Unlocking eSignature Lawfulness for Manufacturing and Supply Agreements in the United States

How to eSign a document: eSignature lawfulness for Manufacturing and Supply Agreement in United States

hi there everyone this is cleo boberg with ucsd extension's paralegal program and today i will be doing a presentation on manufacturing and supply agreements a manufacturing and supply agreement is a bilateral contract made between a manufacturer and another purchasing party for the production of a good it details the exact conditions of the production of that particular good how the purchases will be made and how the goods will be delivered these types of contracts form a fundamental basis for the efficient use of resources in an economy between manufacturing and a storefront kind of business you may be wondering how this kind of contract promotes that economic efficiency and what the benefits of it are it serves to incentivize both industry and business without either side of that being incentivized on the side of the supplier or the manufacturer it allows the supplier to make money from their existing manufacturing capabilities without having to expand into markets to be able to sell those goods it also builds confidence for that supplier that they'll actually be paid for their manufacturing services and it incentivizes investment and manufacturing capabilities without someone needing a further plan to have some kind of storefront or place of sale for that product from the viewpoint of the buyer it allows them to create a business with place of sale without first having to invest in manufacturing and it allows them to build up confidence that whenever they make an agreement with the manufacturer to make their product that they'll actually receive that product and have fair uh conditions for their payment it also mitigates the incentivizing factor of manufacturing investment and starting up a business with the set of factors from both sides of this from manufacturing and from a business perspective it absolutely mitigates decentralizing factors on both end which makes it a lot more easy for businesses to be able to start up there are 14 core sections of a manufacturing and supply agreement at least in regards to what will create the main structure of the contract i will be focusing on five of these throughout this presentation and mentioning the others as they relate to those as we go through the five i will be focusing on will be the definitions the product manufacturer the price and payment determination and exhibits because there are so many sections to a manufacturing and supply agreement and the length of them can vary greatly based on the context around the contract they can end up being quite lengthy even the bare bones manufacturing and supply agreement that i made for our fictional business faggon sparrow cafe and bakery llp ended up being about seven pages and it was very bare bones as i was going through drafting it the very first section that you will be coming across in a manufacturing and supply agreement is going to be the definitions this serves a very similar function to the caption and a pleading document or discovery document it identifies both parties the supplier and the buyer as well as their addresses it also goes over the effective date for the contract to take place and it establishes some language for the rest of the document you can see here where it has supplier and buyer put in parentheses that means that those words to the rest of the document are going to be referencing back to this section in the same way that you would have for establishing your definitions in a pleading document or discovery document also very critically this part of it up at the very top of the contract will establish which states laws this is going to be under an effect this is going to be something that's negotiated between the parties there isn't really diverse jurisdiction for contract law so instead the parties are going to be agreeing upon in their negotiations over the contract which state law the contract will take place under the next section is going to be the product manufacturer also called the supply of products here you can see that there are going to be defined which the products are and identifies them it can define the products manufacturing guidelines here and define how they should be packaged as well as any technical details it also includes whether it's going to be the kind of agreement where the buyer can place an additional purchase orders over the length of the term or whether this is just a one-time agreement for a certain number of products to be supplied and it also dictates whether the manufacturer is allowed to subcontract the production of those supplies now a lot of these technical details here can also be put in exhibit and for more complicated products it's usually much better to include them in an exhibit as opposed to in this section and then reference that exhibit in this section the reason for that is that having them in a separate exhibit allows it to be attached while the rest of the contract is still being worked out which means that the teams on either end for the manufacturer and for the buyer can be able to [Music] the teams that are actually working out the details of the product that the manufacturer is going to be producing for the buyer can go ahead and use their own expertise and have a much better idea of what the manufacturer's capabilities are and what the buyers needs are and be able to draft up much better technical manufacturing guidelines however in this case our products are relatively simple and i'm not an engineer so i wasn't going to be able to draft up a more detailed exhibit on my own to include so i elected to just include those details in the supply products which is also something that you can see in this kind of contract the next section that i'm going to be stopping on is going to be partly purchase orders and mostly price and payment i'm skipping over the manufacturing procedures and the term because they're relatively straightforward i believe after going over the supply of products the manufacturing procedures won't be as helpful for the purposes of this class and presentation and the term is relatively straightforward and mostly boilerplate outside of the negotiation between the two parties so for the purchase orders that's going to be where you determine whether this is a one-time agreement or the kind of contract where additional purchase orders can be placed for more supplies in the payment you're going to have what the prices per the unit costs are and the quantity to come in those units are dictated within the manufacturing guidelines it also is going to identify the procedures for the payment such as whether they're going to be any kinds of additional payment terms or whether they're going to be late payments allowed and if so what kind of additional interest charges there will be whether there is a discount for paying early how the shipping is going to be working and this contract i elected since it was one where we're going to be able to place in additional purchase orders with the manufacturer for the shipments i went ahead and have that linked per purchase order that way there's more flexibility and trying to negotiate whether we need supply more quickly or not and how the shipping is going to work there you'll also see in my example right here that you have a reference to something called an sow that is referring to a statement of a work it's basically just uh something attached as an exhibit that goes into more detail in the manufacturing and the scheduling of any shipments and those kinds of things had a lot more technical details in it because this contract was so simple and bare bones for this presentation the drafting a statement of work wasn't necessary and would be far above and beyond what's needed here the next section i'll be talking about is going to be termination this is one of the most important parts of the contract of these three sections here termination default and effective termination before i go into them i'm going to need to talk very briefly about the limitation of liability section all the limitation of liability section does is limit the liability of each party only to damages equal to the cost agreed upon for in this contract for the products so they can't claim any kind of punitive cost or any kind of additional damages for loss of sales outside of just the product now the termination is where additional damages might be able to come into play depending on what happens for the template that i used in drafting this particular example document the termination section is specifically about what will constitute a termination of the contract or how the parties can terminate the contract the effective termination down on number 13 goes into what it means when the contract is terminated which things go back to the original parties such as any kind of rights or licenses that were granted to the supplier to be able to make the product however one of the most critical parts of this section of the example here is the default defaulting is if either party fails to perform any of its obligations under the terms of the agreement then the agreement will go into default at which point the defaulting party the one that breached the contract will have 30 days uh to be noticed by the other party and in the event of a [Music] failure to cure the breach of the contract then the contract is going to go into default which then is going to open up and start a termination of the contract the default and the termination section are possibly the most important sections of this contract because they're the pieces that provide that mitigating factor to the risk that would be involved in this kind of contract if either party acts outside of this contract then all of the protections that the contract offers are then going to be avoided you're going to enter termination and so it sort of forms a it sort of acts as a cudgel to make sure that both parties fulfill the functions that they agreed to within the contract the last part of the manufacturing and supply agreement that i'll be going over in this presentation is going to be the exhibits these are a really vital inclusion in complicated manufacturing and supply agreements so the exhibits that are attached can be technical details of products manufacturing specifications they can be related to trademark material or intellectual property that's having to be licensed to the supplier they can be any of the pricing details any of the shipping details they can really detail anything that could be included in the contract including exhibits allows technical teams who specialize in those specific factors to be able to coordinate better to be able to draft a better document and allows for longer terms and more detailed terms for any section or part of the contract be detailed in some kind of document like in ssow without bogging down the rest of the document a long presentation summed up in two points here manufacturing and supply agreements promote specialization in business and manufacturing and reduce the risk involved in cooperation between manufacturing and self-focused fields they do this by mitigating factors to both unnecessary investment either in having some kind of storefront or place of sale or having manufacturing capabilities and also help mitigate risk which then helps with the efficient coordination of resources and capabilities throughout the economy thank you so much for listening to my presentation today it was a joy to be able to share this with you and i enjoyed both constructing this and learning about it greatly