Content Type, Legal Insights | May 17, 2016
Written By: Kathy Tomaszewski, Chief Knowledge Officer, Clausehound Inc.
You are an entrepreneur with a brilliant idea for the next technological ‘sensation’. You do some preliminary product development, and find customers. To save money, you look at master service agreements (MSA) on the internet, pick out the most important provisions, and draft your own MSA.
Because as an entrepreneur you are understandably concerned about protecting your intellectual property (IP), you will likely focus on those parts of the MSA. This is good and important, but the chances are that while protecting your IP, you could be overlooking an equally essential clause.
The acceptance procedure is one of the most important clauses to include in your standard MSA.
When preparing an MSA, customers may fail to include an acceptance procedure if the customer is focused instead on the following types of concerns:
– Receiving the product/service they expect to receive;
– Receiving sufficient warranty; and
– Holding the vendor accountable for insufficient products/services.
Vendors may overlook the acceptance clause by focusing on other clauses which include:
– Limitation of liability; and
– Protection of intellectual property rights.
In both cases, the acceptance clause has not been included because the parties failed to appreciate how important this clause can be – and this can lead to problems for both customers and vendors.
Reason #1: The vendor wants to be paid.
The acceptance procedures contained in the acceptance clause can be considered to be directly connected to the payment clause. A customer is generally obligated to pay the fees for the product/service within a stated time after they have officially accepted the product. In other words, the vendor generally expects to be paid when the vendor has provided the services which have been contracted under the agreement. This occurs when the customer has accepted the ‘deliverable’ or services. A clear acceptance provision makes the due dates for payment very clear.
Reason #2: The customer does not want to pay for services that were not delivered in accordance with the terms of the agreement.
Just as the vendor wishes to be paid for services rendered, the customer does NOT want to pay for services that were not rendered. If the deliverable or service does not meet their standards, or the deliverable has a defect, the customer wants the right under the agreement to argue that they have not accepted the product/service and are not required to pay the fees owed.
Reason #3: Clear acceptance provisions can save time and money if the parties have a dispute.
Negotiating clear acceptance provisions can be time consuming, but this investment of time and effort is much more efficient and cost effective than not including the provisions, and having to resolve disputes in court, or with arbitration.
The acceptance clause can be tailored to meet your needs.
Acceptance procedures can be as complex as including a time limit for the acceptance period and a time limit for the testing period, or as simple as a clause stating acceptance will not be unreasonably delayed.
A standard acceptance clause, which can be found on www.clausehound.com can be drafted as such:
The Deliverables shall be deemed to be accepted (a) upon written notice by Customer of acceptance, or (b) within seven (7) days of delivery of the Deliverables to Customer in the event that Customer has not provided Consultant with written notice of acceptance.
Or as simple as:
Customer shall not unreasonably withhold or delay acceptance.
Know what to accept before ‘accepting’ the terms of your next MSA! Ensure that the MSA contains acceptance provisions that protect your interests.
A well drafted acceptance clause can make it more likely that payment will be received by the vendor.
A well drafted acceptance clause can make the customer more comfortable that they will not have to accept and pay for defective services or deliverables.
Acceptance clauses can be simple, or complex, depending on the bargaining power of the vendor.
This article is provided for informational purposes only and does not create a lawyer client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at your own risk.
This article was originally posted on Clausehound.com – The link can be found here.