Negotiating Requirements Contracts With Suppliers

Description

Manufacturers along the supply chain use long-term requirements contracts to lock in middle-link buyers and other sub-tier component suppliers over the long term, ensure attractive supply volumes throughout the life of the agreement, and obtain cost-effective products designed according to specifications.

The Uniform Commercial Code (UCC) Section 2-306, which governs requirements contracts, requires buyers to place their orders for amounts determined in good faith or, depending on the jurisdiction, close to a stated estimate if one exists in the requirements agreement. On its face, Section 2-306 seems relatively straightforward. However, courts around the country have applied the statute in different ways.

Given the varying court interpretations of Section 2-306 and nuances in supply chain contracting, several grey areas are surrounding the drafting and enforcement of long-term requirements agreements. Counsel negotiating the contracts for suppliers must anticipate market fluctuations and allocate contractual risk to protect their clients. International requirements contracts, governed by the Convention for the International Sale of Goods (CISG), are governed by still different rules.

Listen as our panel of attorneys experienced in negotiating and litigating requirements contracts discusses best practices for drafting, negotiating, and enforcing these agreements. The panel will discuss specific clauses that should be included in negotiations and provide strategies for avoiding contracting pitfalls.