Recognizing_Contract_Risk_and_Opportunity

Recognizing Contract Risk and Opportunity Memo Roosevelt P. Harris, Sr. LAW/531 To: Addie Johnson From: Roosevelt P. Harris RE: Legal Risk and Opportunity in Span System and Citizen – Schwartz, AG Contract Date: 02/11/2010 Contract Law evolved to provide enterprises with the sense of predictability and security. (kubacek, Brennan & Brown (2003). It is the responsibilities of all parties entering into a contract to make sure the language of the contract is unambiguous. Reliance on written words is paramount and essential in avoiding disputes. This memo is intended to point out the risks and opportunities present in the Span System and Citizen – Schwartz, AG Contract. This was Span System biggest banking project with Germany’s biggest bank. Performance on this contract could lead to landing a bigger contract with Citizen- Schwartz. Citizen – Schwartz, AG is attempting to rescind the contract with Span System because of Performance, Quality and Timeliness. Risks The primary risks in the contract between Span System and Schwartz, AG was the ambiguous language used throughout the contract. There was no clear definition of the scope of the project nor was each party’s responsibility clearly defined. User and System requirement were not established. Therefore, the potential cost and timeliness loomed as a potential area of dispute as the project progressed. All of this ambiguity leads to deficiencies and delays which resulted in the dissatisfaction at Citizen – Schwartz, AG and escalated to the decision to rescind the contract. It is important to look at each point of contentment. Performance Citizen – Shartz, AG contentment that Span System performance had been unacceptable because of delays in bringing the forward on schedule was valid. The cause for such delay was inevitable due to the ambiguous language accepted in the contract. Parties agreed to language which allowed “ordinary” requirement changes to the contract were subject to interpretation. Therefore, the actual change request became anything but ordinary. The scope of the project was frequently expanded subsequently increasing the cost and resources necessary to meet contract schedule. The initial resources in terms of programmers were not adequate as the project scope expanded. The quality of the job suffered because of inadequate human resources. Citizen – Schwartz had a change its project management team which delayed feedback and led to quality issues. There was no specific provision for delays caused by Citizen – Schwartz, AG. Span System response to Citizen – Schwartz, Ag letter of intends to rescind was that of Substantial Performance. Span System believe that Citizen- Schwartz claim did not amount to a major breach of the contract and therefore rescission was not a remedy nor were they obligated to turn over the codes to Citizen – Schwartz, AG. It must also be noted that Citizen Schwartz had the responsibility to give immediate feedback but could not do so because of changes occurring in their project management team. This responsibility to provide feedback in a timely minor violated the law of Concurrent Condition. Concurrent Condition is defined as the law under which the parties to a contract must render performance simultaneously, that is, when each party’s absolute duty to perform is conditioned on the other party absolute duty to perform. Cheesman, (2006). Quality and Timeliness It is extremely important to be very precise in contracts when it comes to resources and cost. The absence of adequate resources to successfully execute a contract will always lead to quality problems. In the contract between Span System and Citizen – Schwartz, AG they did not adequately define the resources that would be required to execute the contract. Instead they left in vague language to expand the scope of the project at the request of Citizen – Schwartz, AG. The shortage of programmers to meet the ever expanding scope of the project created the potential for quality deficiencies. The lack of resources also caused the time delay. Conclusion There should be no ambiguity in contract language. Each party responsibility in the performance of the contract must be clearly spelled out. According to James Barnes, et al, one of the greatest problems with contracts is that contracts often fail to specify the consequences of defective performance (Barnes, Mallor, Langvardt (2003) Span System did the right thing by not going the litigation route. Their decision to be proactive in solving the problem and inviting Citizen – Schwartz to take an active role in quality control was the right decision. Span System decision to renegotiate the contract to address Citizen – Schwartz concerns probably sealed a mutually beneficial long term business relationship. Span System may now also have the opportunity to win the bigger contract with Citizen Schwartz. At least, they give themselves the chance to take advantage of that opportunity.