Entering a co-manufacturing partnership can be a powerful growth opportunity. It can open the door to bigger contracts, stronger brand relationships, and entry into new markets. But if your agreements overlook key legal and compliance requirements, you could find yourself exposed to costly risks such as regulatory fines, product recalls, halted production, and disputes that harm your reputation.
In her interview on the Better Batch Podcast, food law expert Lauren Handel explained why so many compliance problems in co-manufacturing arise from contracts that are either too vague or too one-sided.
This guide is designed to help co-manufacturers proactively protect themselves by building detailed, balanced agreements, implementing strong process controls, and using digital tools such as batch tracking software and electronic batch records to safeguard quality, traceability, and compliance.
Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or compliance advice. Always consult qualified professionals when drafting or reviewing co-manufacturing agreements.
Why Many Co-Manufacturing Contracts Put Co-Mans at Risk
Co-manufacturers often enter agreements written primarily to protect the brand. While this is understandable from the brand’s perspective, it can leave the manufacturer with hidden responsibilities and liabilities. Phrases such as “must meet food-grade standards” or “subject to quality testing” may seem straightforward, but without exact definitions, you could be blamed for issues outside your control.
Without clear, measurable obligations, you risk:
- Taking on testing, auditing, or certification tasks you never budgeted for.
- Paying the full cost of recalls even if the root cause was outside your facility.
- Losing process control due to changes made without your input or approval.
The best way to avoid these pitfalls is to define everything up front in the agreement and ensure the obligations are fair and achievable.
Protect Yourself with Clear, Measurable Standards
- Define Product Specifications Precisely
Avoid vague quality language that could be interpreted in different ways. Instead:
- Reference a detailed quality manual that specifies raw material grades (for example, CFR Title 21 food grades or USP/NF excipient grades), microbial thresholds, and physical parameters like pH range or viscosity.
- Ensure sensory criteria such as color and odor are documented with measurable standards.
- Store these specifications in a living document that is regularly updated, not in a static PDF appendix.
- Lock in Testing and Acceptance Criteria
Make sure the contract spells out exactly how testing will be handled:
- Who arranges and pays for testing.
- Which accredited labs are approved.
- Accepted test methods (such as AOAC or USP chapters).
- Minimum frequency for testing, such as every batch or weekly composite samples.
- Timelines for uploading results into your electronic batch record system, ideally within 24 hours.
- Control Change Management
Uncontrolled changes can erode traceability and increase liability. Protect yourself by requiring:
- Written requests for all changes to formulas, suppliers, or processes.
- Joint review by both brand and co-man quality teams.
- Digital approval within batch tracking software.
- Automatic updates to any referenced contract documents once a change is approved.
Share Risk When Traceability Breaks Down
Even a small gap in documentation can trigger serious consequences. A single mislabeled ingredient or missing certificate of analysis can result in quarantined goods, production delays, and frustrated customers. In high-stakes situations like recalls or regulatory investigations, the absence of clear contractual protections can leave the co-manufacturer absorbing most of the cost.
To prevent this, your agreement should:
- Require joint investigations so both parties share responsibility for uncovering the root cause. This includes granting access to production logs, supplier documentation, certificates of analysis, and relevant ERP exports.
- Establish tiered remedies that match the severity of the issue. Minor deviations might be resolved through rework at your expense, major nonconformities could require batch replacement, and health risk events may involve a joint recall with costs allocated according to documented responsibility.
- Define a shared-risk model for situations where both parties followed approved procedures and the problem originated with an approved third-party supplier. This promotes fairness and encourages transparency when unexpected failures occur.
By clearly defining how responsibility and costs will be handled, you reduce uncertainty, speed up corrective action, and protect both your financial stability and your relationship with the brand.
Embed GMP, FSMA, and Quality Standards in Writing
Digital tools such as ERP and batch tracking software can help you monitor, record, and manage compliance activities. However, they are only as effective as the contract that governs your work. If certain compliance tasks are not required in the agreement, you may find yourself doing extra work at your own expense, or worse, facing blame for a brand’s unmet requirements.
To ensure your systems protect you as well as the brand, make sure your agreement includes:
1. Detailed Environmental Monitoring Requirements
List the exact areas where samples must be taken, the frequency of sampling, and the microbiological limits that apply. For example, you may agree to take environmental swabs at specific production line points once per shift and require results to meet defined aerobic plate count thresholds. Having this in writing prevents disputes about whether testing was sufficient.
2. Calibration Schedules Tied to Contract Clauses
Specify the calibration intervals for all critical equipment such as scales, thermometers, and pH meters. The contract should state not only how often calibration occurs but also how the results are documented and stored. For instance, you might require all calibration certificates to be uploaded to the electronic batch record system within 24 hours. This avoids any ambiguity about responsibility for equipment accuracy.
3. Clear Assignment of FSMA Preventive Controls
Food Safety Modernization Act (FSMA) requirements can cover allergen control, sanitation schedules, hazard analyses, and supplier qualification. The contract should spell out which party is responsible for each preventive control step and how verification will occur. This could include having the brand approve your hazard analysis or agree on supplier audit schedules before production begins.
4. Deadlines for Digital Record Updates
Even if you have robust software, it is critical to set timelines for updating preventive control plans, verification logs, and other compliance records. The agreement might require that all updates be entered into the system within 48 hours of each production cycle. This ensures records are current, reduces risk during inspections, and provides both parties with real-time visibility into compliance status.
By embedding these specifics into your co-manufacturing agreement, you create a clear legal foundation that supports your digital tools. This way, your ERP and batch tracking software are not just data repositories, but active compliance partners backed by enforceable obligations.
Build a Paper Trail That Protects You
When an audit, inspection, or legal dispute happens, your documentation is your best defense. Regulators and brand partners expect proof of compliance, not just verbal assurances. A well-organized and secure record system can save you time, prevent disputes, and protect your business.
- Link Records to Contract Requirements
Every batch record, test log, calibration certificate, and change-control approval should directly reference the clauses in your agreement. This makes it easy to pull the right evidence when a question arises. - Store Records Securely
Use a document management or ERP system with access controls and audit trails. It should record who viewed or changed a file and when, ensuring a defensible chain of custody. - Automate Incident Reporting
Log issues such as missed sanitation checks or failed tests automatically. Each record should include date, time, operator ID, and corrective actions. - Define Retention Periods
Agree in writing on how long different records will be kept. For example, food manufacturing records are often kept for at least two years, pharmaceuticals for six or more. - Keep Files Audit-Ready
Organize records so they can be retrieved in minutes, not hours. Fast access shows professionalism and preparedness.
By creating a clear, secure, and searchable paper trail, you can quickly prove compliance, resolve disputes, and maintain trust with brand partners.
Why Trust Alone is Not a Risk Management Strategy
Having a good relationship with a brand partner is valuable. It helps open communication, makes collaboration smoother, and can even lead to more business opportunities. However, trust by itself cannot protect you when something goes wrong. A handshake agreement or verbal promise will not hold up against a regulatory notice, an insurance claim, or a contractual dispute.
Many co-manufacturers fall into the trap of relying too heavily on goodwill, especially when the brand is a long-time partner. The assumption is, “We’ve been working together for years, so we’ll work it out if a problem comes up.” Unfortunately, when there are tens or hundreds of thousands of dollars on the line – from a failed batch, a recall, or a supply chain disruption – even the best relationships can be strained.
Your agreement should include safeguards that protect you regardless of who is at fault or how strong the relationship feels. These include:
- Insurance and Indemnity Requirements:
Set minimum coverage levels for general liability, product liability, and recall insurance. Require proof of coverage and renewal notices. Indemnity clauses should be written to protect you even when the brand tries to limit its liability. This ensures there are financial resources to cover losses no matter which side caused the issue. - Intellectual Property and Trade-Secret Protection:
Your processes, supplier relationships, and any unique manufacturing techniques are assets. Contracts should state clearly who owns any new formulas, processes, or improvements developed during the partnership. Include confidentiality provisions that survive the end of the agreement for a set period, so your competitive advantage is protected. - Non-Compete or Minimum Volume Commitments:
If you are investing in specialized equipment or dedicating production capacity for a brand, you need protection. Non-compete clauses can prevent the brand from giving the exact same work to a direct competitor. Alternatively, minimum volume commitments guarantee a steady stream of work so your investment pays off.
Without these protections, you could find yourself covering the costs of a recall you did not cause, losing your process innovations to another facility, or watching a brand shift work to another manufacturer while you are left with unused capacity and sunk costs.
In short, trust should be the foundation of a strong co-manufacturing partnership — but contracts with enforceable protections should be the framework that keeps it standing when things go wrong.
Your ERP as the Compliance Backbone
Your ERP or batch tracking system should do more than manage day-to-day production. It should serve as a verifiable record of compliance that you can present to brand partners, auditors, or regulators at any time.
Look for systems that offer:
- Complete lot and batch traceability from raw material intake to finished product shipment. This ensures you can quickly identify and isolate affected batches during a recall or investigation.
- Integrated change-control workflows with electronic approvals so that any formula, process, or supplier changes are documented, authorized, and automatically reflected in related records.
- Real-time compliance dashboards that track sanitation status, calibration schedules, preventive control verifications, and supplier audits, allowing you to address issues before they escalate.
- Automated alerts for deviations that include full documentation of the event, responsible personnel, and corrective actions taken.
By using your ERP as a compliance control center rather than just an operational tool, you strengthen your ability to prove performance, defend your position in disputes, and maintain trust with brand partners.
Lessons from the Field: What Co-Mans Wish They Did Sooner
Conversations with experienced co-manufacturers reveal a few recurring regrets that often come with hard-learned lessons:
- Not auditing early enough. Delaying facility or document audits of brand requirements can allow small compliance gaps to grow into serious problems. Early audits help identify misalignments before they lead to rejected batches, costly rework, or strained relationships.
- Not formalizing change control. Relying on verbal agreements for process or formula changes often leads to misunderstandings about who owns the change or who is responsible for its results. Formal written approvals protect both parties and maintain traceability.
- Accepting opaque pricing structures. Agreeing to all-in pricing without clear breakdowns of raw material, labor, and overhead costs can result in disputes when prices change. Transparent pricing models reduce surprises and keep negotiations constructive.
Learning from these experiences can help you strengthen your agreements, avoid common pitfalls, and position your facility as a reliable, contract-ready partner.
Final Thoughts
By taking an active role in contract negotiations and compliance planning, you can protect your facility from costly disputes, strengthen your reputation as a reliable partner, and ensure smoother operations with every brand you work with.
For a deeper dive into these topics, including real-world examples and legal guidance, listen to our interview with Lauren Handel on the Better Batch Podcast.
Listen here: Better Batch Podcast – Lauren Handel Interview
About the Author
Alex Koves is the Vice President of Process Manufacturing at CAI Software. With over 20 years of leadership in the batch process industry, Alex has guided hundreds of manufacturers through digital transformations from fragmented, spreadsheet‑driven workflows to fully integrated ERP environments. His dual role gives him a unique vantage: he oversees Mar‑Kov’s product vision and delivery while shaping CAI’s broader manufacturing solutions strategy. Known for his collaborative approach, Alex partners closely with customer teams to ensure implementations deliver measurable gains in compliance, throughput, and cost control.
