Definition

Noun: A legally binding agreement in which one party (the buyer) agrees to purchase all of its needed goods or services of a specific type exclusively from the other party (the seller) for a defined period.

Usage

This term is used in commercial and legal contexts to describe a specific type of supply agreement. The buyer's obligation is to buy its entire "requirements" from the designated seller, and the seller's obligation is to supply those quantities as demanded. The exact quantity is not fixed at the outset but is determined by the buyer's actual needs during the contract term.

Examples

• The manufacturer entered into a requirements contract with the local utility, agreeing to purchase all of its electricity needs from that single provider.
• Under the requirements contract, the bakery must buy all its flour requirements from our mill.
• A key legal question was whether the requirements contract was enforceable, given the lack of a specified maximum quantity.

Advanced Usage

• Good Faith Obligation: In a requirements contract, the buyer is generally obligated to act in good faith regarding its requirements and cannot arbitrarily reduce demand to zero or source goods elsewhere.
• Output vs. Requirements: This is often contrasted with an "output contract," where the seller agrees to sell its entire production output to the buyer.

Variants and Related Words

• Contract (n): A formal, legally binding agreement.
• Exclusive Dealing Contract (n): A broader category that includes requirements contracts, where a party agrees to deal only with one other party.
• Supply Agreement (n): A general term for a contract governing the supply of goods or services.

Synonyms

• Exclusive Purchasing Agreement
• Total Requirements Agreement

Related Phrases

• To be governed by a requirements contract: Describes a business relationship bound by such an agreement.
  • Their supply of raw materials is governed by a long-term requirements contract.

Noun

1. a contract in which you agree to purchase all your requirements of a particular sort from one party