The inclusion of acceptance requirements, including acceptance criteria for key activities and deliverables, within a service agreement can provide a blueprint for a service engagement’s success, and should not be overlooked during the contract drafting process. In this post, we’ll discuss at a high level some of the items a contract drafter should consider when drafting acceptance requirements.
Should the Acceptance Criteria Be in the Master Terms or Statement of Work?
Many service agreements are structured as master terms that govern project-specific statements of work. When determining whether acceptance criteria should live within the master terms or in underlying statements of work, the contract drafter will want to consider the following:
- Whether the acceptance criteria for services and deliverables is general enough (e.g., to the customer’s reasonable satisfaction) that such acceptance criteria can be included in the master terms of the service agreement and govern for the purposes of establishing acceptance criteria for all statements of work.
- Whether, given the unique and diverse nature of the services and deliverables, project-specific criteria should be spelled out under each individual statement of work.
What Should Be in the Acceptance Criteria?
When it comes to the actual drafting of the acceptance criteria, the contract drafter should, at a minimum, consider the following:
- The amount of days the customer will have to review or test the services or deliverables following delivery by the vendor.
- Whether the customer can reject the services or deliverables in its sole discretion, or if rejection must be based upon noncompliance, material or otherwise, with certain project specifications.
- If the customer properly rejects the services or deliverables, how many days does the vendor have to re-perform or cure?
- After the vendor re-performs or cures, does the initial acceptance process begin again or are there separate standards?
- If the customer begins using the services or deliverables in a production environment during the testing phase, does that use constitute acceptance?
- Whether “deemed acceptance” (i.e., silence or failure to affirmatively reject constitutes acceptance) is appropriate or if affirmative acceptance should be required with escalation mechanisms if customer’s response is not timely.
Acceptance as a Requirement for Payment and Other Triggers
In many instances, the provisions of a service agreement will require certain events or conditions to occur in order for other obligations under the contract to take effect. Examples include the following:
- Payment obligations may only come into effect upon the acceptance of certain or all services or deliverables.
- Warranty obligations, and whether the clock on any warranty should begin when services or deliverables are delivered or when they are accepted by the customer.
- Termination rights and/or refund of prior payment resulting from nonperformance may be tied to the actual rejection of a service or deliverable.
There are a multitude of items to consider when drafting an acceptance provision from both the customer’s and the vendor’s perspective. As with many key contract provisions, thinking through these issues and potential ramifications on the front end can facilitate project governance and potentially help avoid headaches and misunderstandings once a project is underway.