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Each transaction of supply of goods/services will involve two aspects supply of goods/ services by the Supplier and acceptance of such goods/services by the Customer.

Typically, the Supplier and the Customer will enter into a Master Service Agreement (MSA) for the provision of supply of certain goods/services. Pursuant to MSA, the Supplier will supply the goods/render the services to the Customer.

Mere delivery of goods/services by the Supplier to the Customer will not be deemed to be acceptance of the goods/services. Such goods/services will have to go through the process of acceptance as agreed by the Supplier and Customer.

Generally the process of acceptance will be as follows:

  • Upon the receipt of the goods/services, the Customer shall have the right to evaluate the quality/functionality of such goods/services within mutually agreed evaluation period.
  • During the evaluation period, if the Customer is satisfied with the quality and performance of the goods/services then the Customer shall convey the acceptance of goods/services and the Supplier shall be relieved from the obligation of goods/services delivery.
  • Failure of the Customer to inform the defects in the goods/services within the evaluation period will result in deemed acceptance of the goods/services by the Customer.
  • If in case the goods/services did not meet the Customer requirements/specifications then the Customer will convey in writing the discrepancies/defects in the goods/services to the Supplier within the evaluation period.
  • Upon the receipt of defect notice from the Customer, Supplier will have a cure period (as mutually agreed by the parties) to rectify the discrepancies and to re-deliver the goods/services.
  • Even after the re-delivery of goods/services the defects still persist in the goods/service then the Customer shall have the right to return the goods/services and get the refund of the monies for the goods/services.

Following are the basic aspects of a Acceptance provision in a Master Service Agreement:

  • Customer right to check the quality/functionality of goods/services and to escalate the defects (if any) within the evaluation period.
  • Obligation on Supplier to rectify the defects in the goods/services provided defects are timely escalated by the Customer.
  • Customer failure to convey acceptance within agreed time will result in deemed acceptance of goods/services by the Customer.
  • Customer right to get the refund of fees paid for goods/services will be contingent on the Supplier inability to clear the defects in the goods/services to the satisfaction of the Customer and Customer return of goods/services to the Supplier.

Sample Acceptance Provision:

“Customer will have 15 Business Days’ after Supplier provides the deliverable to inspect and test the deliverable to ensure it meets the acceptance criteria outlined in the applicable Statement of Work (the “Inspection Period”). If in Customer’s opinion the deliverable meets the acceptance criteria, Customer shall accept the deliverable and notify Supplier that it is accepting the deliverable.

Customer will be deemed to have accepted the deliverable if Customer fails to notify Supplier on or before the expiration of the Inspection Period, or if during the Inspection Period, Customer uses or attempts to use the deliverable beyond what is necessary for inspection and testing and in a way a reasonable person would consider consistent with Customer having accepted the deliverable from Supplier.

If in Customer’s opinion, the deliverable fails in a material way to meet the acceptance criteria, Customer may reject the deliverable by delivering to Supplier a written list detailing each failure to satisfy the acceptance criteria. If Customer rejects the deliverable, Supplier will have the opportunity to promptly cure each failure in the deliverable and re-deliver the deliverable to Customer to re-inspect and test.

If in Customer’s opinion, Supplier’s corrections fail to satisfy the acceptance criteria, Customer may either terminate the Agreement, or adjust the acceptance criteria for that deliverable, and require Supplier to pay the Adjustment Fee.”

Acceptance process is a time bound process as the Customer right to do quality checks, Customer right of defect escalation, Supplier obligation to rectify defect and Customer right to get fees refunds are subject to specific timelines.

Customer failure to exercise rights on time will result in lapse of Customer right – Supplier failure to fulfill its obligations will result in liability/penalty.

Acceptance is one of the key provisions in Service Agreements and will define the course of the business relationship. Hence right care should be taken in drafting the acceptance provision as it is a deal maker or deal breaker in the service industry.

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May 2024