This toll manufacturing (also referred to as ‘consignment manufacturing’) agreement template is typically used in an intercompany transaction between a principal and manufacturer, whereby the latter renders manufacturing services under the supervision of and in alignment with specifications of principal. The manufacturing services rendered by manufacturer may include, but are not limited to, day-to-day manufacturing operations and quality control.

The manufacturer does not undertake entrepreneurial activities which would result in risk-bearing or intangible asset development. The manufacturer often utilises production technology, product specifications, quality assurance and quality control procedures made available by the principal.

In terms of risks, the manufacturer will only assume limited risks. In particular, it does not assume any inventory, capacity, foreign exchange, bad debt and market risk.

This toll manufacturer agreement template is used to state the rights and responsibilities and to substantiate the at arm’s length character of the transaction between a typical principal and consignment manufacturer. Common terms in this agreement template inter alia cover the manufacturing services, specifications, service fee and payment terms, forecast and production schedules, quality control, insurance and termination.