Requirements Contracts: Buying What You Need, No More
What Is a Requirements Contract?
A requirements contract is an agreement where the buyer commits to purchasing all of their requirements for a particular good or service exclusively from one seller, and the seller commits to supplying whatever the buyer needs. The quantity is not fixed — it fluctuates based on the buyer's actual demand.
How It Works
Rather than committing to buy 10,000 units, the buyer agrees to buy "all units required" for their operations from the designated seller. If the buyer needs 8,000 units one year and 12,000 the next, the seller must supply both amounts.
Good Faith Under the UCC
UCC Section 2-306 imposes good faith obligations on the buyer:
- The buyer cannot demand unreasonably disproportionate quantities beyond any stated estimate or prior requirements
- The buyer cannot reduce requirements to zero simply to avoid the contract (but may reduce legitimately if business needs genuinely decline)
- Requirements must be actual, good faith needs — not artificially inflated to resell at a profit
Benefits
- For buyers — guaranteed supply at an agreed price, simplified procurement, volume pricing
- For sellers — an exclusive customer relationship, more predictable revenue stream, competitive protection
Risks to Consider
- For sellers — demand spikes may strain production capacity
- For buyers — locked into a single source, limiting flexibility if better options emerge
- Both parties — disputes about whether changes in demand are in good faith
Protecting Yourself
Consider negotiating minimum and maximum quantity ranges, price adjustment mechanisms tied to volume, and clear definitions of what constitutes "requirements."
When to Consult a Lawyer
Consider seeking legal advice when drafting or reviewing a requirements contract, particularly regarding quantity estimates, exclusivity terms, and termination provisions.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.