Recognizing_Contract_Risk_and_Opportunities

The Legal Environment of Business Contract Creation and Management Simulation documents many contractual legal issues and opportunities. Managers follow procedures to help avoid risks and minimize liabilities. Additionally, managers benefit from opportunities that arise from preventing the dangers and problems. The simulation demonstrates legal risks or opportunities that are governed by specific principles. Managers may take identifiable measures to minimize legal risks or realize legal opportunities. Alternatives are also used to resolve problems. The simulation’s introduction implies that poorly written contracts are the demise of business operations. The problems between Majestic Hotel and InfoBuild, a software company, began before the contract was signed. The companies could not agree on the terms and conditions of the contract. Although both companies eventually agreed with each other’s demands and signed the contract, problems remained, which were litigated by the court. Regardless of the court’s decision, both companies should have learned one very important lesson: “Businesses cannot expand and grow without being able to rely on commitments; resources are wasted if promises are not fulfilled.” The simulation proceeds by introducing another software company, Span Systems, which signed a $6 million contract with Citizen-Schwarz AG (C-S), a German bank. This contract was the largest that Span Systems ever concurred. Even though C-S was previously involved with other agreements, this contract was as important to the bank as it was to Span Systems. C-S relied on the software company to complete the tasks efficiently and without delays; so that, the bank would receive a profitable e-CRM order. After the first eight months, Span Systems’ performance did not meet its contractual obligations. C-S claimed that the project was behind schedule because of issues within Span Systems. Also, bugs were found in the testing stage of the software. To refute these claims, the software company stated that C-S increased its user and system requirements which made its job more costly and difficult. Span Systems concluded by explaining that the bank’s late approvals and review times delayed the schedule too. Regardless, the legal expenses for both companies increased because attorneys from both were consulted. Furthermore, the time that was spent debating the contract resulted in lost production. Contracts contain clauses, which may prevent companies from refusing to complete obligations and help to minimize risks. Because Span Systems disagreed with the bank’s claims, the contract’s clauses were reviewed and used as negotiation tools. For example, the breach of contract under substantial performance of contract prevented either party from cancelling the contract since 50% was completed. The dispute concerning the delay in the deliveries was addressed with the breach of contract under ‘Communications and Reporting.’ Both parties agreed to meeting bi-weekly meetings in order to discuss causes and solutions for the deliveries’ delays. Lastly, the breach of contract under ‘Intellectual Property Rights’ was evaluated to protect Span Systems’ interest in its property. The software company would not give the e-commerce software rights to the bank until Span Systems received the funds for its product and labor. Using contract clauses, the companies’ management modified procedures and created new processes to minimize the risks and meet obligations. A quality control panel was created to review and repair the bugs found in the testing software. Also, the project manager at the bank was given the privilege to serve on the quality control board. C-S were given daily uploads of Span Systems deliveries to review and comment. Finally, Span Systems chose the best programmers to work on the e-commerce software; so that, the deadline could be met. As a manager of Span Systems, there are some issues that I would have handled differently. The first issue is the delay in deliveries. An internal quality control panel would be formed to discuss the problems that are resulting in the delays. This panel would meet with me every morning to confer the projects’ status toward completion. Two members of this panel would meet bi-weekly with the Span Systems – C-S quality control panel. The second issue is the projects’ financial information. A cost accountant would be assigned to this project. C-S would be contacted concerning late payments. Also, the accountant would track all projected costs to make certain that C-S is billed per its obligations. The last issue, communication, concerns the most important problem between the two companies. The managements’ hostility toward each other can cause more project risks. To communicate more effectively, I would contact C-S’s project manager on a weekly basis to inquire about the ways in which Span Systems could improve. I would keep the lines of communication open to discuss the status of this project in hopes of earning his business in the future. REFERENCES: University of Phoenix. (n.d.). Legal Environment of Business Contract Creation and Management Simulation [Computer Software]. Retrieved from University of Phoenix, Simulation, Law531 Business Law website. Marianne Moody Jennings (Ed.). (2006). Business: Its Legal, Ethical, and Global Environment, 7e. [University of Phoenix Custom Edition e-Text]. Mason, OH: Thomas Learning Inc. Retrieved March 30, 2010, from LAW531-Business Law.