This clause says the other party will buy all their needs for a product from you, usually at a set price. It matters because you're betting your revenue on one customer's demand, which could drop unexpectedly, leaving you with unused capacity. For example, a factory might sign a requirements contract to supply all of a manufacturer's steel at $500 per ton, but if the manufacturer's business slows, they buy less steel and you lose income. Like output contracts, US law requires "good faith"—the buyer cannot artificially reduce their needs just to pay less—but this still creates risk for you as the supplier.
Insist on a minimum purchase commitment (the buyer must buy at least X tons per month) so you have predictable income, and include a price floor or escalation clause so you're not locked into a price if your costs rise. Also add a termination clause allowing either party to exit with 90 days' notice if circumstances change significantly, rather than being locked in for years.
Frequently Asked Questions
What does this clause mean in simple terms?
This clause says the other party will buy all their needs for a product from you, usually at a set price.
Why should I care about this clause?
It matters because you're betting your revenue on one customer's demand, which could drop unexpectedly, leaving you with unused capacity.
What are my options?
For example, a factory might sign a requirements contract to supply all of a manufacturer's steel at $500 per ton, but if the manufacturer's business slows, they buy less steel and you lose income.
How does this affect small businesses?
Like output contracts, US law requires "good faith"—the buyer cannot artificially reduce their needs just to pay less—but this still creates risk for you as the supplier.