Forecasts, Practical Law UK Standard Clause w-012-6365

Forecasts
by Practical Law Commercial

Standard clauses | Maintained | United Kingdom

A standard clause that deals with forecasts for goods by the client in business-to-business agreements in which the
client is required to forecast its requirements for goods to be ordered under a supply of goods or manufacturing
agreement.

About this document

This standard clause is intended for use in a business-to-business supply of goods agreement, manufacturing
agreement or distribution agreement. It can be helpful to require the client to provide forecasts of its requirements for
products, particularly where the demand for products is seasonal.

The standard clause comprises long form (Clause 1) and short form (Clause 2) alternatives.

The long form version of this standard clause:

• Requires the client to provide forecasts of its requirements for products on a rolling basis (Clause 1.1).

• Requires the client to make forecasts in good faith, to offer some protection against the client deliberately
abusing the forecast system (Clause 1.2).

• Prevents forecasts being binding orders (Clause 1.3).

• Sets out the supplier’s obligations if it anticipates that it will be unable to meet the client’s forecasted
requirements and the effect of its failure to do so on any minimum purchase targets (Clause 1.4).

Drafting issues

Supplier. The supplier will not wish to be subject to an unqualified obligation to supply goods to meet all the client’s
forecasts or orders. The supplier may also wish to have the protection that forecasts must be given in good faith.

Client. The client will want certainty of supply for the products being purchased. This certainty may be required for
the client to meet its own obligations in the supply chain. It may be that a compromise is to provide for a forecast
system under which the supplier agrees to supply against the client’s forecasts (provided it is given sufficient notice),
and will use reasonable endeavours to supply where orders exceed forecast quantities.

When does the obligation begin? The drafting should address when the obligation to provide forecasts should begin,
for example, at the start of the agreement, or alternatively only once the agreement has been operational for a period
and the parties have a better understanding of how it will operate.

How frequently must forecasts be given? The drafting should address the frequency of the forecasts. The forecast may

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Forecasts, Practical Law UK Standard Clause w-012-6365

be on a rolling basis, for example, monthly, quarterly or yearly. Alternatively, the forecast may be required by a
specific date if this is important for the production processes or for ordering materials.

What is the effect of a forecast on a minimum purchase amount? Whether the supplier must meet the client’s forecasts
will be an issue for negotiation. If the contract includes a minimum purchase amount, the drafter should consider
whether substitute products purchased by the client from a third party supplier will be taken into account if the
supplier is unable to meet the client’s forecasts or orders.

Alternative clauses

For alternative forecast clauses for use in specific agreements, see:

• Distribution. Standard document, Distribution agreement (exclusive): clause 4.1: Supply of products.

• Manufacturing. Standard document, Manufacturing agreement: clause 7: Forecasts.

1. FORECASTS

1.1 During [this agreement OR the Term] the Client shall give the Supplier:

(a) [not less than [five] days before the beginning of each month, a forecast of the Products it expects to purchase during the
[three] months following that month][; and]

(b) [not less than [one] month before the end of each year, a forecast of the Products it expects to purchase during the
following year].

Client forecasts

This clause requires the client to provide forecasts of its requirements for products on a rolling basis throughout the
term. The clause may be amended to provide that the first forecast should be provided on or shortly after the date of
signing.

If using the second option in Clause 1.1, check that the term “Term” is defined.

1.2 Forecasts shall be given in writing or, if given orally, shall be confirmed in writing within [two] Business Days. The
Client shall act in good faith when forecasting its requirements for Products.

Forecast requirements

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Forecasts, Practical Law UK Standard Clause w-012-6365

The supplier is vulnerable to the client providing inaccurate forecasts. For instance, the supplier might, relying on
excessive estimates, incur significant costs increasing its production capacity. The requirement of good faith offers
some protection against the client deliberately abusing the forecast system. For greater certainty, the supplier could
insert a provision allowing the supplier to recoup some or all of the costs it incurs as a direct result of relying on the
client’s forecasts.

Check that the term “Business Days” is defined.

1.3 Forecasts provided under this Clause 1 do not constitute an Order.

Forecasts do not constitute orders

Insert this clause to prevent forecasts being binding orders.

It is assumed that “Order” is a defined term in the agreement. The definition will need to be reviewed and amended as
necessary, or added if the term is not defined in the agreement.

1.4 If the Supplier anticipates that it will be unable to meet the Client’s forecasted requirements provided in accordance with
this Clause 1:

(a) the Supplier shall inform the Client [in writing] as soon as practicable;

(b) the Client may at its option agree alternative delivery dates for the relevant Products, or obtain from any other person
substitute products for the Products which the Supplier anticipates it will be unable to supply, without limiting any other
right or remedy that the Client may have; and

(c) substitute products purchased from a third party supplier as a result of the Supplier anticipating being unable to meet the
Client’s forecasted requirements for Products shall for the purposes of [MINIMUM PURCHASE AMOUNT CLAUSE]
be deemed to have been purchased from the Supplier [at the price paid to the third party supplier].

Inability to meet forecasts

The client will wish to be informed as soon as possible if the supplier anticipates that it will be unable to meet the
client’s forecasted requirements so that the client can make alternative arrangements in respect of the relevant
products.

If the supplier is unable to meet the client’s requirements the client is likely to want to be able to purchase substitute
products from a third party provider, and have these taken into account for the purposes of any minimum purchase
amount set out in the agreement.

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Forecasts, Practical Law UK Standard Clause w-012-6365

2. FORECASTS (SHORT FORM)

Forecasts (short form)

This short form clause does not have the protections that are found in the longer version of the clause. It omits:

• An obligation for the client to make forecasts in good faith.

• Provisions preventing forecasts being binding orders.

• The consequences if the supplier anticipates that it will be unable to meet the client’s forecasted requirements.

If forecasts are to be made each quarter this term will need to be defined in the agreement.

2.1 During [this agreement OR the Term], the Client shall give the Supplier:
(a) [not less than [NUMBER] days before the beginning of each [month OR Quarter], a forecast of the Products it expects to
purchase during that [month OR Quarter][; and]
(b) [not less than [one] month before the end of each year, a forecast of the Products it expects to purchase during the
following year].
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