Guidance

Acceptance Period — Inspection and Testing

The buyer should have adequate opportunity to inspect the deliverables before formally accepting them. The time and extend of the testing should vary depeding on the type of the Deliverables — more complex, customized Deliverables should allow for greater testing.

Our variants include two options for this inspection and testing. For simpler Deliverables, the buyer should be able to do a simple Initial Inspection, a chance to examine and inspect the Deliverables on the day of delivery, before accepting them. For more complex Deliverables, include an Acceptance Period, a certain number of days or weeks that the buyer can use and stress-test the Deliverables.

Detailed Acceptance Criteria

It is recommended that the contract define in detail the specific criteria the Deliverables must meet—how many, built to what specifications, customized how, etc.—and how the buyer may examine or test the Deliverables. This is especially important for agreements for the delivery of complex products, such as software.

"The testing mechanism should be set forth in detail in the contract. It should state objective acceptance criteria which can be developed with the assistance of an independent third party if the user and developer cannot agree on what such criteria should be. From the developer's standpoint, the contract should require the user to provide written acceptance or rejection of the system within a specified time period, or it will be deemed accepted. The developer should be afforded several opportunities and reasonable time periods to correct any defects that may cause the system to fail the acceptance tests before the user can consider the developer to have breached the development agreement."

Software Development Agreements: Put it in Writing, Part I, By Eric S. Freibrun, Esq.

Rejection Procedure

If the buyer does not believe the Deliverables meet the agreed-upon specifications, what then? May the buyer reject the Deliverables? Does the seller have one or more opportunities to correct whatever failings the rejected delivery had?

Our pro-providee variants allow the seller the opportunity to promptly fix any issues, and to attempt re-delivery. It is up to the parties to determine how many changes the seller has to get it right. Once all the chances are used up, the buyer may choose to end the agreement, and recover damages, or adjust the acceptance criteria to something more manageable for the seller, potentially recovering damages for the delay.

Deemed Acceptance

Under certain circumstances, even if the buyer did not formally accept the Deliverables, legally it would only be fair to consider the seller as having accepted the Deliverables. Our pro-provider variants include two such circumstances where even without formal acceptance, justice and fairness requires what is known as Deemed Acceptance.

1) Failure to Notify: If within a certain reasonable time the buyer fails to notify the seller of any problems with the Deliverables; or

2) Constructive acceptance: If after any Acceptance Period the buyer continues to use or hold onto the Deliverables in a way that suggested he was the lawful owner of it. For example, if after testing delivered software the buyer starts using it in his business, or after inspecting delivered widgets the buyer installs those widgets into a car he was building in his own business, these actions would suggest the buyer is using the Deliverables as if he owned them, as if he had accepted them from the seller.

In either of these cases, even without formally accepting the Deliverables, legally this agreement will consider the buyer to have accepted them, and that the seller fulfilled his obligations.

Adjustment Fees and Liquidated Damages

In very rare cases the Acceptance clause includes Adjustment Fees, to be paid by the seller for repeated failures to deliver Deliverables that fit the specifications. This is a very heavy penalty for the seller, better options are the buyer's right to terminate the agreement or adjust the specifications. Our heavy pro-providee variant does include these adjustment fees, but we recommend using the slight pro-providee variant instead, which does include the right to terminate or adjust the specifications if the buyer continues to fail to deliver. 

These types of fees are known as Liquidated Damages — an agreed-upon dollar amount of damages that will apply to if a certain clause is breached. Liquidated damages can accompany many different clauses, not just the acceptance clause. If you do choose to include liquidated damages, here or anywhere, it is important that they are framed as compensation for damages, not as a penalty.

Contract damages are not meant to penalize the breaching party, they are meant to reasonably compensate the injured party for whatever damages caused by the breach. Courts are reluctant to enforce punitive liquidated damages. To make sure your liquidated damages are enforced, make it clear that they are an agreed-upon, reasonable estimate of the damages the injured party would suffer from the specific breach, and are therefore compensatory, rather than punitive, in nature. See Ken Adams, "As Liquidated Damages and Not As a Penalty" (accessed September 30, 2016).

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  • Organization: Public
  • Updated: 04/07/2020
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Overview

The Acceptance clause details all aspects of the how the buyer will accept the goods, completing the seller's obligations to sell and deliver. This can include the specifications the parties agree the Deliverables must meet, the buyer's opportunity to inspect and/or test the deliverables to make sure they meet the specifications, and how rejection is handled if the Deliverables do not the specifications.

Outside of the Acceptance clause, the parties should define the Deliverables (a specific custom-built piece of software, a certain number, and model of widgets, etc.), including the precise specifications the Deliverables must meet, the "Acceptance Criteria," and include all this in an attachment to the agreement. The date, time, place, and method of delivery are more commonly handled in the Delivery clause.

Our standard clause is limited to a basic time to inspect the Deliverables and the Acceptance Criteria the Deliverables must meet, while our variants include more prolonged opportunity to test and inspect, and Deemed Acceptance conditions. The complexity of the Deliverables is a key determiner in choosing between the variants. For more information on what variant might be best for your business needs, see our discussion below.