Minimum Purchase Commitment Clauses
(Supply Agreement)

Summary

These clauses can be used to establish minimum purchase commitments between a buyer and seller under a supply agreement. This template includes practical guidance and drafting notes. A minimum purchase commitment, also referred to as a minimum quantities requirement, requires a buyer to a sales agreement to purchase a designated quantity of goods over a specified period of time (such as one year). A buyer will be in breach of the sales agreement should it fail to satisfy the minimum purchase requirement. Such a provision, among other things, helps ensure that the seller will receive a base level of demand and sales of the subject goods, while the buyer is able to secure a reliable source for the goods. The provision can be included in, among other agreements, a basic sales agreement; a distribution, reseller, or dealer agreement; and a requirements contract (whereby a buyer is required to purchase all of its requirements for a particular product from a seller). When negotiating an agreement that entails minimum purchase requirements, counsel must ensure that the buyer will be able to utilize all of the goods it must purchase and that the seller will be able to produce sufficient quantities of the goods. Also address the parties' rights and obligations should the buyer fail to purchase the designated quantities. For example, the agreement may permit the seller to terminate the agreement, not renew the agreement, terminate any exclusivity rights (such as in a distribution arrangement), retroactively change the prices for the goods, or require the buyer to pay the seller the difference between the quantity of ordered goods as compared to the quantity it was required to purchase. Be mindful of potential antitrust issues that may arise form a minimum purchase commitment, especially if one or both parties has a dominant market position, as the requirement may be deemed to create an exclusive buying arrangement which may have anticompetitive consequences. For additional information, see Contracts for Goods or Services and Supply of Goods Resource Kit. For supply agreements, see Sale of Goods Agreement (Pro-seller), Sales of Goods Agreement (Pro-buyer), Manufacturing Supply Agreement (Pro-seller), and Manufacturing Supply Agreement (Pro-buyer).