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Elements of a Sound ContractElements of a Sound Contract

A contract manufacturing partnership starts with a well-crafted contract between brand owner and manufacturer, complete with product specifications, confidentiality agreements and a trial run.

Tim Bray

October 16, 2014

4 Min Read
Elements of a Sound Contract

The toughest sale is a contract manufacturer convincing a supplement brand to hand over its formulation to produce for distribution—it’s like asking to hand over a first-born child. Although the brand marketer knows this is necessary, there is some trepidation, notably for first timers. After all, it is the formulation that the brand marketer and team have sweated over, it pays the company's salaries, and many people's financial and employment security depend on its quality. And here is the much-needed, but sometimes feared, contract manufacturer trying to convince the brand that it can help the formulation stand the test of quality. This is ultimate trust.

A lot of trust goes into this type of partnership. But as with any partnership, it should be planned with a long-term, well-crafted contract.

Confidentiality Agreement

Trust is necessary because the formulation is proprietary. Throughout the contract manufacturing process, a brand needs to be assured that its contract manufacturer will not discuss or reveal the formula to other clients, nor will the manufacturer suggest to others how to tweak their formulations to resemble another’s.

Although a brand can get a boilerplate confidentiality agreement off of the Internet, it’s better to contract an attorney who is well-acquainted with this industry, and who can draw up a confidentiality agreement that safeguards the interests of both companies.

Handshake agreements no longer cut it. A formulation is the life blood of a supplement brand, and likewise, this agreement protects the contract manufacturer sharing its expertise. Cutting corners will cost in the end. A confidentiality agreement protects both parties.

Product Specifications

The contract manufacturer must know the specifics of the product to be produced, which helps the company assess whether it has the necessary expertise and the equipment to manufacture the product.

The product specification spells out all the particulars. The contract must specify particular ingredients to be used, including their suppliers. Other necessary product specifications in the contract include: Will it be kosher? Kosher for Passover? Halal? Gluten-free? In addition, the specification sheet will spell out which solvents could be used and which are verboten. Along with the ingredients, the contract should specify the label claim for each, expected overage and the intended shelf life for this product.

This information can then be reviewed and analyzed by the contract manufacturer for its input. The specification should be considered as a worksheet that can be amended based on the contract manufacturer's ability to meet those specs. The manufacturer’s technical staff should be part of the discussions on whether the chosen ingredients will withstand the processing temperatures, and whether there are suitable overages to ensure label claims through the requested shelf life.

Most importantly, legal responsibility should be discussed before the contract is signed. The legal responsibility, as has been proven in recent cases, rests not only upon the manufacturer, but also upon the supplement brand.

Product Support

The customer of the contract manufacturer should have access to the manufacturing facility in order to audit and ensure proper GMPs (good manufacturing practices) are in place. Also, the customer should have access to quality control (QC) and quality assurance (QA) of the contract manufacturer in order to ensure that documents and analytical support are in place. The customer might not have access to the finished batch record for their files, but this batch record should be available for review during audits. Again, this should be spelled out in the contract.

Analytical Support

The agreement needs to include which company will be responsible for ensuring the finished product meets the specification. Normally, the contract manufacturer will have the necessary testing equipment in house to guarantee compliance with the written specification. If outside analytical support is needed, it should be included in the product specification and, preferably, it should be an analytical house approved by both parties.

The certificate of analysis (CoA) given upon completion of the production run should include product requirements, actual analytical results and testing used. The product CoA should also list both pathogen-free results and any indicators spelled out in the product specification. Finally, the CoA should be signed by the head of the contract manufacturer’s QA group.

Trial Run

Cost and delivery terms should also be specified in the agreement, but for the peace of mind of both companies, a trial manufacturing run should be performed to confirm the ability to meet both the cost and delivery terms. It is well worth the cost involved to schedule an initial production run on the equipment that is designated in the specification

Contract manufacturing is a long-term relationship. Price is important, but not as important as the energy, time and professional expertise required for turning a formula on paper to an actual bottled product with contents safe for human consumption.

If a contract has to be terminated, it is usually due to a lack of care taken to write and review a workable contract at the beginning of the partnership.

There is an old Vermont saying: “The sweet scent of pennies saved is far outweighed by the bitter taste of dollars wasted."

For more information on choosing the right contract manufacturer and maintaining a solid partnership, check out INSIDER’s Contract Manufacturing Content Library.

Tim Bray is vice president of Pharmachem Laboratories Inc.

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