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The Good, Bad and Ugly of “All Requirements” Contracts

An “all requirements” supply contract (a.k.a purchase order, purchase contract) binds the purchaser to buying all of its needs for a specified product exclusively from the supplier. Likewise, the supplier, in turn, agrees to fill all the purchaser’s orders during the term of the Agreement.

In this ever-competitive but limited source global marketplace, suppliers often are pressured to agree to greater volume requirements out of fear of losing a customer. Likewise, purchasers are often forcing these all requirements/exclusive relationships with suppliers to gain attractive pricing or increased year-end rebates.

Such contracts could spell trouble for either party if the market for the product significantly changes or either party encounters financial or material sourcing problems.

If an “all requirements” relationship is not intended, the parties should state their quantity and volume intentions clearly. Lack of clarity in a supply contract could put a company’s fate in the hands of a judge to interpret whether it was the intent of the parties to create an all requirements agreement.

The United States District Court, Northern District of Indiana case, BRC Rubber and Plastics, Inc. v. Continental Carbon Company, illustrates the importance of clearly stating the parties’ intentions. In the BRC Rubber case, BRC claimed that it had an all requirements contract with Continental, and that Continental breached its terms when it missed sending a scheduled shipment of product to BRC, limited the annual quantity of product it would sell, demanded higher prices for the product, and attempted to accelerate BRC’s payment terms. The Court ultimately agreed with BRC by piecing together the parties’ “intent” from other clauses in the Agreement.

 

For strategies in avoiding problem situations like the BRC Rubber case or for strategies on how to protect your company when entering an all requirements contract, contact KDDK attorney Ryan Schulz at (812) 423-3183 or RSchulz@KDDK.com, or contact any member of the KDDK Business Law Practice Team.

About the Author

Ryan Schulz

Ryan M. Schulz, an attorney at Kahn, Dees, Donovan & Kahn, LLP, in Evansville, Indiana, focuses his practice on business law, real estate law, construction law, estate planning, and litigation and trial services.  Ryan has helped counsel clients through complicated business and construction transactions and can be of assistance to any company in reviewing, negotiating and drafting contracts, and handling litigation involving a variety of business transactions, including construction, manufacturing, real estate and other business contracts.