2. Acceptance Testing

The vast majority of vendor agreements provide for no acceptance testing of the software being licensed. If the issue is addressed at all, the agreement generally provides that the software will be automatically "deemed accepted" after some period of time, usually thirty or sixty days from delivery. In our vendor form agreement, Section 2.7 provides that the Licensed Software is deemed accepted on delivery. This type of automatic acceptance should be strictly avoided because it could easily result in the licensee paying for product that does not work or interface correctly.

Acceptance (and payment) should not occur unless and until the licensee has satisfied itself that the software is performing in accordance with the agreed upon specifications. A good practice is to withhold 20–25 percent of the license fees until after final acceptance. This will ensure vendor's "interest" throughout the testing process. Where appropriate, the agreement should also provide for interim testing of deliverables (e.g., at defined steps in the implementation process). This will help identify potential problems or deficiencies early on in the process, rather than at the end. For example, testing could be conducted in stages as follows:

Installation Testing: Performed on delivery of the software to confirm basic functionality and performance.
Interface Testing: Testing of each interface as it is implemented.
Component/Module Testing: Testing of each component or module of the software as it is implemented (e.g., in an accounting package, the licensee would test the accounts payable module, accounts receivable module, etc.).
Final System Testing: Testing of all components and modules of the software working on the licensee's systems, with all interfaces implemented.

The agreement should be revised to include a specific acceptance testing provision that includes the procedures to be followed if the software fails the applicable acceptance test. If, after several attempts, the vendor is unable to provide software that conforms to the specifications, the licensee should have the right to terminate the license and receive a refund of all fees paid, including all license, support, and professional service fees. Some vendors may balk at a full refund of all fees paid, but they must be forced to assume responsibility for failing to provide what they agreed in writing to deliver. If a vendor licenses an application and charges the licensee $50,000 to install it and the application fails to work, the vendor should not be allowed to keep the professional service fees. To agree otherwise would remove a substantial incentive for the vendor to make sure the software works as agreed upon in the license agreement.

Example Revision:

2.7 Delivery. Vendor will deliver the object code version of the Licensed Software to Customer within five (5) days of the Reference Date. Vendor will bear risk of loss of the Licensed Software until delivered at the Customer designated facility. ~~Customer will be deemed to have accepted the Licensed Software on delivery~~.
2.8 ^[4] Acceptance Testing. Customer shall have sixty (60) days from the date of delivery to test the Licensed Software to determine whether it complies in all material respects with the Specifications. Upon completion of the testing, Customer shall promptly notify Vendor whether it has accepted the Licensed Software ("Accept") or whether it has identified discrepancies with the Specifications ("Reject"). If Customer Rejects the Licensed Software, Customer shall provide a written list of items that must be corrected. On receipt of Customer's notice, Vendor shall promptly commence, at no additional charge to Customer, all reasonable efforts to complete, as quickly as possible, such necessary corrections, repairs and modifications to the Licensed Software as will permit it to be ready for retesting and review, but in no event shall such corrective measures exceed twenty (20) days from receipt of Customer's notice. The testing and evaluation process shall resume, as set forth above. If Customer Accepts the Licensed Software, it shall issue a written "Acceptance Notice." The date of such Acceptance Notice shall be deemed the "Acceptance Date." If Customer determines the Licensed Software, as revised, still does not comply in all material respects with the Specifications, Customer may either (1) afford Vendor the opportunity to repeat the correction and modification process as set forth above at no additional cost or charge to Customer, or (2) depending on the nature and extent of the failure in Customer's sole judgment, terminate this Agreement. The foregoing correction and modification procedure shall be repeated until the Licensed Software is Accepted or Customer elects to terminate the Agreement as provided above. In the event of a termination under this Section, Vendor shall pay to Customer, within ten (10) business days of written notice of termination, all sums paid to Vendor by Customer under this Agreement for the Licensed Software, including all professional service fees and prepaid support fees.

^[4]Proposed new section providing acceptance testing procedures.