Contract Manufacturing Review Checklist: A Practical Checklist

Document type: Checklist Practice area: Commercial — Supply Chain Jurisdiction: United States (federal and state) Last reviewed: 5 September 2026

Part 1 — Diligence before signing

Plant visited — the actual line, not the corporate office. Nonconforming material segregation, work instructions at stations, operator knowledge, general order.
Program manager, quality lead, and process engineer met — not just business development.
Their other customers: who else runs on this line, at what volume, and where would we sit in an allocation?
Their worst quality escape in three years, its cause, and what changed. (A manufacturer who cannot answer specifically does not learn from failures.)
Financials reviewed: statements, credit reports, payment behavior with sub-tiers, customer concentration, debt.
Sub-tier chain mapped two tiers down. Which components are single-sourced? Which regions carry forced labor exposure?
Registrations, certifications, and inspection history for the plant, in our regulatory category.
References taken from two current customers we chose.

Part 2 — Contract architecture

Master agreement expressly controls; purchase orders, acknowledgments, invoices, packing documents, and portal click-throughs are administrative only.
Additional or different terms in those documents expressly rejected, regardless of conduct — otherwise the battle of the forms can replace the negotiated liability terms with the Code's defaults.
Our own purchase order template, their acknowledgment form, and the supplier portal terms actually read by someone in legal.
Order of precedence set among master agreement, quality agreement, statements of work, and schedules.
Correct legal entities identified — which entity manufactures, which contracts, which invoices, which has assets. (A contract with a holding company is not enforceable where the tooling sits.)
Requirements or output commitments stated in numbers rather than left to construction.

Part 3 — Tooling

Tooling schedule as an exhibit: item, description, cost, who paid, location — with an obligation to update after acquisition or movement.
Title vests in the customer on payment, stated expressly.
Physical marking and segregation; inspection rights.
UNCONDITIONAL RELEASE: removal on notice, at any time, without regard to any dispute, with express waiver of any lien, setoff, retention, or possessory right including for unpaid amounts.
UCC financing statement filed covering tooling and customer-owned or consigned inventory.
Foreign-located tooling: local counsel confirms title and removal work under that country's law; export authorizations for moving it identified.

Part 4 — Capacity and forecasting

Capacity reserved in units per period, with a commitment to hold it available.
Failure-to-supply consequence stated — liquidated amount, cover right with recoverable difference, or price adjustment. Not "commercially reasonable efforts."
Forecast zones defined with dates and cancellation liability: firm (binding), committed (materials procured, customer liable), planning (non-binding).
Allocation in a shortage addressed — pro rata on trailing purchases at minimum; guaranteed minimum allocation if achievable.
Component shortages and obsolescence: who procures long-lead items, who holds inventory risk, consignment option, end-of-life notice, last-time-buy rights.
Our own commitment stated: minimum purchases and take-or-pay for materials procured on our forecast, with valuation and disposition process.

Part 5 — Quality agreement

Written alongside the commercial agreement, and read by a lawyer.
Specification ownership and change control.
Incoming inspection, in-process controls, final release criteria, with acceptance protocols identified by document number.
First article inspection and qualification protocol.
Who may release product, on what evidence.
Nonconforming material: identification, segregation, and disposition authority (use-as-is / rework / scrap).
Corrective and preventive action obligations with timelines.
Record retention by category, with periods and access.
Audit rights — routine, for-cause, unannounced — extending to sub-tiers.
Regulatory inspection notification: if a regulator observes something about our product, when do we learn of it?
Complaint and adverse event information flow.
Traceability sufficient to reconstruct any unit.
Conflicts with the commercial agreement resolved, not papered; order of precedence stated.

Part 6 — Change control

Customer-initiated changes: notice, cost and schedule impact, approval, effectivity, inventory disposition.
Manufacturer-initiated changes require prior written approval for: design, materials, process, sub-tier suppliers, manufacturing location, test methods, packaging.
Defined notice period and supporting data required.
Requalification obligation where we require it.
PLANT RELOCATION NAMED EXPRESSLY — otherwise it is treated as an internal operational decision and we learn afterwards.
Annual configuration audit: current build compared to the qualified configuration.

Part 7 — Pricing

Structure chosen deliberately: cost-plus (visibility, requires audit) or fixed price (certainty, invisible margin).
Component pass-through: which components, how cost is evidenced, and what happens when prices fall.
Annual productivity commitment on conversion cost.
Volume tiers with true-up; consequence if volume falls below the assumed tier.
Currency: which, who bears movement, renegotiation band.
Tariffs and duties expressly allocated.
Payment terms, early payment discounts, factoring, supply chain finance.
Cost audit rights where pricing is cost-based, with cost-shifting on material overstatement.
Annual reconciliation of invoiced pricing against the contractual mechanism. (Long relationships leak in the low single digits of spend.)

Part 8 — Warranty and liability

Ordinary warranty: conformance to specification, free of defects in material and workmanship, defined period, defined remedy.
EPIDEMIC FAILURE CLAUSE:
- Trigger — defect rate threshold, defined population and window, common root cause within the manufacturer's responsibility.
- Enhanced remedies — field action logistics, labor, replacement units, customer notification, recall administration contribution.
- Carved out of the general liability cap, or given a separate higher cap.
- Root cause and attribution process with a neutral technical expert, agreed timeline, and defined protocol.
General limitation of liability carve-outs: epidemic failure, indemnification, confidentiality, intellectual property, gross negligence and willful misconduct.
Super-cap for product-related liability considered.
Product liability: defense control, settlement authority, additional insured status on each other's policies.
Insurance limits, certificates delivered annually, notice on cancellation or material change.

Part 9 — Intellectual property and documentation

Customer owns designs, specifications, and product IP; manufacturer owns general manufacturing know-how — both stated.
Product-specific process technology owned by or perpetually licensed to the customer, with the right to sublicense to a replacement manufacturer; general know-how retained by the manufacturer. Examples given.
Improvement clauses claiming rights in our product struck from the manufacturer's template.
DOCUMENTATION DELIVERED QUARTERLY, NOT ON TERMINATION: device master record or equivalent, process instructions, test protocols and limits, tooling drawings, qualified sub-tier list with part numbers and specifications, bill of materials with approved manufacturer part numbers.
Delivery into a repository we control; ideally a condition of quarterly payment.

Part 10 — Supply chain compliance

Forced labor (19 U.S.C. § 1307): labor practices representation through the sub-tier chain; supply chain mapping and traceability documentation on request within a short defined period; audit rights reaching sub-tiers; right to reject a sub-tier; indemnity for detention and seizure costs.
Map built before a detention, not after.
Country of origin (19 U.S.C. § 1304): determination obligation, supporting documentation, indemnity. Origin is a legal determination, not a statement of where assembly occurred. Penalty exposure under 19 U.S.C. § 1592 understood.
Tariff classification: who decides, who bears error.
Product safety (15 U.S.C. § 2064): prompt escalation of field failure data, complaint data, and the manufacturer's own quality findings — with an internal process able to act inside the reporting timeline.
Restricted substances, conflict minerals diligence, sanctions screening of the supply chain, export classification of the product.

Part 11 — Supplier insolvency preparation

Warning signs monitored:

Slowing payments to sub-tiers; extended lead times without explanation; quality drift; key personnel departures; requests for accelerated payment or deposits; a sub-tier calling us directly about payment.

Protections in place before trouble:

Title, marking, schedule, and UCC filing — on a filing, 11 U.S.C. § 362 stays acts to obtain estate property, and our tooling will be characterized as estate property unless we can prove otherwise.
Documentation held by us (Part 9).
Qualified alternate for anything critical, even at zero volume.
Safety stock sized to the requalification timeline, not the ordinary lead time.
Direct relationships with critical sub-tier suppliers.
Restructuring counsel identified — 11 U.S.C. § 365 lets the debtor assume or reject, and the first two weeks decide it.

Part 12 — Exit and transition

Termination rights: for cause with cure; for convenience on notice (period negotiated); insolvency; change of control; repeated quality failure or failure to supply.
TRANSITION ASSISTANCE SURVIVES TERMINATION FOR ANY REASON, including termination by the manufacturer for our breach, subject only to payment.
Transition period defined (commonly 6–12 months): continued supply at current price, documentation transfer, personnel availability, requalification support, sub-tier introductions and consents.
Tooling release unconditional on termination.
Inventory: who buys finished goods, WIP, and raw materials, at what price formula, on what timeline. Defined now, because valuation later is optimistic.
Final quality and regulatory records delivered.
Survival clause covers confidentiality, indemnity, IP, audit, dispute resolution, and post-termination obligations.

Part 13 — Force majeure and disputes

Force majeure:

Modern events enumerated: epidemics and public health measures, government action including export/import restrictions and tariffs, cyber incidents, infrastructure failure, sub-tier supplier failure where it would itself qualify.
Increased cost expressly excluded — inability, not unprofitability.
Notice, information, and mitigation obligations with defined periods.
Allocation during the event specified.
Customer may source elsewhere during the event, free of exclusivity and minimums, and use the tooling.
Termination right if the event exceeds a defined period.

Disputes:

Escalation ladder: operational, program management, named executives, with defined periods.
Continued performance during disputes, with disputed amounts reserved rather than withheld.
Forum chosen for enforceability where the counterparty's assets are (9 U.S.C. § 2); injunctive relief carved out for tooling, confidentiality, and IP.
Neutral technical expert for attribution disputes, with appointing body named.
Evidence preservation: failed units, retained samples, process data, test records, traceability.
Adequate assurance demand available in the escalation playbook where grounds for insecurity are real.

Part 14 — Running the relationship

Quarterly business reviews with a real agenda: quality, on-time delivery, cost against mechanism, forecast accuracy, open corrective actions, capacity outlook, sub-tier risk.
Supplier scorecard with numbers, shared with the manufacturer.
Annual audits: quality, configuration against the qualified build, cost, supply chain documentation.
Contract calendar tracked: renewal and notice dates, insurance certificates, documentation deliveries, tooling schedule updates, price reconciliation.
Escalations made in writing, on the contractual ladder.
Dual sourcing decision made explicitly at program level and recorded — qualified-not-active, component split, geographic split, or design for alternates.

Part 15 — New product introduction

Development phases priced separately from production; pilot pricing distinguished from production pricing.
Qualification gate defined: what constitutes first article acceptance, by whom, against which drawing revision, and what happens on failure.
Yield ramp curve agreed, with scrap and rework cost sharing and a defined convergence point.
Design-for-manufacturability review as an obligation with a deadline; ownership and cost of resulting changes settled.
Tooling payment tranches tied to demonstrated capability; final payment contingent on first article acceptance.
Transition to production terms defined by date or milestone — so the program does not run for years on pilot terms with no capacity commitment.

Part 16 — Executing a transfer

Decided before announcing: site selected, qualification plan built, safety stock accumulated, documentation confirmed complete in our repository, schedule set.
Notice served; transition obligations invoked.
Tooling recovered under the unconditional release clause; physically inspected before it moves.
Inventory valued early under the contractual formula.
Requalification budgeted honestly, with an expected yield dip.
Supply gap modeled and mitigated — the cost nobody plans for.