Most equipment contracts I see tie the money to a word: acceptance. The deposit starts production, a balance moves “after the acceptance test”, and the last payment follows “final acceptance”. The trouble is that two different tests share that word, they prove different things, and the gap between them is where payment disputes are born.

A factory acceptance test (FAT) happens at the supplier’s works, with the machine still on their floor. In the inspections I coordinate, this is the buyer’s moment of maximum leverage: anything found wrong is corrected by the people who built the equipment, with their own tools, on their own schedule and cost. A FAT can genuinely prove three things. First, identity: the unit in front of you matches the contract – model, serial number, materials, dimensions, the drawings you approved. Second, function under factory conditions: it runs, meets the agreed test values, completes the agreed cycles with measurements recorded against acceptance criteria. Third, completeness: documentation, certificates, spares and accessories exist before anything is packed.

What a FAT cannot prove is just as important: it says nothing about how the equipment will behave once it has crossed an ocean, been craned onto a foundation, connected to your power, your water, your compressed air and your other vendors’ machines. A perfect FAT is a statement about the machine in the factory’s world, not in yours.

That second statement belongs to the site acceptance test (SAT), after delivery, installation and commissioning. The SAT proves performance in the environment the equipment will actually live in: real utilities, real process material, real operators, real integration with the rest of the line. It is also the point of no return reversed – by SAT, problems can no longer be fixed on the supplier’s floor. Distance has changed who owns every complication.

Between the two tests, four things change: transport and handling; installation quality; the difference between factory utilities and yours; and the seams where one vendor’s scope meets another’s. None of these are covered by either test by default. They are covered by how you write the contract between the tests: a marine packing specification checked before shipment, an interface and utilities schedule frozen at design review, and supplier attendance at commissioning agreed in advance rather than negotiated in a crisis.

Now map the money onto what each test can actually prove, because that is the practical point. A pre-shipment balance should be tied to the signed FAT report plus closure of any shipment-blocking findings – not to the vague phrase “successful testing”, and never to shipment alone. If the factory is paid in full when the goods leave the door, every finding after that travels at your expense. The final payment or retention belongs to the signed SAT, because that is the only test run under the conditions you bought the equipment for; it usually starts the warranty clock too.

The single most useful drafting habit I can recommend is to name the test in every payment milestone. “Ten percent after acceptance test” is an invitation to argue about which test was meant. “Ten percent within X days of signed factory acceptance report, findings closed” and “ten percent within X days of signed site acceptance report” leave nothing to interpret. If you want a fuller breakdown of what belongs in each test, I keep a plain-language comparison of the factory acceptance test and the site acceptance test that expands on the checkpoints above.

One last observation from the factory floor. Suppliers do not resist witnessed testing nearly as often as buyers assume; what they resist is ambiguity late in the order. A FAT procedure agreed at purchase order, with acceptance criteria in numbers rather than adjectives, is signed off without drama far more often than one improvised the week the machine is ready. The buyers who get burned are rarely the ones who tested too much. They are the ones who paid against a word – acceptance – that was never pinned to a test, a document and a date.

About the author

Juyoung Kim leads operations at Sinospect from Ningbo, China. Sinospect has sourced and quality-controlled industrial equipment and construction materials from Chinese factories since 2004 – more than 3,700 factory inspections – with a focus on China-to-Africa projects (sinospect.com).