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M E M O R A N D U M To: Managers- Span Systems From: Harold Smith, Span’s Transactional Attorney Re: C-S Contract Issues Confidential C-S initial demanding of immediate transfer of all unfurnished code & assert rescission of contract was driven largely by Leon Ther, toughest negotiators at C-S. In a letter to Grant, Ther has asserted that C-S just can’t afford schedule slips because of its deadline for the release of the transaction software in the market. As we know, the one-year contract between Span and C-S is worth $6 million. C-S’s bigger e-CRM order is in the pipeline, and chances of Span getting the order hinge on the performance of this contract. The CEO has advised that we settle this dispute amicably. We must talk to C-S before it can seek any C-legal action. However, before we begin any negotiation with C-S, need to look at the clauses in the contract that favor us and prepare our negotiation points. A. Breach of contract - not meeting deadline (substantial compliance' What about the quality of the work' Will C-S succeed' ) C-S had a valid argument regarding quality and delay in delivery of code. Acceptable quality and timely delivery, in this case, were concurrent conditions to Span’s claim of substantial performance. In Grant's letter, C-S just can’t afford schedule slips because of its deadline for the release of the transaction software in the market. Span’s deliverable in the last couple of months have been behind schedule. On top of that, the quality of the deliverable has been unacceptable, with major bugs being detected in the user testing stage. There are differences of metric that schedule slip from 5 days to currently +2 days per deliverable, defect should be Nil to currently, 5 defects per deliverable, and size(industry standard in sizing software project) is planned 940 but currently, 1,015. Quality measurements of deliverable will play a key role in determining whether Span’s claim is valid. If the deliverables have been of high quality, then Span would have delivered on one count, at least. Requirements have grown unusually as against ordinary changes to user and system requirements’ agreed to in the contract. This has been an obstacle in meeting timelines originally agreed to. The rescission orders have come at a time when eight months have already elapsed. We have kept up with most change requirements that have been anything but ordinary. As per the performance clause in the current contract, C-S may not rescind the contract at this stage since more than 50% of the project schedule has elapsed. Also, there has definitely been a breakdown of internal escalation of processes at C-S’s end, and that can be our defense. 1. Legal principle' What legal principle does “substantial compliance fall under' (Defense to breach of contract' Is a substantial performance ground for rescission' What are the legal consequences' According to original contract between C-S & Span, first, either party may not cancel this agreement, in whole or in part, subsequent to more than fifty percent of the consideration having been tendered by the other. Second, as per the performance clause in the current contract, C-S may not rescind the contract at this stage since more than 50% of the project schedule has elapsed. We, Span claim that merely completing 50% of more of the project schedule does not constitute substantial performance of contract. If the quality of deliverables has been deficient, C-S will be well within its rights to claim that the contract has not been substantially performed. Third, as per internal escalation procedure for dispute, prior to the filing of any formal proceedings with respect to a dispute, the party believing itself aggrieved (the “Invoking party”) shall call for progressive management involvement in the dispute negotiation by written notice to the other party. The procedure is specified below: Primary Level: Span Project Leader – C-S Project Leader (Allotted time: 5 business days), First Level: Span Project Manager – C-S Project Manager (Allotted time: 10 business days), Second Level: Span Projects Director – C-S IT Director (Allotted time: 15 business days), Third Level: Span CEO – C-S CEO (Allotted time: 20 business days). That C-S has unilaterally indicated rescission of contract is in clear violation of its contractual obligation of ‘progressive management involvement’ in dispute negotiation. Fourth, as per requirement change, it has grown unusually as against ‘ordinary changes to user and system requirements’ agreed to in the contract. This has been an obstacle in meeting timelines originally agreed to. As the legal consequences, I think that makes a strong case for Span. 2. How do you assure this doesn’t happen in the future' Quality control panel' No one guarantee to assure this happen again in the future. But it will be not happen near future because of lessons from this case for C-S & Span. The Citizen-Schwarz AG and Span Systems Project Managers will determine the frequency and location of these meetings as measurement of preventing happen again. It is anticipated that the beginning of the project will require, at a minimum, bi-weekly meetings. These status meetings can be conducted either in person, via the telephone, or through electronic means, namely videoconferencing, e-mails, instant messenger, Internet conference, or any combination thereof. Any changes in functional requirements or enhancements will be handled as per the procedure outlined in Information Technology Project Methodology Standards for quality management. B. Modification clause' Is there one in place' Has it been followed' What remedy' Who would prevail' Span need to three measures are appoint a change control panel, a quality control panel, and upload daily project updates on extranet for authorized C-S personnel review. Our goal of measurement is consequently, contract save that Ther has reconsidered his decision to rescind the contract and agree to renegotiate the contract as per agreed terms. And a unilateral change in contract is unacceptable. Therefore, we need to modification process between C-S & Span via legal and project manager team. To prevent this in the future, we need to prepare measures that suggested by Span also suggest that businesses are willing to go beyond signed agreements and proactively remedy situation that would otherwise end up in court Preserving the relationship with a business partner may be worth far more in the long run than the potential cost of trying to prove that your position on a contract clause is legally sustainable today, The real cost of “winning” your point today (or whenever a court finally decides it) may be permanently alienating your business partner. The results of litigation are always uncertain. The only certainty about litigation is that it is expensive in time, money, and emotional involvement for all concerned. Few cases are worth that kind of investment. Prepare to propose to C-S that Appointment a control panel to review change request, a quality control panel to evaluate delivery defect, and upload daily project upload Span's extranet. C. Code given to Indian company in violation of contract' If so why' What is the remedy' Is it a material breach' Who would prevail' What do you do to prevent this in the future and /or maintain relationship with this client' Our marketing manager in London said that C-S is in talks with an Indian software developer to complete the transaction software project. It is evidence to believe that C-S may have already shared the code of a few modules developed by Span to get the Indian vendor started. If it’s true that C-S is negotiating with another vendor and has released code to them, it is a clear violation of the contract on the substantial performance and copyright fronts. Naturally, they now make a strong defense for us. In order to prevent this in the future and /or maintain your relationship with this client, as per the agreement, the intellectual property rights of all work products remains vested with Span until all sums due to Span have been paid. At the moment, C-S cannot force Span to transfer the code of finished work products since payment for the recent few deliverables still remains outstanding. We need to make efforts to prevent the recurrence of accidents not legal action but also mutual enhancement of business morality. We have reviewed C-S initial demanding of immediate transfer of all unfurnished code & assert rescission of contract into the strategic negotiation of Span System. I think that makes a strong case for Span. As conclusion, we can start negotiating with C-S. Please begin drafting of measurements for how such a negotiation will impact Span’s business areas of responsibility and how amended contract facilitate the business with C-S.