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Requirements contract

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Definition Edit

A requirements contract provides for the procuring activity to order all its "requirements" for goods or services of the type provided for in the contract from the vendor during the term of the contract.[1]

Overview Edit

If the procuring activity has no requirements for these goods or services, it generally "owes" the vendor no orders.[2] However, if the procuring activity has requirements and purchases them from another vendor[3] or, in some cases, develops additional in-house capabilities to perform the work,[4] it could potentially terminate the contract for convenience or even breach it.[5] Requirements contracts are used when the customer anticipates recurring requirements but cannot predetermine the precise quantities needed.[6]

References Edit

  1. 48 C.F.R. § 16.503(a) ("A requirements contract provides for filling all actual purchase requirements of designated Government activities for supplies or services during a specified contract period.").
  2. See, e.g., G.T. Folge & Co. v. United States, 135 F.2d 117 (4th Cir. 1943) (government not liable for failure to order if it has no requirements for the goods or services). Any estimates of quantity contained in the solicitation or the contract are nonbinding. See, e.g., Franklin Co. v. United States, 381 F.2d 416 (Ct. Cl. 1967) (government not obligated to furnish work orders up to the estimated amount); Kasehagen Sec. Servs., Inc., ASBCA 25629, 86-2 BCA ¶18,797 (1986) (contractor must fill orders above the estimate). However, the government could potentially be liable to the contractor if the estimate was negligently prepared. See, e.g., Alert Care Ambulance Serv., VACAB 2844, 90-3 BCA ¶22,945 (1990) (government failed to exercise due care in preparing the estimates because it did not consider historical data regarding prior years' requirements); Pied Piper Ice Cream, Inc., ASBCA 20605, 76-2 BCA ¶ 12,148 (1976) (same). If feasible, the contract should specify a maximum quantity of goods or services, orders in excess of which the contractor is generally not required to meet. 48 C.F.R. §16.503(a)(2).
  3. See, e.g., Rumsfeld v. Applied Cos., Inc., 325 F.3d 1328, 1339 (Fed. Cir. 2003) ("[T]he government breaches a requirements contract when it has requirements for contract items or services, but diverts business from the contractor and does not use the contractor to satisfy those requirements."); Ready-Mix Concrete Co. Ltd. v. United States, 158 F. Supp. 571 (Ct. Cl. 1958) (contractor entitled to an equitable adjustment if the government purchases the needed supplies or services from any other source during the contract period).
  4. Contract language stating that the contractor is entitled to supply those items "required to be purchased by the government" will generally be construed to allow the procuring activity to develop additional in-house capacity during the term of the contract. See, e.g., Export Packing & Crating Co., Inc., ASBCA 16133, 73-2 BCA ¶10,066 (1973); Applied Painting & Decorating Co., ASBCA 15919, 73-2 BCA ¶10,358 (1973). However, language stating that the contractor is entitled to supply items "in excess of the quantities which the activity may itself furnish with its own capabilities" generally will not be so construed because it is read as referring to the procuring activity's capabilities at the time of contracting. See, e.g., Kozak Micro Sys., Inc., GSBCA 10519, 91-1 BCA ¶23,342 (1991) ("Where the contract demands that the contractor provide all the required supplies or services of a named Government activity 'in excess of the quantities which the activity may itself furnish with its own capabilities,' the document is understood to refer to the capabilities in existence at the time the contract is awarded. The government may not develop and use additional capabilities to eliminate a part of work that the contractor raised every expectation of receiving, and thereby prevent the contractor from recovering its costs."); Maya Transit Co., ASBCA 20186, 75-2 BCA ¶11,552 (1975) (government not permitted to reorder its budget priorities and redistribute its capabilities to assume more bus routes for its own drivers when the contract provided for the contractor to furnish bus services "in excess of the quantities which the activity may itself furnish within its own capabilities").
  5. Courts often treat governmental failures to comply with the terms of procurement contracts as constructive terminations of the contract. See, e.g., Nesbitt v. United States, 543 F.2d 583 (Ct. Cl. 1965); Integrity Mgmt. Int'l, Inc., ASBCA 18289, 75-1 BCA ¶11,235 (1975). However, they will generally not convert failure to order under a requirements contract into a termination for convenience when the failure was in bad faith or based on circumstances known to the government at the time of contracting. See, e.g., Torncello v. United States, 681 F.2d 756 (Fed. Cl. 1982)(termination based on the contractor's prices, which were known to the government at the time of contracting); Kalvar Corp. v. United States, 543 F.2d 1298 (Ct. Cl. 1976) (termination in bad faith).
  6. 48 C.F.R. §16.503(b)(1).

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