OEM agreement review checklist

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OEM agreements are common across consumer goods, food, and cosmetics, yet parties often execute standard templates without evaluating practical realities. Contractual gaps can become apparent after problems arise: an unaddressed latent defect appears, a product labelling error triggers post-launch disputes, or the manufacturer produces a strikingly similar item for a competing brand.

Technical specifications and intellectual property boundaries

In a typical OEM structure, the ordering party provides the concept, specifications, and trademark, while the manufacturer produces the goods for sale under that brand. Commercial arrangements, however, take many forms. A manufacturer may follow rigid client specifications, adapt its own proprietary formulations or components, or engage in cooperative development. Where client specifications govern, review should focus on conformity, delivery schedules, and acceptance inspection. Where the manufacturer contributes proprietary technology, parties must carefully allocate the relevant IP rights and improvements, and set any restrictions on supplying competitors.

Order forecasting, price adjustments, and quality assurance

Minimum order commitments, rolling forecasts, and cancellation rules must specify when purchase orders become final, as well as liability for raw materials and tooling if demand drops. Long-term agreements should provide mechanisms to renegotiate unit prices when raw material or logistics costs spike, to help manage the resulting cost burden. Regarding quality, contracts should define inspection procedures, remedies for latent defects, and whether changing raw materials, facilities, or production methods requires prior written consent or simple notice.

Product recalls, non-compete terms, and contract exit

Recall provisions should establish prompt notice, root-cause investigation, cost allocation, and replacement supply, where speed is critical to mitigating liability. For intellectual property, buyer branding and designs must remain distinct from manufacturer formulas and know-how. Any restrictions barring the manufacturer from supplying competing brands should be limited by product, duration, and territory to keep the restriction workable. Its enforceability also requires a separate assessment under applicable law and the circumstances. Finally, termination clauses must clearly dispose of surplus stock, specialized molds, technical drawings, and confidential information.