Businesses are becoming more sophisticated as new developments in technology take companies further into the 21st century. Yet shockingly, many of these very sophisticated companies still conduct business without a formal written contract with their partners, instead operating by the proverbial “handshake agreement” and a patchwork of purchase orders, emails and other communications.
The lack of a formal, written contract often leads to divergent views as to what the parties really intended when they first initiated the relationship. Without something in writing that memorializes the intentions of the parties, companies may be forced to expend large amounts of time and money to sort things out.
Companies in the food and beverage industries are no exception. A well-written contract between business partners for the manufacture, supply and distribution of food and beverage products will help brands alleviate uncertainties and clarify the responsibilities of the parties.
Failure to define key terms can often be the genesis of disputes that lead to litigation over contracts. Important aspects of the business transacted between the parties must be clearly addressed and, in many instances, specifically defined to reduce any possibilities of confusion.
Identification of the responsibilities and obligations undertaken by each party must be unambiguous, so the full benefits and obligations of the agreement are understood for each party. Identifying and resolving as many of the key issues and questions beforehand as possible will help to alleviate any future disagreements.
Many food companies discount the importance of protecting intellectual property (IP) in an agreement because they may not have a large patent or trademark portfolio or proprietary recipes. This is a mistake. Intellectual property can encompass a large array of confidential information like pricing, client lists or specifications—anything that could be damaging if it got into the hands of a competitor.
An increasing number of companies have separate contracts addressing the obligations of the respective parties pertaining to quality assurance—often called a “Quality Agreement.” If no separate agreement is prepared, every contract manufacturing contract should have a robust quality assurance section.
Learn more about central considerations for drafting a top-notch contract in INSIDER’s Copacking Digital Magazine.
Justin J. Prochnow and Michael R. Goodman are attorneys in the Denver office of the international law firm of Greenberg Traurig LLP. Their practices concentrate on legal issues affecting the food and beverage, dietary supplement and cosmetic industries. They can be reached at (303) 572-6500 or firstname.lastname@example.org and email@example.com.