A tolling agreement is the contract governing a toll manufacturing arrangement. Because the customer's materials sit on the manufacturer's site without ownership transferring, the agreement has to deal with questions an ordinary supply contract never raises.
The central one is what happens to material that doesn't become finished product. Some loss is inevitable - residue in vessels and pipework, material lost during changeover, off-specification batches - so agreements normally set an expected yield or an accepted loss allowance, and state who bears the cost when actual losses exceed it. Getting this wrong is a common source of dispute, particularly with expensive materials.
A tolling agreement also needs to cover storage and insurance of customer-owned material on site, what happens to it if either party becomes insolvent, who is responsible if materials degrade in storage, and how the processing fee responds to changes in energy costs or batch scheduling. Title and risk are separate concepts here and both need addressing explicitly.
It sits alongside rather than replacing the other documents in a manufacturing relationship - see supply agreements and quality agreements, which cover commercial terms and technical responsibilities respectively.
Read the loss allowance clause closely. It is usually short, easy to skim past, and the single provision most likely to cost you money - particularly with expensive actives where a few percent of a batch represents a substantial sum. Ask what the manufacturer's actual historical losses look like for comparable work.
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Last reviewed: August 2026. Regulation and guidance change — verify anything you rely on against the primary source. Tell us if something here is out of date.
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