How to Create an OEM Agreement: Step-by-Step Guide


An Original Equipment Manufacturer (OEM) Agreement is a contract between a manufacturer and a company that purchases and integrates their products into their own solutions before selling to end customers. These agreements are vital in various industries, including technology, automotive, and consumer electronics. Creating an OEM Agreement involves several critical steps and detailed clauses to ensure a clear understanding between the parties and protect their interests.

Steps to Create an OEM Agreement

Steps to Create an OEM Agreement

1. Identify the Parties

The agreement should clearly identify the manufacturer (OEM) and the buyer (reseller or integrator). This section includes the legal names and addresses of both parties. Proper identification ensures legal clarity and accountability.

2. Define the Scope of Products and Services

Specify the products and services that the OEM will provide. This includes detailed descriptions, specifications, and any accompanying services such as installation or support. Clear definitions prevent misunderstandings and set expectations.

3. Outline the Terms of Supply

Detail the terms under which the OEM will supply the products, including delivery schedules, quantities, and logistics. This section may also cover lead times, packaging, and transportation responsibilities. Proper terms of supply ensure smooth operations and fulfillment.

4. Establish Pricing and Payment Terms

Define the pricing structure for the products and any associated services. Include payment terms, such as payment schedule, currency, and acceptable payment methods. Transparent pricing and payment terms help maintain a healthy business relationship.

5. Include Quality Assurance and Warranties

Specify the quality standards the products must meet and the warranties provided by the OEM. This clause may include procedures for quality checks, defect management, and warranty periods. Quality assurance and warranties protect the buyer from defective products.

6. Detail Intellectual Property Rights

Clarify the ownership and usage rights of any intellectual property involved. This includes patents, trademarks, copyrights, and any proprietary technology. Proper IP rights management prevents disputes and protects innovations.

7. Address Confidentiality

Include a confidentiality clause to protect sensitive information shared between the parties. This clause should outline what constitutes confidential information and the obligations of both parties to protect it. Confidentiality ensures business secrets and strategies are safeguarded.

8. Set Terms for Termination

Define the conditions under which the agreement can be terminated by either party. This includes breach of contract, insolvency, or mutual agreement. Clear termination terms provide a legal exit strategy if needed.

9. Dispute Resolution Mechanism

Establish a process for resolving disputes that may arise from the agreement. This may include mediation, arbitration, or legal proceedings. A dispute resolution mechanism ensures that conflicts are handled efficiently and fairly.

10. Include General Provisions

This section includes various standard clauses such as force majeure, amendment procedures, and governing law. General provisions cover miscellaneous legal aspects that ensure the contract’s robustness.

Important Clauses Explained

1. Product Specifications

This clause details the exact specifications of the products to be supplied, including dimensions, materials, and performance standards. Clear product specifications ensure that the buyer receives the correct items and can verify compliance with the agreed standards.

2. Delivery and Lead Times

Specify the delivery schedules and lead times for the products. This clause includes expected delivery dates, methods of shipment, and any penalties for late delivery. Properly defined delivery terms help manage expectations and logistics.

3. Pricing and Payment Terms

Outline the cost of each product and any associated services, including discounts and payment schedules. Include terms for invoicing, payment deadlines, and late payment penalties. Transparent pricing and payment terms facilitate smooth financial transactions.

4. Quality Control and Inspection

Detail the quality control measures and inspection processes that the products will undergo. This clause includes the responsibilities of each party for inspections and procedures for handling defective products. Quality control ensures the products meet the agreed standards.

5. Warranties and Liabilities

Specify the warranties provided by the OEM, including the duration and scope of coverage. This clause also outlines the liabilities of each party in case of defects or failures. Warranties and liabilities protect the buyer from unexpected costs and product issues.

6. Intellectual Property Rights

Clarify the ownership of intellectual property and the rights to use it. This clause includes any licenses granted and restrictions on the use of IP. Proper IP rights management prevents disputes and ensures the protection of proprietary information.

7. Confidentiality Agreement

Detail the obligations of both parties to protect confidential information. This clause includes the definition of confidential information, duration of the confidentiality obligation, and exceptions. Confidentiality agreements safeguard sensitive business information.

8. Term and Termination

Specify the duration of the agreement and the conditions for termination. This clause includes notice periods, termination for breach, and the effects of termination. Clear termination terms provide legal clarity and a structured end to the agreement if necessary.

9. Dispute Resolution

Establish a process for resolving any disputes that may arise. This clause may include negotiation, mediation, arbitration, and legal proceedings. A well-defined dispute resolution mechanism ensures that conflicts are resolved efficiently and fairly.

10. Governing Law

Specify the legal jurisdiction that will govern the agreement. This clause includes the choice of law and the venue for any legal proceedings. Governing law clauses provide clarity on which legal framework applies to the agreement.

11. Force Majeure

Detail the circumstances under which a party can be excused from performing their obligations due to unforeseen events. This clause includes natural disasters, war, and other major disruptions. Force majeure clauses protect parties from liabilities during extraordinary events.

12. Amendment Procedures

Outline the process for making changes to the agreement. This clause includes the requirement for written consent from both parties for any amendments. Amendment procedures ensure that changes are mutually agreed upon and documented.

13. Assignment and Subcontracting

Specify whether the parties can assign their rights or subcontract their obligations under the agreement. This clause includes conditions for assignment and subcontracting. Assignment and subcontracting clauses provide clarity on the transfer of responsibilities.

14. Indemnification

Detail the obligations of each party to indemnify the other for certain losses or damages. This clause includes the scope of indemnification and any limitations. Indemnification clauses protect parties from certain legal and financial risks.

15. Entire Agreement

State that the agreement constitutes the entire understanding between the parties and supersedes all previous agreements. This clause ensures that no prior oral or written agreements affect the current agreement. Entire agreement clauses provide legal certainty and completeness.

Creating an OEM Agreement Using Legitt AI

Creating an OEM Agreement can be complex, but leveraging technology like Legitt AI can simplify the process. Legitt AI’s Contract Generator allows you to quickly and efficiently draft customized agreements tailored to your specific needs. Additionally, you can e-sign your document using Legitt Sign , ensuring that the agreement is legally binding and secure. For those looking for a starting point, Legitt AI offers Free Contract Templates that can be customized to meet your requirements.

Schedule Demo Now