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A manufacturing agreement (productieovereenkomst) is a contract in which a manufacturer produces goods for a customer, usually to the customer’s specifications. Under Dutch law it is a sale (Article 7:1 Dutch Civil Code), a contract for work (aanneming van werk, Article 7:750) or both. Below you can download our free manufacturing agreement template (pdf): a model contract under Dutch law to use as a starting point.
This page explains which law applies, when the Vienna Sales Convention (CISG) applies, and which clauses a manufacturing agreement needs: specifications and delivery, defects, intellectual property, liability and product liability.
Where can I download a manufacturing agreement template under Dutch law?
The template above is a model manufacturing agreement governed by Dutch law. You can download it as a pdf free of charge. It is meant as a starting point and checklist for a contract between a customer (for example a brand owner) and a contract manufacturer. Adapt it to your product, volumes and supply chain. Check in particular the choice of law and the CISG, the liability clauses and the intellectual property clauses, which are explained below.
What is a manufacturing agreement under Dutch law?
A manufacturing agreement is used when a company outsources the production of goods to another company. Common variants are contract manufacturing (the manufacturer buys the materials and makes the product), toll manufacturing (the customer supplies the raw materials and the manufacturer processes them for a fee), design and manufacturing agreements (the manufacturer also designs the product) and manufacturing and supply agreements (production combined with long-term supply).
Dutch law has no separate statutory regime for manufacturing agreements. Which rules apply depends on how the contract qualifies, on whether the CISG applies and, above all, on what the parties have agreed. Many of the statutory rules on sale and on contracts for work can be set aside by contract, so a clear written agreement matters.
Is a manufacturing agreement a sale or a contract for work under Dutch law?
A sale (koop) is a contract in which one party undertakes to give a thing and the other party undertakes to pay a price in money for it (Article 7:1 DCC). That the goods do not yet exist when the contract is made is no obstacle: future goods can even be transferred in advance, unless they are registered goods (registergoederen) or it is prohibited to make them the subject of a contract (Article 3:97(1) DCC). A manufacturing agreement can therefore be a sale of goods still to be manufactured (koop van toekomstige zaken).
A contract for work (aanneming van werk) is a contract in which the contractor undertakes, other than under an employment contract, to make and deliver a work of a physical nature for a price in money (Article 7:750(1) DCC). A manufacturing agreement often meets both descriptions: the manufacturer makes a product and then delivers it. The rules for both types of contract then apply side by side, unless they are not compatible or the nature of the contract precludes their application (Article 6:215 DCC).
The qualification has practical consequences. Under the rules on sale, the buyer must notify a defect in time (Article 7:23 DCC). Under the rules on contracts for work, the contractor is released from liability for defects that the customer should reasonably have discovered at the time of delivery (oplevering) (Article 7:758(3) DCC). A claim for a defect becomes time-barred two years after the customer protested (later if the customer set a period for repair), and in any event ten years after delivery for works other than buildings (Article 7:761 DCC). Because these rules differ, the agreement itself should regulate specifications, acceptance, defects and liability.
When does the CISG apply to a manufacturing agreement?
The UN Convention on Contracts for the International Sale of Goods (CISG, in Dutch: Weens Koopverdrag) applies to sales of goods between parties whose places of business are in different states, if those states are Contracting States, or if the rules of private international law lead to the law of a Contracting State (Article 1(1) CISG). The Netherlands is a Contracting State. Contracts for the supply of goods to be manufactured or produced count as sales (Article 3(1) CISG).
The CISG does not apply:
- if the customer has to supply a substantial part of the materials necessary for the manufacture (Article 3(1) CISG), which is typical of toll manufacturing;
- if the preponderant part of the obligations of the party that supplies the goods consists of the supply of labour or other services (Article 3(2) CISG);
- to goods bought for personal, family or household use, unless the seller neither knew nor ought to have known this before or at the conclusion of the contract (Article 2(a) CISG);
- if both parties have their place of business in the Netherlands, because the convention requires places of business in different states (Article 1(1) CISG);
- if the parties exclude it (Article 6 CISG).
A choice of Dutch law does not by itself exclude the CISG, because the convention is part of Dutch law for international sales. If you want the Dutch Civil Code to apply instead, state expressly in the contract that the CISG is excluded.
Which clauses does a manufacturing agreement under Dutch law need?
1. Under which legal system does the contract fall?
Include an express choice of law and a clause on how disputes are resolved: a competent court or arbitration. If you choose Dutch law for an international contract, decide whether the CISG should apply or be excluded (see above). Without a choice, the applicable law follows from the rules of private international law, which may lead to a law you did not expect.
2. Protection of trade secrets
Information is protected as a trade secret under the Dutch Trade Secrets Protection Act (Wet bescherming bedrijfsgeheimen) only if it is secret, has commercial value because it is secret, and has been subject to reasonable steps to keep it secret (Article 1). A confidentiality clause in the manufacturing agreement is one of those steps. Also agree that the manufacturer returns or destroys drawings, formulas and data when the agreement ends.
3. Production and delivery
Define the product specifications, quality standards, forecasts and orders, delivery terms (for example an Incoterms rule), packaging and acceptance testing. Agree who owns the moulds and tooling, and when ownership and risk of the goods pass to the customer. Under the rules on sale, the goods delivered must conform to the contract; they must have the properties the buyer was entitled to expect on the basis of the contract (Article 7:17(1)-(2) DCC). Clear specifications determine what the customer may expect.
4. Intellectual property rights
Record who owns the intellectual property in designs, drawings, software, moulds and improvements made during the cooperation. Do not assume that paying for the development settles this. Under Dutch law, a contract to transfer copyright or to grant an exclusive licence must be made in writing, and the transfer itself requires a deed (Article 2(3) Dutch Copyright Act). The customer usually grants the manufacturer a licence to use its trademarks and designs for the production only. Licences may also be needed if third-party rights are involved.
5. Liability and cooperation with competitors
A manufacturer that fails to perform is liable for the resulting damage, unless the failure cannot be attributed to it (Article 6:74(1) DCC). As long as performance is not yet permanently impossible, the manufacturer must also be in default (verzuim) (Article 6:74(2)). Parties may limit or exclude liability, for example with a cap or an exclusion of consequential loss. Under Dutch law, a party cannot rely on such a clause to the extent that this would be unacceptable by standards of reasonableness and fairness (Article 6:248(2) DCC), and a clause that conflicts with public order or good morals is void (Article 3:40(1) DCC).
If the limitation is in general terms and conditions, it can be voidable as unreasonably onerous (Article 6:233(a) DCC). That rule does not apply between businesses that are not both established in the Netherlands: the rules on general terms and conditions (Articles 6:231 to 6:247) then do not apply, whatever law governs the contract (Article 6:247(2) DCC). What counts is the place of the head office or, if the contract is to be performed by another branch, that branch (Article 6:247(3)). If Dutch law applies, Articles 6:248(2) and 3:40 DCC remain the main tests.
Also define who is responsible for compliance with legal and regulatory requirements for the product, and whether the manufacturer may produce similar products for competitors. Exclusivity and non-compete clauses must comply with competition law.
6. Inspections and checks
Agree on audit rights at the manufacturer’s site, inspection of the goods on delivery and a procedure for complaints and returns. The statutory notice periods for defects, explained below, make a clear inspection procedure important.
What happens if the manufactured goods are defective?
Under the rules on sale, the buyer must notify the seller of a lack of conformity within a reasonable time (binnen bekwame tijd) after discovering it or after it should reasonably have discovered it (Article 7:23(1) DCC). If the goods lack a property that the seller said they had, or if the defect concerns facts the seller knew or should have known but did not disclose, the notice must be given within a reasonable time after actual discovery. Claims and defences based on the defect become time-barred two years after that notice, although the buyer can still invoke a price reduction or damages against a claim for payment of the price (Article 7:23(2)).
Under the CISG, the buyer must give notice within a reasonable time after discovering the defect or after it ought to have discovered it, specifying the nature of the lack of conformity. In any event the buyer loses its rights if it does not give notice within two years after the goods were actually handed over, unless this is inconsistent with a contractual guarantee period (Article 39 CISG).
In toll manufacturing the customer supplies the materials. Under the rules on sale, the buyer cannot rely on a defect caused by defects in or unsuitability of raw materials it supplied itself, unless the seller should have warned it (Article 7:17(5) DCC). Under the rules on contracts for work, the contractor must warn the customer of defects in materials, drawings or instructions supplied by the customer if it knew or should reasonably have known of them (Article 7:754(1) DCC). The consequences of such defects are for the customer’s account, unless the contractor breached that duty to warn or otherwise fell short in expertise or care (Article 7:760(2)-(3) DCC).
Who is liable for a defective product: the manufacturer or the brand owner?
Under Dutch product liability law, the producer is liable for damage caused by a defect in its product, unless one of the statutory defences applies (Article 6:185(1) DCC). A product is defective if it does not provide the safety one is entitled to expect (Article 6:186). The producer is the manufacturer of the finished product, of a raw material or of a component, and also anyone who presents itself as producer by putting its name or trademark on the product (Article 6:187(2)). A brand owner that sells contract-manufactured goods under its own brand can therefore be liable as a producer alongside the manufacturer. Anyone who imports the product into the European Economic Area in the course of its business to sell or otherwise supply it is also treated as producer (Article 6:187(3)).
This liability covers death and personal injury, and damage to other property that is normally intended for private use and was mainly used privately by the injured person, with a threshold of €500 (Article 6:190(1)). The claim becomes time-barred three years from the start of the day after the injured person became aware, or should have become aware, of the damage, the defect and the identity of the producer, and lapses ten years from the start of the day after the producer put the product into circulation (Article 6:191).
Towards the injured person, product liability cannot be excluded or limited (Article 6:192(1)). Between manufacturer and customer, the agreement can regulate who bears the cost in the end: recourse, indemnities, product recalls and insurance.
Frequently asked questions about manufacturing agreements under Dutch law
Where can I download a manufacturing agreement template (pdf)?
At the top of this page you can download our manufacturing agreement template under Dutch law as a pdf, free of charge. It is a model contract to use as a starting point. Adapt it to your product and supply chain, and check in particular the choice of law, the CISG, the liability clauses and the intellectual property clauses.
What is a contract manufacturing agreement under Dutch law?
It is a contract in which a manufacturer produces goods for a customer. Under Dutch law it is a sale (Article 7:1 DCC), a contract for work (Article 7:750 DCC) or both; in the last case the rules for both apply side by side, unless they are not compatible or their purport, given the nature of the contract, precludes their application (Article 6:215 DCC).
Does the CISG apply to a contract manufacturing agreement?
Often it does. Contracts for the supply of goods to be manufactured count as sales under the CISG (Article 3(1)), and the CISG applies between parties in different Contracting States (Article 1(1)(a)), also if Dutch law is chosen. It does not apply if the customer supplies a substantial part of the materials, if services predominate (Article 3) or if the parties exclude it (Article 6).
What is a toll manufacturing agreement?
In toll manufacturing, the customer supplies the raw materials and the manufacturer processes them for a fee. If the customer supplies a substantial part of the materials, the CISG does not apply (Article 3(1) CISG). Under Dutch law, defects in materials from the customer are in principle for the customer’s account, unless the manufacturer should have warned it or otherwise fell short in expertise or care (Articles 7:17(5), 7:754 and 7:760 DCC).
Can a manufacturer limit its liability under Dutch law?
Yes, by contract, within limits. A party cannot rely on a limitation clause to the extent that this would be unacceptable by standards of reasonableness and fairness (Article 6:248(2) DCC). The rules on general terms and conditions do not apply between businesses that are not both established in the Netherlands (Article 6:247(2) DCC). Product liability towards an injured person cannot be excluded or limited (Article 6:192(1) DCC).
Primary sources
- Dutch Civil Code (Burgerlijk Wetboek): Articles 3:40, 3:97, 6:74, 6:185, 6:186, 6:187, 6:190, 6:191, 6:192, 6:215, 6:233, 6:247, 6:248, 7:1, 7:17, 7:23, 7:750, 7:754, 7:758, 7:760 and 7:761
- UN Convention on Contracts for the International Sale of Goods (CISG): Articles 1, 2, 3, 6 and 39
- Dutch Copyright Act (Auteurswet): Article 2
- Dutch Trade Secrets Protection Act (Wet bescherming bedrijfsgeheimen): Article 1
How do we transform a standard agreement into a successful partnership?
As an attorney in the Netherlands, I regularly advise clients in drafting and negotiating manufacturing agreements under Dutch law. By applying legal terms to the structure of the partnership, a basic agreement can be transformed into a tool for successful negotiations.
This process often requires adjustments to arrive at an agreement acceptable to all parties.
The team at MAAK Advocaten specialises in this area. We offer our expertise in Dutch law to make your partnership successful. Experience tells us that a well-drafted agreement greatly reduces the likelihood of significant problems during the collaboration.
A well-drafted production agreement is the key to successful international trade. By carefully considering the above points, you can lay the foundation for a long-term and profitable relationship with your manufacturing partners.
