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Contract Risks and Negotiations with Citizen Schwarz AG (C-S): Legal Issues and Opportunities for Future Span System Contracts JoAnne Gattoni Business Law/531 May 17, 2010 Marlene Wilhite, Esq.
it was imperative that I ensure that our performance is exemplary as it centers on the possibility of securing a future e-CRM project contract with C-S. communications and reporting. change control. describe the legal principles and risks as they relate to issues surrounding the C-S project. I wanted to provide an overview of the current project. Attorney Span Systems Board of Directors JoAnne Gattoni. Background of Contract with Citizen Schwarz AG (C-S): Span Systems signed a $6 million express contract with Citizen Schwarxz AG (C-S) to develop banking software. & Litchenstein. problems and concerns surfaced from both companies on issues as they relate to performance. Director. The purpose of this memo is to review each of these clauses. 2008). With more than 28% of software development project contracts failing because of contractual management. As project manager of this contract. Wyss. 2010 Contract risks and negotiations with Citizen Schwarz AG (C-S): legal issues and opportunities for future Span System contracts. identify measures to avoid risks. and contract renegotiations taking place to resolve the disputes on several of the original contract clauses that have been considered ambiguous. Harold Smith. knowledge of contract controls will reduce risks and enhance long term relationships with C-S and future companies (Gefeb. Project Manager May 17. After the start of the project.Recognizing Contract Risk and Opportunities Memo 2 Span Systems Memo To: CC: From: Date: Subject: Kevin Grant. and project structure. our company received a letter from C-S executive Leon Ther demanding immediate transfer of unfinished codes and insisted on . Eight months into the one-year contract. and evaluate alternatives that managers can take to avoid similar risks in the future and optimize opportunities. issues. __________________________________________________________________________ ____ Purpose of Memo: As Span Systems’ lead project manager for the Citizen Schwarxz AG (C-S) software project.
the quality of product is within their right to make this claim. internal escalation procedure for disputes. Because of changes in project managers at C-S. we decided not to argue the point of 60% completion because C-S deadlines needed to be met for them to remain competitive. Span Systems offered to hire and train 10 additional employees at their expense for the project and upload daily project updates for authorized C-S personnel to view. reviews of deliverables have not occurred as planned delaying delivery of Span Systems work. Both Span Systems and C-S agreed to the follow the original contract provisions of contract promises: substantial performance. Per the performance clause. user and system requirements have grown since the study stage of the system and make it difficult for Span to accommodate agreed upon cost and timeliness. and to maintain trust between our companies. to avoid profit losses. to ensure our managers have knowledge on the contract disputes raised. However. Breach of “Substantial Performance” principle: The first breach of contract provision focuses on substantial performance of contract. Alternative solutions to reduce risks and elevate communication and reporting issues can include direct uploading daily reports for authorized C-S executives to review and a C-S project manager will participate in meetings. C-S Contract Risks. 2002). In reviewing the alternatives available to dispute this principle. Span System has chosen to bring the project back on track. . Rather than argue contract clauses. The contract states that changes to the user system originally agreed on and handled per procedure outlined in the information Technology Project Methology Standards would occur during business hours and costs paid to Span by an accrual rate.Recognizing Contract Risk and Opportunities Memo 3 rescission of the contract. Alternatives. Breach of “Communications and Reporting” principle: C-S agreed to participate in regular status meetings to ensure communication and reporting of project. C-S stated that Span Systems performance on deliverables over the last couple of months are behind the 50% completion schedule and the quality has been unacceptable claiming major defects detected in the user testing stage of the program and warrants consideration of rescission. In addition. 2002). Breach of “Requirements Change” principle: The next breach of contract provision addressed in the renegotiation was Requirements Change. the contract is more than 50% complete and therefore does not meet this violation. 2002). communication and reporting. and Opportunities for Future Contracts: Each legal risk or opportunity is governed by a specific principle. It was recommended that both companies agreed to have a Change Control Board comprised of project managers to ensure any changes to the user and system requirements will be monitored. changes in software requirements. Span Systems CEO advised that we settle the dispute amicably before C-S seeks legal action (University of Phoenix. I have summarized the legal principle in question of breach. and intellectual property rights (University of Phoenix. with more meetings needed at the initial start of project and reports sent to both companies on agreed method of transition. However. C-S offered a project manager to monitor defects and participate in remedies (University of Phoenix. Several alternatives to these principles were examined and considered prior to renegotiation and amendment of the current contract with C-S to avoid rescission or litigation in court.
To minimize possible risks of disputes. arbitrations. costs in lost productivity. The old adage that ‘an ounce of prevention is worth a pound of cure” would appropriately apply to the current dispute and renegotiations in the bilateral contract between Span Systems and Citizen Schwarxz AG (C-S) in which both parties made promises to perform according to contract specifics. punitive damages. accurate and substantiated before laying your negotiation cards on the table. It is true that quality may have taken a back seat to accommodate the original contract deadlines. Span Systems managers should understand how contract misunderstanding and misrepresentation may occur and use active steps to reduce the factors that contribute to unexpected and unwanted legal disputes (Azia. This is an important factor in determining areas of negotiation: ensure facts are correct. 517. subject matter of contract. the contract is subject to argument for negligence and breach (Moody Jennings. 2002). Breach of “Intellectual Property Rights” principle: While working on renegotiating the terms of the contract. 2006 p. 2002). and but poor wording regarding “ordinary” requirement changes in the original bilateral contract have been anything but ordinary. Summary: Clarity of purpose is the quality for successful contracts. Negotiations over specific contract clauses have permitted Span Systems to move forward with a revised contract and allow our company the opportunity for future relationships and projects with C-S (University of Phoenix. price and payment. When one of these performance elements is faulty. This would be a violation of Intellectual Properties Rights Principle which protects Span Systems right to the software developed until C-S completes total payment agreement. C-S agreed they did not follow escalation procedures and apologized. For questions on current project with C-S or for additional information. delivery.Recognizing Contract Risk and Opportunities Memo 4 Breach of “Internal Escalation Procedure for Disputes” principle: C-S violated of the internal escalation procedure for disputes because they failed to notify Span Systems in writing for resolution of contract disputes or engage in negotiations prior to pursing a demanding rescission of contract. the marketing director of C-S reported that the company is talking with another developer and possibly has shared the code of a few modules. In a contractual circumstance. damage of relationship between companies and their reputation. both companies demonstrated performance mistakes on this project. Nonetheless. and performance times. valid contract language should include: the parties involved. 2008). Unfortunately. However. Under UCC code 2207. 545). our Span System project team has gone out of its way to meet the schedule. especially because contracts are by no means totally free from interpretation (University of Phoenix. changes. our legal team recommended not pursuing this principle based on a rumor. JoAnne Gattoni Project Manager Span System . Their lack of proper procedure put us at an advantage for re-negotiation of terms and conditions. Negligence and/or breach of promises of performance allows for rescission of the contract which may require renegotiation. Alternative Dispute Resolution procedures should be used if the opportunity for negotiations is not reached. feel free to contact me.
. M. Wyss.Recognizing Contract Risk and Opportunities Memo References Azia. M. University of Pheonix. Retrieved from https://ecampus. and global environment. (2009). . Great Neck Publishing.Business Lay Course Web Site. Business familiarity as risk mitigation in software development outsourcing contracts. (2008). S..edu. S. 5 Gefeb. ethical. Y. Law 531. MIS Quarterly. D. (2006). Simulation. 531-542. doi:Business Source Complete. Contract creation and management [Computer Software]. Business: its legal. doi: Academic search complete.phoenix. 1-10. (2008). & Litchenstein. (). 32 (3). Liability risk management. Jennings.
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