Memorandum_of_Law

Memorandum To: Thane J. Messinger From: Learning Team C Date: July 13, 2009 Re: Contract Creation and Management: Legal Risks and Opportunities The contract formation and management between C-S and Span Systems developed a business relationship of uncertainties between both companies. The ambiguity of the contract and lack of clear communication established the groundwork for legal risks, liability, and the potential for rescission. The business memo outlines the identification and management of legal risks. The memo will further detail principles, measures, legal opportunities and possible alternatives to resolving the legal issues presented with the contract formation between both companies. Indistinctness of the wording of the contract between Span and C-S may have caused great risks for both parties but also created the opportunity for Span to negotiate remedies based on the vagueness of the contract clauses. These risks of uncertainty were wording such as ‘ordinary requirement change’. This wording does not specify any type of measurements or plan of action as to what types of changes are ordinary. Also the risk of not comprehending the wording of the clause of performance that states ‘substantial performance’, even though this does not clearly state what the expectations are such as a timeline or the specific quality levels of the performance, both parties arguments were proved to be valid based on this clause. It is a very important necessity that both parties review and have complete understanding of the wording of the contract. Span clearly did not perform to the best of C-S standards but because of the mishaps in the contract writing and the fact that C-S did not provide the level of expectations outlined as well, this presented Span with opening negotiations to have the contract amended. This proved to be helpful in regaining the trust of C-S by showing willingness to make right by suggesting clauses that benefited both parties and would ensure that the project would be successful and efficient. This would make good for the present business relationship and for future business endeavors with prospective clients. The opportunity to remedy and not turn to litigation would be not only for good business but having the ability to incorporate new ideas for better processing and productivity which is useful for both parties in determining the best plan of action and setting expectations for the next contract. The contract between Span and C-S Span was missing certain and definite terms. As a result, the contract was Executory, meaning a promise to perform was made, but the actual performance was not done (Jennings, 2006). Therefore, the contract amendment has specified the following information necessary to fulfill the obligations: • Performance • Payment terms • Delivery terms • Communication and reporting • Project structure Clarifying the contract’s terms minimizes the risks involved; however, project managers may also reduce the risks by implementing the following procedures: • Project managers will provide staff members with a specific timeline for completing the project in phases. • Changes in the requirements will be communicated to the programmers in a timely manner. • Regularly scheduled meetings will be held. o Programmers will report progress. o Issues regarding the project will be discussed. Open communication is essential for avoiding the potential risk of breach of contract. Therefore, the project managers are responsible for documenting and submitting meeting minutes, project status, and tracked progress to upper management, for uploading the information into the extranet. Project managers act as a liaison between the upper management and the programmers. It is also important to understand the “conditions” that govern the performance of contracts. In the subject simulation, while Span argued substantial performance of the contract based on time elapsed (stating it had completed a substantial percentage of the project), C-S had a valid argument regarding quality and delay of delivery of the project. Acceptable quality and delivery, therefore, were concurrent conditions to Span’s claim of substantial performance. In addition, it is important that the contract detail exactly what each party is required to do for complete performance (Jennings 2006). Span alleged it had completed the necessary percentage of the project in order for it to claim breach of contract under the “substantial performance of contract” clause of the contract with C-S. C-S contends Span did no such thing. Further, communication is key to any contract during negotiations and after an agreement has been reached to ensure each party is upholding their end of the deal. In the Span and C-S contract, there was a “Communications and Reporting” clause whereby the parties agreed communicate when an issue arose that might substantially interfere with either party’s performance of the contract. The change in C-S’ project management affected Span’s ability to deliver the project in a timely fashion due to increases in user and system requirements. The change in C-S’ project management also effected the quality of Span’s deliverables as Span did not receive timely approvals from C-S to move forward. C-S wanted to withdraw from or amend the contract based on Span’s failure to substantially and timely perform its duties under the contract. Span alleges a defense that the change in project management at C-S has affected schedules. To remedy any such dispute in the future, Span should be sure to allocate the proper amount of internal resources (programmers) to complete any future projects in anticipation of any unexpected events which may cause a problem in Span meeting any agreed-to deadlines. Hiring additional programmers to ensure Span’s ability to meet deadlines, and a quality control team to ensure Span’s deliverables are “bug free” and of high quality would ensure Span of establishing a reputation for excellence, which could serve Span well in maintaining its existing clients and establishing itself as a reliable and trustworthy company. Finally, Span could minimize liability by studying every potential business relationship carefully and conducting business only with those where the odds are stacked in its favor. By obtaining financial and organizational information on potential clients, Span could choose which entities to conduct business with more wisely. This would ensure Span’s profitability and longevity. The disagreement between Span and C-S presents both companies with opportunities to achieve their contract goals. C-S contends that Span’s deliverables are low on quality and behind schedule. Span contributes the lack of quality, in part, to a change in its product management structure. Span is behind schedule because, C-S’ requirements have grown disproportionately since the signing of the contract and it has become difficult to accommodate the additional requirements within earlier budget restraints and timelines. A contract is a promise (or set of promises) for breach of which the law gives a remedy (Jennings 2006). In this case, a breach of contract could be claimed against Span, because they have not delivered quality deliverables and they are behind on their delivery schedule. Span can claim that C-S was in breach of contract, because C-S is requesting changes to the original requirements. Taking legal action against a potential long term business partner is not best way to begin a business relationship. Both companies have the opportunity to set the tone for future business negotiations. The ability to re-negotiate this contract provides both businesses the opportunity to include more realistic expectations and specific plans of action in the event another disagreement occurs. There are four issues that if addressed correctly, will help solidify the relationship between Span and C-S. The issues are listed below: • Termination clause needs to be more specific – Any time that the contract is terminated, payment for the work completed is due to Span. • New quality control measures should be implemented – A change control board made up of managers from Span and C-S will determine the impact of change. C-S will be aware of any changes in project requirements and Span can expect to be paid for adding the new requirements. • Regular and consistent channels of communication between Span and C-S should be established – A C-S project manager will be in the Span offices to monitor product development. The cost of this position will be shared by Span and C-S. In addition, Span will create a website where C-S can monitor progress and receive updates on project progression. • Re-structure project team – Span will hire and train new programmers for this project and C-S can review the qualifications of these individuals. C-S can also suggest modification of duties or changes. Span will be able to increase quality of their deliverables and be on time with deliveries. Any time two businesses collaborate on a project in which there is good communication, direct involvement, clear definition of duties, and absolute commitment to the terms of the contract, both companies benefit. The need for a legal resolution decreases, because the way to resolve disputes involving negotiations, project requirements, payment terms, responsibilities, and contract termination are already included in the contract. Executive Summary Companies use various forms of contracts to establish the foundation and structure of a relationship between two or more parties. The purpose of the contract is to detail the consideration among involved parties which legally binds them; assuming all elements of the contract are appropriately incorporated. Ambiguity and phrasing in a contract can impact a business relationship such as with C-S and Span Systems. The terminology of the contract provided C-S and Span Systems with uncertainty, negatively impacting both companies. The quality of both the product and service was diminished by the imprecision of the contract. C-S and Span Systems minimized these risks by clarifying the particulars and terminology stated in the contract while implementing procedures to manage issues such as timelines, change requirements, and communication through out the project. The re-negotiation of the contract provided both parties with the opportunity to improve and expand their services. Span would like to provide programming software for C-S possibly obtaining additional business on C-S expansion operations in the US. C-S would like to collaborate with a company that can provide custom real estate programs to facilitate transactions in the U.S. The function and facilitation of a contract is significantly impacted by the contract formation and its elements. References Apollo Group, Inc. (2002). Legal Environment of Business. Retrieved July 8, 2009, from Contract Creation and Management: https://ecampus.phoenix.edu/secure/aapd/vendors/tata/sims/legal/contract/legal_contract_frame.html Jennings, M. M. (2006). Business:Its Legal, Ethical and Global Environment, 7e. Mason: Thomas Learning, Inc. www.characterandwealth.com www.businessrx.us.com Chapter 14 of Jennings, M. M. (2006). Business: Its Legal, Ethical and Global Environment (7th ed.). Mason, OH: Thomson.