Natural Products Insider

MAY-JUN 2018

INSIDER is the leading information source for marketers, manufacturers and formulators of dietary supplements, healthy foods and cosmeceuticals. Since 1997, INSIDER has been serving the needs of the global nutrition industry.

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44 INSIDER May/June 2018 In the dietary supplement industry, many marketers/sellers outsource their manufacturing to a third party. These marketers, or "own-label distributors," may know little about how their dietary supplements are manufactured, or the regulatory environment involved in today's marketplace setting. FDA holds marketers/sellers of dietary supplements directly responsible for compliance with cGMPs (current good manufacturing practices), despite outsourcing the product manufacturing. Sellers/marketers/distributors need to establish their own internal quality systems, including, for example, having appropriate personnel and guidance documents— standard operating procedures (SOPs), which defi ne quality control (QC) responsibilities, product specifi cations, vendor qualifi cations and training. Creating a contract with a supplier becomes essential for compliance; it's a tool companies use to safeguard their resources. The Importance of Contracts Written contracts provide businesses (and individuals) with a legal, printed document stating the expectations of both parties and how to handle negative situations when they arise. They clarify the business relationship and the scope of work so no one party can claim any lack of understanding. Contracts also are legally enforceable in a court of law. Many people use the terms "contract" and "agreement" interchangeably, but they are not actually the same thing. All contracts are agreements, but not all agreements are contracts. An agreement that is enforceable by law is called a contract; agreements may be anything legal, illegal or unlawful between the parties, but a contract cannot be unlawful or illegal. The basic difference between contract and agreement is that the remedies for breach of contract and breach of an agreement are different. A contract starts when there is an offer and acceptance, whereas it is not necessary for an agreement to be started from offer and acceptance. For example, a gentlemen's agreement is not enforceable by law, whereas a contract can be enforceable by law. A contract must contain these elements: offer and acceptance, adequate and unconditional consideration, free consent, capacity, lawful object, certainty and intention of creating legal obligations; and the agreement should not be declared void. The contract may be oral or written. It is not illegal to enter into a contract that doesn't have these essential items. If an essential item is missing, however, the contract cannot be enforced by a court. What Types of Contracts Are There? Implied Contract—Where the actions of both parties indicate a mutual intent to enter into a contract. A written or verbal agreement is not necessary. An implied contract must have an unequivocal offer, an unequivocal acceptance, mutual intention to be bound and also consideration. Express Contract—Contracts that most people are familiar with; promises are communicated either orally or in written format. Bilateral Contract—A mutual agreement, in which each of the involved parties agrees to perform an act. Unilateral Contract—When a person accepts an offer by performing a specifi ed act. The types of contracts supplement brands typically use for contract manufacturing are either express or bilateral contracts. Examples include: Nondisclosure Agreement (NDA), Confi dentially Agreement (CA) or Confi dential Disclosure Agreement (CDA)—A contract creating a confi dential relationship between the parties to protect confi dential and proprietary information, or trade secrets. Manufacturing Agreements—A written agreement between a manufacturer and a client for the manufacture of goods and services. Manufacturing agreements can be complex and typically involve in-depth negotiations. Supply Chain Agreements (Supply Agreements)—A part of the process of procuring goods in manufacturing and retail industries. A supply chain consists of the entire infrastructure getting a product in the hands of a customer. Supply chain contracts ensure business continuity and cost control, and try to avoid critical threats posed by potential supply chain problems. Quality Agreements—Comprehensive, written documents that defi ne and establish the quality responsibilities each party has in following GMPs. Toll Manufacturing Agreements—In toll manufacturing, one company owns and provides raw materials (or semi-fi nished goods) to a third party, which provides the rest of the services (manufacturing). Licensing Agreements—Allows an intellectual property (IP) holder to make money on its invention or creation by allowing others to use it. The license agreement outlines terms such as the use of exclusivity, restrictions, logos, payment and reproduction. Many contracts may also include special types of provisions or clauses. Examples include confi dentiality, duration, duties and obligations, representations and warranties, insurance, indemnity (indemnifi cation) or limitation of liability, remedies, terminations, mergers, waivers, dispute resolutions, jurisdiction, force majeure (acts of God), IP ownership, modifi cations and more. Robin Koon is executive vice president at Best Formulations (, and has more than 35 years of pharmaceutical experience in clinical pharmacy, as a retail drug chain executive, in managed-care and in manufacturing. Contract Manufacturin g: Creating a Contract A Primer on Contract Manufacturing Contracts by Robin C. Koon "I have signed a lot of contracts in my time, and at some time, I probably knew what the contracts meant, but six months later everything had grown dim, and I could be certain of only two things, to wit: One, I didn't sign any contract; two, the contract means the opposite of what it says."—Mark Twain, American Author

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