Reviewing your Manufacturing Contracts: Why Now is the Ideal Time

With the price of almost every commodity threatening to spiral out of control, there has probably never been a better time to take a step back and review your manufacturing contracts while preparing for the year to come.

2022 is likely to prove one of the most challenging years ever faced by the manufacturing industry. The pandemic has taken its toll on many brand owner/contract manufacturer relationships, from causing production slowdowns to lost manpower, and now with the price of materials and transport skyrocketing, it is more important than ever to have a clear understanding of the legal obligations on both sides of a manufacturing contract.

How to conduct an effective Annual Product Review

Now is a good time to organise your annual reviews to ensure that any difficulties faced this year won’t raise their head again next year.

The annual product review can be broken down into three distinct stages: product review, process review and quality review.

Product review – You should ensure to keep a sample of every batch made during the production year to see if there has been any divergence from the originally agreed specification.

Process review – Reviewing the master manufacturing record (MMR) and batch production records (BPRs) from the past year’s production will give you an insight into the quality and operations involved in the production process. For instance, it will be apparent from inspecting the MMR if your manufacturer has had a mid-year switch of supplier which could ultimately affect the quality of your product.

Quality review – A quality review gives rise to ensure that all of your manufacturers’ certifications are up-to-date, inspections have been documented, and policies and procedures are in place to ensure the product is produced in a clean, safe environment.

It is critical to ensure that any manufacturing contract you enter into allows for the above reviews to be carried out on (at least) an annual basis.

Options that should be included within your Manufacturing Contracts

From a legal perspective, you’ll also want to make sure that your manufacturing contract provides you with several options upon the completion of an annual review. An example of some of those options could be:

• Can you to opt out of the agreement?
• Is a pricing discussion warranted?
• Can you increase order quantities?
• Are you looking to develop new products and/or line extensions on similar terms?
• Are delivery commitments being met? Do they need to be redefined?
• Is the contract manufacturer looking to bring in new suppliers in the coming year? Do you have any say over this?

In order to ensure that you are receiving sufficient value for money and quality assurance from your manufacturing contracts, it is important to carefully review these contracts and raise queries with your suppliers. If you would like some advice on negotiating your manufacturing contracts please feel free to contact Jonathan Braden at j.braden@cfrlaw.co.uk.

Find out more about Cleaver Fulton Rankin’s Manufacturing legal services here.

This article has been produced for general information purposes and further advice should be sought from a professional advisor.