What is in a Co-Packing Agreement?

A co-packer is one of your first and most important steps in scaling your food business. As a growing enterprise, you’ll need help in manufacturing, packing, warehousing, and logistics. By investing in co-packers—also called contract packagers—you won’t need to pay separate fees. Co-packers will handle duties such as ingredient- and material-sourcing, production facilities, and more.

As with any business partnership, hiring individual contractors needs a co-packing agreement. This comprises conditions mutually agreed upon by both entities.

No rules are set in stone for what should go in a co-packing agreement. Your mileage may vary in services and terms and conditions. However, you need to ensure that your arrangement still includes basic legal mandates.

What is a Co-Packing Agreement?

A co-packing agreement will be the backbone of your partnership. Without an arrangement that both parties agree on, there will be no clarity on your rights, responsibilities, or obligations. With a good co-packing agreement, there will be no doubts about ownership, scope, and potential issues on acquisition.No party should be able to execute major decisions without prior written consent. With a manufacturing partnership, this comes as a co-packing contract.

Key Elements of a Co-Packing Contract

Despite each arrangement’s unique positions, co-packing agreements need to discuss universal conventions. This includes terms and conditions specific to the manufacturing procedure and matters on the partnership itself.

Provisions Specific to a Co-Packing Agreement

Independent contractors have a unique role in your business. You need to entrust them with information typically kept confidential. This responsibility comes with some legal mandates. Here are the things that your co-packing contract should cover.

Services Offered

Most times, you won’t need a co-packer’s entire list of services. Protect each other by setting the scope of work and limitations on responsibilities. Be crystal-clear in tackling only the solutions you’re interested in. This helps you avoid overstepping boundaries or each party’s line of duty.

Product Formulas

A co-packer’s line of work requires knowledge of trade secrets and internal procedures. This would include recipes and product formulas. Since these are top-secret to the public, ensure that your contract includes a non-disclosure agreement (NDA). Once signed, your contract packager has sworn information to secrecy.

Ownership and Intellectual Property Rights

You’ve given your go signal to your co-packing partner. Now you need to protect your business further through proprietary rights. Legally, the party that holds the intellectual property rights of a product maintains its full ownership.

That means that your business, as the marketer of goods, still owns rights despite the joint production process. Any alterations to the contract regarding proprietorship fall under your scope of responsibilities.

Suppliers of Ingredients and Raw Materials

Sourcing ingredients and materials will be out of your hands once you sign with a co-packer. But, with an ingredient issue, a claimant might still hold your company liable. To avoid these potential problems, make sure that the manufacturer enlists only trusted and legitimate suppliers. This way, you can prevent more drawbacks in production.

Food Safety and Quality Control

Food is a more high-risk product than other marketed goods because of safety requirements. Your co-packer agreement should maintain your involvement in the complete process. This means you may audit, inspect, and oversee the process from time to time. You should have access to the production facilities, as well as documentation on the finished products.

Quality assurance (QA) is another aspect. You need efficient QA professionals that perform comprehensive reviews on the products. QA is typically sent finished goods from the facility. If they meet all the criteria of product specifications, the goods are ready to be released for the next logistical steps.

Liability Insurance

It’s impossible to have a perfect setup in co-packing arrangements. That’s why you should reserve the right for product recall, should anything go amiss with the goods. A product recall is a process in which your goods are returned to the co-packer in the case it does not meet QA standards. Note that insurance for product recall is not always a part of liability proceedings. Before signing on board, ensure that it is covered in your co-packing agreement.

Aside from liability insurance, you should also have each party sign the “vendor agreement.” These ensure proper manufacturing and delivery of goods on the co-packer’s side. You might also be required to co-sign a hold harmless clause, which releases one or both parties from liabilities from damage.

General Legal Provisions

The following parts of a co-packing agreement apply to all contracts. As such, they should be included when you negotiate with independent contractors.

Applicable Laws from the Area

The United States has a diverse set of laws, sometimes specific to a state or area. Contracts should align in accordance with the laws of the agreement’s location. This means you and your co-packer need to comply with all applicable legal conventions in the area.

Sometimes, the laws in the location in which the business operates are not applicable to the agreement. In more common cases, your business and the contract packager may be located in different states. As long as the location is mutually agreed upon by both parties, you can move forward with the agreement.

Code of Conduct

This section sets the standard of ethical considerations. Both parties should strive to steer clear of practices that can actively bring harm. Follow local and international policies concerning fair compensation, anti-discrimination, anti-corruption, and the like. 

You also need to mind if employees’ health and safety are at the forefront. Finally, be mindful of environmental factors, especially with operations that involve gaining resources and facilitating production.

Term of Contract

The co-packing contract should have clear dates regarding the effectiveness of the arrangement. The term of this agreement can vary from months to years, according to the packages availed or overall performance. If the service standards are up to par, the contract may include a renewal clause.

Early termination is also a possibility, however unfavorable. Your co-packing agreement needs to state which party—or parties—can end the agreement before the term finishes. It should clarify what mandates such termination. Reasons may vary from unsatisfactory or inadequate performance, failure to pay fees, or other miscellaneous disputes.

The termination clause also needs to specify how much time the concerned party has before they can sever the partnership. It could be any time during the service period or even days prior to the end of the term.

The Benefits of Having a Co-Packing Contract

A co-packing agreement provides protection for all involved parties. It helps you set a reasonable scope of work, avoid and resolve disputes, and protect intellectual property, among others. A contract can also be a tool for auditing and ensuring professional practice.

The food industry poses several unique risks, and a co-packing agreement helps you keep away from them. It can also absolve either party of liability if a complex situation arises. Finally, it helps you maintain good working relationships—which is essential to the success of any business.

Find the Right Co-Packer for Your Food Business

Not all co-packers will make a brilliant match, especially if you have specific needs for sourcing and packaging. Review all your choices of contract manufacturers before signing a co-packing agreement.

Want to get started? At SunLeaf, we offer diverse and effective solutions for your business needs. This ranges from ingredient-sourcing, warehousing, logistics, and more. Reach out to us—we’re looking forward to seeing how we can help.