Is the phrase "With regards to the test requirement, John will need it spelling out" grammatically correct?

Is the -ing form grammatically correct?  Yes.  Is it sensible?  No. 

John will need [the requirement] spelled out.

Here, the so-called past participle carries passive semantics.  Something (although we have no idea what) spells that requirement out.  The modificand "it" is the patient of the verb "spelled".  "John" is its target or beneficiary or recipient.

* John will need [the requirement] spelling out.

Here, the so-called present participle carries active semantics.  There is no explicit patient for "spelling", and the requirement is the agent.

A requirement could be a sensible agent.  For example, a requirement might spell out a specific method, or an entire procedure, or some other course of action.  Another requirement might spell out a set of constraints.

Grammatically, it's not so sensible to have a requirement spell out some unspecified patient.  The transitive verb is missing an object, and nothing in this context makes that missing object sensible.

Culturally, it's not sensible to assume that the test requirement will change to suit John's needs.  We can easily assume that John must satisfy the requirement, but not so easily assume that this requirement is intended to satisfy him.

The requirement is a grammatically possible agent, but it isn't a sensible agent in the assumed context and for the assumed purpose.  What is sensible in this context is the requirement as a patient.  Someone will need to spell the requirement out for John, although we don't much care who does it.  Regarding the test requirement, John will need it spelled out.