; customs; e-commerce; electronics; employment; environmental; export controls; franchising; government (Federal, state and local) contracts; immigration; import controls; intellectual property (IP); information technology (IT); joint ventures; labeling; labor; licensing; litigation; marketing; mediation; mergers, acquisitions and divestitures (M&A); outsourcing; partnerships; patents; procurement; real estate; regulatory change management; requests for bids (RFBs); requests for information (RFIs); requests for proposals (RFPs); requests for solicitations (RFSs); risk management; sourcing; supply chain; trade secrets; trademarks; and the like.

 

  • Compliance with specialized entities, guidelines, laws, regulations, rules and statutes, such as the Committee on Foreign Investment in the United States (CFIUS), Court of Federal Claims Defense Federal Acquisition Regulation (DFAR), Defense Federal Acquisition Regulation Supplement (DFARS), Federal Acquisition Regulations (FAR), Food and Drug Administration (FDA), Government Accountability Office (GAO), International Traffic in Arms Regulations (ITAR), Occupational Safety and Health Administration (OSHA), and the like.

 

  • In general, a manufacturing agreement is a complex contract between a customer legal entity (which desires to have some product fabricated, but may not necessarily have the facilities, resources and skill to perform such fabrication itself) and a manufacturer legal entity (which presumably has the manufacturing facilities, resources and skill to perform the fabrication of the particular product), in which the customer legal entity engages the manufacturer legal entity to manufacture some product controlled, designed, engineered or owned by the customer entity, to the specifications and in such quantities as the customer legal entity may require.

 

  • The agreement provisions relating to the product and production thereof are generally the most-detailed of those in the agreement, since they specify the physical description of the product itself and the workings thereof.

 

  • The manufacturing agreement must also include detailed provisions relating to cancellations, deliveries, logistics, material components (raw materials, excess inventories, obsolescent inventories and the like), ordering protocol, purchase orders, recalls, rescheduling, risk of loss and shipping.

 

  • In addition to the specific provisions unique to any particular manufacturing agreement the manufacturing agreement should also contain general provisions, such as: all the relevant definitions for important terms used in the agreement (in particular, for any IP technical terms that may be necessary to understand the use of the license being granted to the licensee); change in ownership; compliance with all applicable domestic and international laws; consequences of ; contact information for notices; contact information for the parties; data privacy; data security; detailed description of IP ownership and rights between the parties; disclaimer of damages (such as consequential, incidental, lost profits, special or the like); governing law; governing language; identification of the parties; indemnification; insurance; limitation of liability; independent contractor status statement; no assignment without prior consent; non-compete; non-disclosure; non-solicitation; order of precedence for attachments and exhibits; representations and warranties; term of the agreement; termination (whether for cause or without cause, and outlining all the predicate events of breach and default); UCC considerations; and the like.

 

  • One unique provision in a manufacturing agreement, particularly for electronics devices, is the "epidemic failure" provision (also called "catastrophic failures", "extended warranty" or "epidemic defects"), which has nothing to do with medical epidemics, but rather refers to a situation in which a particular part that has been installed as a component of millions of devices is defective due to some manufacturing defect in the process at the facility that produced such part (for example, if many manufacturers for different brands of smartphones used the same battery in their smartphones, which turned out to have a defect, causing the battery to explode or melt), thus rendering all the devices in which it was installed completely useless (and potentially life-threatening), and requires very particular liability-shifting and indemnification language to protect the customer legal entity from the liability for which the manufacturing legal entity should seek damages from whichever vendor that supplied that particular part.

 

  • Once the manufacturer legal entity has completed and packaged a certain number of the items to be manufactured, the manufacturing agreement may require either that the manufacturer legal entity ship such batch of completed items to the customer legal entity directly (for subsequent distribution by the customer legal entity itself, to the customer legal entity's approved distributor legal entities), or that the manufacturer legal entity ship such batch of completed items directly to one or more of the customer legal entity's distributors.

 

  • In order to ensure the consistency of quality for the products to be manufactured, the customer legal entity may provide the manufacturer legal entity with an approved vendor list (AVL) – also called an approved source list (ASL) – and then require the manufacturer legal entity to purchase specific items from specific vendors on such AVL or ASL.

 

  • Another method the customer legal entity may employ in order to control the quality of the final products to be manufactured, is to provide the manufacturer legal entity with a detailed bill of materials (BOM), in which each part that must be incorporated into the final product is specified in great detail, and the customer legal entity will require that the manufacturer legal entity must adhere strictly to all the requirements of such BOM.

 

  • An important selling point for manufacturing legal entities is to maintain internationally-recognized manufacturing certifications (which are incredibly expensive and personnel-intensive to maintain), such as the International Standards Organization (ISO) 13485 (for manufacturers of medical devices and pharmaceuticals), ISO 14001 (for environmental management systems), ISO 39001 (for road traffic safety management systems) and ISO 50001 (for energy management systems).

 

    Last updated 201021_1915

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