Law_531_Week_3

Memo Recognizing Risk LAW/531 17 January 2010 Memo To: Span Systems Management From: VP Contracts Date: April 12, 2010 Subject: Recognizing Contract Risk and Opportunities Management Team: This Memo is written to Span Systems management as a result of the contract and contract negotiations with Citizen-Schwartz AG. Citizen Schwartz’s management believes that there has been a slip in the contracted schedule and resulted in poor quality of the deliverable product. Leon Thor Citizen-Schwartz’s negotiator has threatened to rescind Span Systems contract. Both parties have been in discussion, and did not want to rescind the contract or proceed with court actions. To prevent this from occurring, Span Systems and Citizen-Schwartz AG have begun negotiations on the contract clauses and have settled on some terms of agreement. During the negotiations process Span Systems team identified the following risks: Breach of Contract under substantial performance, Breach of Contract under Internal Escalation, and Breach of Contract under Requirements Change. I will summarize the risks Span System learned from this situation and what we can do to address this and minimize liabilities. First we must the understanding that the contract or concurrence of wills between Span Systems and Citizen-Schwartz AG is an enforceable legal agreement of both parties. If Span System or Citizen Schwartz AG, has not performed or delivered said product in accordance with the contract or mutual obligations than either party may enforce a breach of contract under substantial performance. If substantial performance were found the remedy or damages for such breach would typically be a monetary compensation determined by the courts. The entrance into any contract can be risky, thus stressing the importance to review thoroughly and scrutinize all aspects of the contract before entering a signed agreement and implementing the agreement. Span Systems and Citizen Schwartz has come to a resolution of the contract disagreements between each company. Span Systems still has work to be done on the specific terms of agreement. In the future we will deal with this by thoroughly reviewing the contract as much as necessary to ensure all aspects of the contract and wording s correct. Once the contract department believes that they have finished the contract, our Legal and contract negotiators will review and make a decision before implementation of the contract. In future contracts, we will have our legal team of contract negotiators, review and make recommendations before we make any decisions on the contract. Our contracts department will review the contracts as many times as necessary to ensure that the wording is to the liking of Span Systems. Like the wording, ordinary changes, was in the contract and should specify what those changes will be. We can take from this experience; we need to make sure the clarity of the contract is good for it to be a successful contract. With Citizen-Schwartz’s claim that Span Systems has delivered 40% of the project and the quality of recent deliverables has been consistently deficient and claims that performance is not of the quality agreed upon and behind agreed delivery schedule. The contractual agreement on performance stated that neither party can cancel the contract when more than 50% of the promised specifications are completed (University of Phoenix). At the eight-month point, the risk of rescission was on the table by Citizen Schwartz AG with Span Systems completing over half of the software requirements, which would breach the 50% completion clause of the contract. This particular aspect of the contract is favorable toward Span Systems, except for the quality of the software containing five errors per deliverable, which is contrary to the baseline of zero errors required through the measurable metrics agreed upon. Span Systems software developers cites that user and system requirements have grown disproportionately originally determined making it difficult to accommodate within earlier budget and timelines. This is known as Scope Creep, Alexandrou (2011) defines Scope Creep as “Scope creep refers to the change in a project's scope after the project work has started. Typically, the scope expands by the addition of new features to an already approved feature list. As a result, the project drifts away from its original purpose, timeline, and budget.” Citizen-Schwartz has agreed that they have not followed the escalation provision as cited. With the addition in requirements Span Systems cites that Citizen-Schwartz AG project management has exceeded the review and approval times set forth in the contract. To meet the contractual delivery dates and enhance the communications and reporting process, Citizen-Schwarz AG will station a project manager at Span Systems and will be the direct interface for the project. In addition Span Systems will increase the team size of at least 10 programmers. This will allow us to handle changes in scope and meet the delivery dates. As management take the responsibility to identify issues and troubles in contracts at the earliest time to prevent contract disagreements and preclude Span Systems from entering contract re-negotiations, which can be costly and time consuming. It must be understood that no matter how thorough we review a contract, contracts are open to interpretation. Breach of contract is a serious area of concern and can bring monetary concerns to the company. Through due diligence and intense negotiations Span Systems team has prevented the termination of the contract with Citizen-Schwartz. With new contractual review guidance in place, we must take this situation and learn from it and build on our contract writing and review expertise. References Cheeseman, Henry, R., (2010). Business Law: Legal Environment, Online Commerce, Business Ethics, and International Issues, Seventh Edition. [University of Phoenix Custom e-text]. Prentice Hall by Pearson Education Inc. Retrieved January 2, 2011, from the University of Phoenix, rEsource, LAW 531 – Business Law Web Site. University of Phoenix. (2010). Legal Environment of Business. Contract Creation and Management Simulation. Retrieved January 13, 2011, from the University Of Phoenix, LAW 531 – Business Law Web Site. Oracle White Paper-More Realistic Estimating: Separating Risks and Opportunities from Uncertainty Oracle Corporation . March 2009. Retrieved from http://www.oracle. com/us/products/applications/042767.pdf Basic Guidelines for Successful Planning Process. http://www.managementhelp.org/ plan_dec/gen_plan/gen_plan.htm. Retrieved January 14, 2011. Alexandrou, Marios, (2011). Scope Creep- Retrieved from http://www.mariosalexandrou.com [pic] CERTIFICATE OF ORIGINALITY I certify that the attached paper is our original work. We are familiar with, and acknowledge our responsibilities which are part of, the University of Phoenix Student Code of Academic Integrity. We affirm that any section of the paper which has been submitted previously is attributed and cited as such, and that this paper has not been submitted by anyone else. We have identified the sources of all information whether quoted verbatim or paraphrased, all images, and all quotations with citations and reference listings. Along with citations and reference listings, we have used quotation marks to identify quotations of fewer than 40 words and have used block indentation for quotations of 40 or more words. Nothing in this assignment violates copyright, trademark, or other intellectual property laws. We further agree that our names typed on the lines below are intended to have, and shall have, the same validity as our handwritten signature.   Students’ signatures (names typed here are equivalent to our individual signatures): Michael White