Be honest– as a software developer, how much time did you actually spend considering the acceptance testing language in your last development or licensing agreement? Negotiating and crafting a thorough acceptance testing clause in your agreement can be time well spent, not to mention a valuable risk management tool for your business.
What is Acceptance Testing?
As many of you probably know, software development, “master services”, licensing and similar agreements oftentimes contain an “acceptance testing” section. Such language describes (or should anyway) a clear and mutually understood process by which the customer can verify that the software meets their business requirements.
Such language can be vital to both parties where the software is costly or involves a complicated implementation by the software vendor.
Below is a non-exhaustive list of issues our technology transactions law firm works through with developer (or, alternatively, our business customer) clients. Whichever side of the transaction you’re on, hopefully these give you some discussion points that will prove helpful in your next deal negotiation:
Are there one or more periods during which the customer may test the software to determine whether it meets specifications? When does such period or periods start (for example: from signing of the development or licensing agreement or some other date)? Is the period based upon a set number of days or a floating range of time? Can the period be tolled (legalese for suspended or postponed) for any reason?
When and by what method must the customer give notice of the software having passed or failed acceptance testing? If based upon failure of the software, will such notice include details of deficiencies experienced by the customer in testing? Also, if the customer has not responded by a certain deadline, will the software be considered accepted? Automatically rejected?
Right to cure
Assuming the software initially fails, does the developer get an opportunity to correct any such deficiencies and resubmit for re-testing?
Software license agreements usually specify requirements for the customer’s acceptance or rejection of licensed software. I always advise that these requirements be based upon as objective criteria or metrics as possible.
Be sure to address the basic attributes of the licensed software described in the standard software documentation. It’s also a good idea to discuss and clarify more detailed specifications (e.g. required functionality, operation, performance, and results of the licensed software). Much of this will depend on bargaining or negotiating strength. When we work with our developer clients, we tend to press or hold the line on “substantial conformance” as the key determiner of acceptance. However, we frequently push back on this when the client is the enterprise or business customer.
Remedies and Consequences
Your software development or license agreement should always specify the consequence or remedy for both acceptance testing failure as well as success.
In case of acceptance testing failure, what are the consequences? Does the vendor get more time to correct identified deficiencies? Or does the customer get to cancel the license purchase and receive a refund of pre-paid fees?
Conversely, is successful acceptance testing a payment milestone? Does it trigger a limited warranty period? if so, those consequences should be mutually agreed upon and properly worded in your contract.
The Bottom Line
Although your sales staff may grumble, it is best to think through and get the negotiations over acceptance testing terms over and done with before having your legal counsel put pen to paper. It will very likely save you legal fees on the drafting side and potentially save you a number of headaches and potentially your commercial relationship down the road.
Ben Bhandhusavee is the Managing Attorney for BHANDLAW, PLLC, a startup, technology, and e-commerce law practice advising founders and management teams on company startup, corporate and technology transactions, e-commerce, as well as Internet privacy concerns. The firm serves corporate and individual clients throughout Arizona, the United States, and internationally. Our offices are conveniently located along the Camelback corridor in Phoenix’s financial district. For more information about our E-Commerce/Internet Law practice, feel free to reach out using the contact form on the right or call us at (602) 222-5542 to schedule a meeting. Connect with Ben on LinkedIn or Avvo.