What is OEM Agreement Drafting?
An OEM (Original Equipment Manufacturer) agreement is a legal contract between two companies: one company constructs products or parts and the other company sells them under its own name.
It has to specify aspects of their working relationship and operations, such as who owns the products, product quality standards to meet, pricing terms, and more.
Since this working arrangement can affect brand reputation and product development, it needs to be written clearly.
Read the rest of this article to explore how to draft an OEM agreement and when you should consult a qualified lawyer for help with the process.
What Key Terms are in an OEM Agreement?
An OEM agreement usually contains core components, such as the following:
- Scope. Explain exactly what parts or products will be made. Include specifications, such as by providing exact part numbers.
- Orders. Provide information about how purchases are made, such as by setting minimum order quantities.
- Payments. Describe the unit costs and other payment terms to prevent disputes.
- Quality control. To maintain quality standards, the OEM agreement should outline how products or parts can be tested and inspected.
- Intellectual property (IP). State which party owns IP, such as background IP and products made during the agreement term.
- Licensing terms. If the product involves proprietary software or technology, the agreement must specify what license is required to use it.
- Defects. To navigate returns and defects, the agreement must specify processes to prevent delays or disputes.
- Liability and indemnification. The agreement needs to fairly allocate risk for issues such as product failures and third-party claims.
- Dispute resolution. To fairly resolve disagreements, the agreement should include a dispute-resolution method, such as going to mediation or arbitration.
What are Tips for Drafting an OEM Agreement?
Since an OEM agreement must be comprehensive and detailed, it’s important to cover all the important information parties require for smooth operations and to prevent serious legal disputes. Here are some things to consider.
Provide Product Specs
You should specify exactly what products or parts are being made during the agreement. Avoid any vague wording that can be open to misinterpretation. Include product dimensions, packaging requirements, and more. You could also attach approved samples or technical drawings.
Include Minimum Purchases
This should be included to protect the manufacturing company. It’s especially important if the agreement is exclusive. In this case, the manufacturer might commit to not producing for competitors, but could risk not receiving revenue if the company selling the products doesn’t perform.
Outline Supply Terms
The OEM agreement should specify various supply terms, such as delivery schedules and other logistics. It’s important to be as detailed as possible about all aspects of supply so that you create smooth business operations.
Establish Pricing and Payments
You should clarify what payment structure will be used for products, being careful to include payment schedules, acceptable payment methods, and how to navigate late or missed payments.
Include Confidentiality Provisions
Having a strong confidentiality clause is important to protect private information that’s shared between parties. It should define confidential information to avoid confusion and explain how parties must protect it.
Detail Quality Control
Measures for maintaining quality control must be clearly defined. Include inspection processes, such as the parties’ responsibilities for inspecting goods and how they can navigate the issue of defective products.
Avoid Generic Templates
Relying on a generic OEM agreement template might seem convenient but it’s risky because these templates usually lack details required for your specific industry, risks, and products. Hiring a lawyer to draft the agreement can help you to avoid costly litigation in future.
Do You Need to Hire a Lawyer for OEM Agreement Drafting?
Although you don’t always need to hire a lawyer to draft your OEM agreement, it’s advisable because these contracts can involve commercial and IP risks with significant legal or financial consequences.
A lawyer will help you during the drafting process by:
- Clearly identifying the parties and how the business relationship will run.
- Establishing all product specs and quality standards.
- Outlining pricing and payments, such as with purchase orders, payment deadlines, and price adjustments.
- Protecting IP, such as by clearly stating who owns trademarks and IP created under the agreement.
- Addressing confidentiality by including provisions to prevent either party from sharing confidential information such as business trade secrets.
- Properly and fairly allocating warranties and liability to prevent an unfair or one-sided arrangement.
- Explaining post-termination obligations. This includes describing what happens to outstanding orders after contract termination.
- Reviewing an OEM agreement you’ve drafted. A lawyer will ensure that all terms in the contract are clear, balanced, and legally valid.
Where to Find a Lawyer for OEM Agreement Drafting
If you need to hire a lawyer to draft an OEM agreement, you don’t have to take lots of time out of your schedule to find one in your location. Online legal platforms make it easy to connect with qualified, experienced lawyers.
ContractsCounsel is one of the largest online legal marketplaces that gives you access to a network of vetted lawyers. Since all lawyers on the platform have expertise and years of experience, they can assist you with drafting an OEM agreement.
Here are the steps to follow to ask a lawyer on the platform to draft an OEM agreement.
- Go to the ContractsCounsel marketplace.
- Post your project for free. Include a few details to help you find the most suitable lawyer, such as the types of products being manufactured.
- Wait for bids. You’ll receive multiple bids from lawyers on the platform who have the experience to help you.
- Review the lawyers’ profiles. You can go through lawyer data conveniently provided by the platform, such as the lawyers’ location, client ratings for previous projects, expertise, and credentials.
- Connect with a lawyer you think is best suited to your requirements and hire them to draft your OEM agreement for a flat fee.
