Long-term agreement (LTA)
A long-term agreement (LTA) commits a buyer and supplier to multi-year pricing, capacity, and terms for a defined scope of parts, typically 3 to 5 years, and is common in aerospace and automotive. In exchange for committed or forecast volume, the buyer gets price stability and reserved capacity; the supplier gets demand visibility worth investing against.
Examples
Aerospace machining LTA: A 5-year agreement covers 34 part numbers at a blended $612 per shipset, with a 2.5% annual price-down on the labor and overhead portion and titanium passed through on a quarterly index. Year-3 pricing is known on day one, which is the point.
Volume band protection: Pricing assumes 8,000 to 12,000 units per year. When a program cut drops demand to 6,200, the contract applies a pre-agreed 4% adder instead of triggering a renegotiation of the whole agreement. The band converts a crisis into a formula.
Definition
An LTA is a commercial framework, not a release mechanism: orders still flow as purchase orders or releases underneath it, which is what separates it from a blanket purchase order. It is also narrower than a master service agreement, which sets legal terms without committing price or capacity for specific parts.
The clauses that earn their space: annual productivity price-downs (2 to 3% per year is typical in automotive, reflecting expected learning), volume bands that adjust price when demand falls outside the assumed range, a price escalation clause for volatile materials, capacity reservation language, and exit provisions covering termination, tooling ownership, and last-time-buy rights. A 5-year price means little without an agreed way out when quality or demand collapses.
The quiet failure mode is signing a good LTA and then not administering it: missed price-down effective dates, invoices drifting from contract price, volume bands never reconciled. Treat the agreement as live data inside ongoing supplier relationship management, not a PDF in a folder. LightSource keeps LTA pricing, volume bands, and renewal dates visible against actual quotes and orders so negotiated terms get enforced rather than forgotten.
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