What is an OEM agreement? An OEM agreement – original equipment manufacturer agreement is an agreement between the original equipment supplier of a product and a company that buys its products either to resell it under its own brand name or use it as a different product. As there are two parties involved, this is a bipartite agreement.
Such agreements are common where there a well-known brand which outsources the spare parts used in their product to different manufacturers. These spare parts are then assembled together at the production units under the brand’s own name. OEM agreements are made between printer manufacturers and the cartridge suppliers, who are the OEMs(Original Equipment Manufacturer). The cartridges are sold under the brand name of the printing company and used in the printer.
When do you Need an OEM Agreement
An OEM agreement is required when a company wants to provide the contract to supply spare parts to another company. The company supplying the parts is known as the OEM or original equipment manufacturer. The purpose of an OEM contract is to lay down the terms and conditions under which the OEM supplier will supply the spare parts to the buyer.
There are two parties involved, so this is known as a bipartite agreement. The company which manufactures the final product does not manufacture the spares and the OEM manufacturer is provided the specifications and quality parameters which are required by the company. The agreement ensures that both parties agree to the terms and conditions mentioned in the agreement.
Inclusions in OEM Agreement
The original equipment manufacturer agreement is a bipartite agreement between the OEM manufacturer and the buyer; hence, it is important that both their names are included in the agreement. The agreement should also include the effective date of the agreement, the product being supplied, the quality specifications of the product, the quantity of products required for a given period, the delivery details, the payment schedule, the applicable price for the product.
The warranties being provided by the OEM manufacturer should also be clearly stated. The background of the supplier should also be mentioned, including the number of years of experience. The events which lead to termination of the contract are also clearly stated. Limitation of liability for both parties needs to be clearly mentioned as well.
How to Draft an OEM Agreement
While drafting an original equipment manufacturer agreement, it is important to incorporate the following points:
- The names of the parties to the agreement and their relationship need to be mentioned clearly in the agreement
- The duration of the agreement and terms of extension, if any, also need to be stated
- The details of the supply of components including quantity and quality parameters need to be mentioned
- The after-sales maintenance details also need to be mentioned
- The payment schedule, including lump sum or installments, should be mentioned
- The shipment details of the spares by the OEM need to be clearly specified including the risk of loss
- The events which lead to termination of this agreement need to be stated specifically
- The laws of the state under whose jurisdiction the agreement is being prepared
- Product warranties provided by the OEM manufacturer must be given in details
Benefits of OEM Agreement
The benefits of having an original equipment manufacturer agreement are stated below:
- The rights of both the OEM manufacturer and the buyer are protected. The OEM manufacturer is assured of a captive market for their products, and the buyer is assured of quality spares at the right price
- There is no dispute regarding the price of the product as both the manufacturer and supplier have mutually agreed to the price
- If the supplier finds that the quality of the manufacturer is not meeting their standards, the agreement can be terminated
- If there are any changes in the quality parameters, then the buyer can ensure that the supplier provides spares according to the revised requirements
Key Terms in OEM Agreement
The key terms in an OEM contract are:
- Appointment, basic rights and obligations: This section would contain the appointment of the OEM manufacturer as the authorized reseller. Information about product branding authorizing the buyer to promote, market and sell products will also be mentioned here.
- Purchase orders, forecast and delivery intervals: The purchase order will have all details like identification of product being purchased, destination and shipping date.
- Delivery, shipment, title and risk of loss: The title passes to the buyer on delivery at the FCA point
- Pricing, payment, acceptance: The supplier’s price shall remain fixed for the duration of the agreement. Any testing required by the supplier needs to be provided.
- Warranties and remedies: The supplier have to state that he has all the rights and licenses to the product. They have to declare it to the best of their knowledge that they have not violated any patent, trademark or copyright.
Types of an OEM Agreement
The types of original equipment manufacturer agreement are as follows:
- Distributor agreement: They work with the distributors. Distributors buy products from OEM and sell them to different customers, providing them with technical support as well
- Partner agreement: Under partner agreement, OEM manufacturers offer companies third-party personalized services.
- Purchase agreement: Under purchase agreement, the OEM manufacturer supplies products to a buyer, who then brands the product under their name and sells it in the market
- Reciprocal license agreement: This is an agreement made between the licensor and the licensee with regard to a master agreement concerning the software.
If a manufacturer of a product wants to source spare parts, then an OEM contract is important.
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Sample OEM Agreement
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