Requirements Contract Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Requirements Contract, written in plain English, along with examples of how it is used.

What is Requirements Contract?

(n) A requirement contract is an agreement between a supplier and a buyer where in the supplier agree to supply the goods required by the buyer and the buyer agree to source or buy the goods he require from this supplier only

History and Meaning of Requirements Contract

A requirements contract is a type of contract where a buyer agrees to purchase all the needed goods or services from a single seller for a specific period. The seller, in turn, guarantees to provide the items as per the buyer's requirements. This type of agreement provides security to the buyer in terms of product supply and a guaranteed customer base for the seller. Requirements contracts are beneficial to both parties because they enable better pricing, quantity assurance, and simplified logistics.

This type of contract was first introduced in the 19th century by railroads to procure coal from mines. In modern times, requirements contracts are often used in industries involving raw materials, manufacturing, and construction.

Examples of Requirements Contract

  1. An aircraft manufacturer signing a requirements contract with a supplier for the supply of gears for all future orders of a specific aircraft model.
  2. A supermarket chain entering into a requirements contract with a vegetable grower to supply all of their cauliflower requirements for a year.
  3. A construction company signing a requirements contract with a concrete supplier to provide all the concrete for a large construction project.

Legal Terms Similar to Requirements Contract

  1. Output Contract: In an output contract, the buyer agrees to purchase all the goods produced by the seller.
  2. Requirements Output Contract: This type of contract is a combination of requirements and output contracts, where the buyer agrees to purchase all products the seller produces over a specific period as long as they meet the buyer's requirements.
  3. Exclusive Dealing Agreement: An agreement where the seller agrees to sell goods exclusively to a particular buyer for a specified period.