Legal Definitions - guaranteed-purchase contract

A guaranteed-purchase contract is a legally binding agreement in which one party commits to buying a specific quantity of goods or services from another party, often at a predetermined price or within a set timeframe. This type of contract provides the seller with an assured buyer for their products or services, offering a degree of stability and predictability, regardless of market demand fluctuations or other external factors.

Here are some examples illustrating how a guaranteed-purchase contract might work:

• Example 1: Agricultural Produce

  A large organic grocery chain enters into a guaranteed-purchase contract with a local farm. The contract stipulates that the grocery chain will buy all of the farm's organic kale harvest for the entire growing season at a fixed price per bunch. This agreement ensures that the farmer has a definite buyer for their produce, allowing them to plan their planting and labor without worrying about finding customers for their entire yield. For the grocery chain, it secures a consistent supply of fresh, local organic kale.

• Example 2: Specialized Components for Manufacturing

  An aerospace company developing a new satellite system signs a guaranteed-purchase contract with a specialized electronics manufacturer. The contract obligates the aerospace company to purchase 500 custom-designed circuit boards per year for the next three years, at a specified unit price. This arrangement provides the electronics manufacturer with a stable revenue stream and justifies their investment in specialized equipment and skilled labor for producing these unique components. The aerospace company, in turn, secures a reliable supply of critical parts for its satellite production.

• Example 3: Renewable Energy Production

  A municipal utility company enters into a guaranteed-purchase contract, often called a Power Purchase Agreement (PPA), with a newly constructed wind farm. Under the terms, the utility company commits to buying all the electricity generated by the wind farm for the next 15 years at a predetermined rate per kilowatt-hour. This contract is crucial for the wind farm developer, as it guarantees a long-term revenue stream, which is often necessary to secure financing for the construction and operation of the expensive infrastructure. The utility company benefits from a stable, long-term source of renewable energy.