The copacking contract

The contract matters more in co-packing than in most supply relationships, because you are handing over the thing your business is.

What the agreement has to settle

Minimum run size and lead time. Price, and what moves it. Who buys the raw material and the packaging. Whose specification governs. Who holds the inventory and who carries the risk while they do. And what the yield assumption is, because the difference between your yield and theirs is somebody's money.

Who owns the formula

State it explicitly. You developed it; the agreement should say you own it, that they hold it in confidence, that they will not make it for anybody else, and that it comes back to you on termination.

Also settle what happens to a formula they helped improve, because a co-packer offering product development is offering something with an ownership question attached.

Quality and rejection

Define what acceptable means in numbers rather than adjectives: fill weight tolerance, grind screen, blend uniformity, and the incoming material specification including cleanliness certification and treatment method.

Then define what happens when a batch misses. Who pays for the material, the packaging and the run. Without that clause a failed batch becomes a negotiation at the worst possible moment.

Retain the right to a sample from every batch, and keep them the way you would keep your own.

Exit

Notice period on both sides, and what happens to your material, your packaging and your finished stock sitting in their building when the relationship ends.

That last one is the clause people skip and the one that hurts. A co-packer holding a quarter's worth of your jars and your labels has considerable leverage in any disagreement, and the time to address that is before the first run rather than during the last.

References