Saturday, November 30, 2013

Acceptance or sign-off

If you have ever seen this statement and wonder why it is used?

“Buyers acceptance or sign-off does not diminish or relieve the seller`s liability under the agreement.”

The problem is that the words “Acceptance” or “sign-off” may be used in a number of ways. In the worst case for a buyer it could be interpreted to constitute either a waiver or release of the buyer’s right to make future claims when your intent of signing may be far less. It might be to note that the product or services has been delivered and appears to be as described. It might function as a threshold, which triggers the responsibility for payment. Many times acceptance is the point at which a buyer is giving up their right to return a product as defective. After that type of acceptance any correction must be done under warranty obligations.

For products the language is used to make it clear that such acceptance is not functioning as either a waiver or release of potential future claims. The “acceptance” is functioning as a recognition that the work has been performed, not that there are no latent defects. Further, there could be future claims for negligence such as may occur from a defective product that causes injury in the future. It could be a contract claim, such as making a claim to have a defect corrected under warranty during the warranty period. There is frequently a potential for third party claims that may arise after completion and delivery of the work. For many services there are and should be warranty periods. In a service, even if there is no warranty, there may be performance commitments that were agreed must be met. For example, an engineering company designs something. They commit that when produced the product of the design will meet certain performance commitments. The employer who has no experience in the design “accepts” the design. That acceptance shouldn’t be waiving the responsibility of the designer that, if the item produced is accordance with that design, it must meet the performance commitment.

Many suppliers would love to have all their responsibilities end when there is either acceptance or upon completion of the warranty period. That doesn’t work for buyers as potential third party claims can still be made up to the applicable statute of limitations for that type of claim have been exhausted.
Is this an unknown risk at the time the contract was signed and as such placing an undue risk on the supplier or contractor? Those potential risks existed at the time the contract was signed.The only thing that isn’t known is the probability and magnitude. Making them responsible for those risks is not expanding their obligation under the contract.

Could an “acceptance” relieve supplier of potential future liability? For some liabilities it might be a reasonable to cut off of responsibility for things like correcting or making changes to work in the future. One example would be if the employer was an expert that was not relying upon the expertise of the service provider. In many situations that isn't the case and that's why when it comes to services I would still use that language just to make the legal impact of the acceptance or sign-off clear.