Tolling and Private Labeling Production Arrangements Should Address:

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Formula ownership, process secrecy, joint customer and supplier confidentiality and other mutual confidentiality agreements.

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  • Who will purchase raw materials?
  • How will raw materials be sourced and from where, and for how much?
  • Who maintains vendor quality and delivery compliance records?
  • Do minimum raw material quantities purchased need to be set?
  • If partial bags, drums or shipments are needed, how much is bought, and who owns it?

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  • Who has final approval on raw materials used in formulation?
  • If substitutions are necessary, does the vendor have authority to make subsitutions?

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  • Which party will establish product manufacturing directions?
  • Will the producer be trained in desired methods or approve the producer’s established methods?
  • Sign off by both parties.

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These vary based on batch size, yield loss, batch labor, time in production, QC complexity, adjustments needed, and packaging complexity (especially packaging complexity!). Don’t overlook costs of warehousing and shipping.

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  • Can the job run on producer’s equipment as-is, or is hand-work required, especially in filling, labeling, packaging, palletizing and shipping?
  • Can it be run using normal equipment settings and configurations?
  • Can the producer easily re-set tolerances to the desired alternative?

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  • If new or heavily-modified equipment or process configuration is required, is there a joint purchase arrangement?
  • Who pays?
  • Who owns?
  • At what time does ownership change?
  • If it’s a joint purchase, what are the terms and amounts for payback or buyout?
  • What happens to payback or equipment upon termination of the Agreement?
  • Lump sum buyout?
  • Sell equipment to producer?
  • Sell to another?
  • Take back?

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  • Container type, material, size, lining; lid type; handles?
  • Label position and method of adhesion (glue or self-stick)?
  • Boxes, trays, wrapping?
  • Box loading and configuration?
  • Stickers or extra labels and location; bar codes?

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  • Shape, size, material and strength of pallet; weight per pallet?
  • Stacking pattern, wrapping, strapping, skid sheets or top cover?
  • Markings, labels or bar codes on palletized package?

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  • Weight, loading pattern, blocking and bracing?

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  • Who owns raw materials?
  • What about excess and overstocks?
  • Is shelf life an issue?
  • Who keeps track of use, what are the frequencies of inventory and delivery reports?
  • Delays in raw material delivery are which party’s issue?
  • What happens to work-in-process if the agreement is cancelled or modified?

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  • Who takes title to finished materials?
  • Who has ownership of excess and overstocks?
  • What about shelf life issues?
  • How are quantities to be held; what is the frequency of inventory reports?
  • Any special storage requirements (humidity, temperature, etc.)?

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  • Who trains whom in required test methods?
  • Who approves the batch?
  • Retains to which parties?
  • Copies of production reports and QC certifications to whom and on what frequency?

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  • Off-spec, overstock, out of business, project canceled, shelf-life surpassed.
  • Who takes responsibility for disposal or rework?
  • Aexcel may not manage HazWaste shipments for product disposal in cases of another party’s responsibility; this is prohibited by law.

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  • Lead-times and consequences or penalties for late deliveries?
  • Who arranges the shipments?
  • FOB where?
  • Who insures the shipments?
  • Who covers the DOT compliance?

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  • Timing of invoice (at ship, at make, etc.).
  • Raw materials may be on extended terms; labor charges are not.

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  • Direct communication to Aexcel, indirect, work from min-max inventories, or accumulated and submitted by which parties to this agreement?
  • Who Does Technical Service at the End User?
  • Length of Agreement and Requirements to Terminate:
  • Number of days, method of notification, person notified, etc.

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  • Shipments to where?
  • Re-sale to third party?
  • Producer take and use raw materials?
  • Hazardous waste issues are controlled by EPA.

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  • For those things out of the control of the other party.
  • Insurance certs?

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  • In what state?

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  • Who receives various required communications and notifications, and in what form?
  • MSDS and PDS control by whom?
  • Certificates of Analysis?
  • QC reports?

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  • Per gallon?
  • Per batch?
  • Labor only?
  • Materials only?
  • Cost-plus?
  • For each incremental step?

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  • Lab to follow batch making
  • Tech service
  • Troubleshooting
  • Periodic inventory
  • Test batches
  • Equipment re-set
  • Added set-up and clean-up
  • Inventory holding and management
  • In and out charges
  • Upfront investment reimbursement in the event of (either party’s) termination
  • Who gets paid for what by whom?
  • Does any 3rd party have to be made whole (i.e. raw material or equipment suppliers who have shipped or installed but not been paid) and by whom?
  • Earnest money on deposit or in escrow?