(Editor’s Note. Requirements contracts is a frequently used term that is often confusing. In the light of invreased use of this contract vehicle for acquisition of more services and products and several cases recently addressing indefinite quantity contracts, we asked a legal collegue of ours, Tim Power at (925) 975-0330, to clarify some of the issues related to requirements contracts. We have found the following useful for not only pricing and contracts personnel who are usually familiar with the terms, but also for other personnel in contractors’ organizations. If you find the following useful in your organization we do not object to its replication.)

A requirements contract is a type of indefinite delivery contract. It is so-called because the government uses this type of contract to order all of list requirements for a specific item or service from a particular contractor at a fixed unit price. An indefinite quantity contract (IDQ) (sometimes referred to as indefinite delivery indefinite quantity (ID/IQ) contracts) are the other major types of indefinite delivery contract. The government utilizes both types of indefinite delivery contracts when either the timing or the quantities of the required goods or services are unknown. Indefinite delivery contracts are also referred to as delivery order or job order contracts.

Although both contract types reference estimated quantities of goods or services and bind the contract to provide the quantities ordered at fixed unit price, the contracts differ significantly when the actual quantities vary from the estimates.

On an IDQ contract, the government is obligated to order a stated minimum quantity form a particular contractor. Once the minimum amount is ordered, the government has no obligation to order more goods or services from this contractor. So, for example, on an exterior painting contract with an estimated value of $1,000,000 with a guaranteed minimum of $50,000 the government is free to order any additional painting services it may require from another contractor if the initial $50,000 was ordered. If the government found it did not need the painting services, it would still be obligated to order the minimum $50,000 of services.

On a requirements contract, the government is obligated to order all required goods or services from the contractor through the term of the contract at a fixed unit price. There is no guaranteed minimum amount. If a requirement for the goods or services does not arise the government is not obligated to order anything form the contractor. However, if the government finds it needs more than the estimated quantity stated in the contract, the government must order the entire requirements from the contractor. Using the previous example, the government would be bound to order all painting services it requires from the contractor even if more than the estimated $1,000,000 is needed. Conversely, if the government does not require painting services during the contract term, it is not obligated to order any painting services.

Some issues arise under requirements contracts when actual orders do not match the estimated quantities. For the contractor, the important question is whether it is possible to recover for any financial impact caused by the variation.

There is a standard contract clause warning contractors that the government’s failure to order the estimated quantities is not grounds for a claim or adjustment to the contract price. Many COs think this excuses the government’s failure to order the estimated quantities for any reason. There are three situations that often arise in which the government bears responsibility (1) improperly prepare estimates (2) requirements ordered from another contractor and (3) a change in the way government meets the requirements.

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