Recognizing Contract Risk and Opportunity
Subject: Recognizing Contract Risk and Opportunity
As most of you are aware of we have signed a $6 million deal with Citizen-Schwarz (C-S). This current contract might result in an even bigger order of developing its e-CRM, only if we manage to exceed the expectations of C-S in fulfilling this current contract. Unfortunately, C-S has asked us to rescind the contract on the basis of late and unacceptable quality of the product. It has also asked us to transfer the unfinished business codes. As the project manager for this contract, I believe that it is my responsibility to inform the management of the legal risks and opportunities that our company is facing. In this memo, I’ll identify the legal principles, and identify the problems related to the breach of contract. I’ll then discuss different possible solutions to this problem, and recommend the best possible solution that will be in the best interest of the company.
After a detailed analysis of the situation, I’ve found that although there were some issues from our side, but most of delays in the project were made due to the changes that C-S made in its project management team, and unidentified scope of the project. Unfortunate the language used in the contract is ambiguous, and has no clear objectives, which has led to the confusion between the companies. Hence, my ultimate aim will be to develop a negotiating position so that we may revise the current contract, and maintain our business relationship. (Jennings, 2005)
The current contract has many areas which might result in a potential breach of contract. Firstly, is the substantial performance of the contract, which states that neither party may cancel the contract unless fifty percent of the work has been completed. Another potential breach of contract is the internal escalation procedure for disputes, which states that the aggrieved party should inform the other party in writing before any formal proceedings begin. Breach of contract is also under the communication and reporting clause, which states that there should have been regular meetings between the two parties to inform of any updates or changes in the project. (Keenan & Riches, 2004)
To minimize liabilities, I recommend we should ask C-S to include the following measures in the contract:
1. All updates regarding the project will be updated on our extranet, so that any authorized personnel from C-S can review them.
2. C-S should appoint a project manager that will work with us to monitor the quality and act as a communication bridge between the two companies. The project manager will also work to reduce delays and speed up the level of communication. The project manager will be reporting to C-S, and will be paid by them
3. Lastly, Span Systems should add at least tem more programmers to its team so as to ensure that the project is delivered in time. These programmers will be trained and paid by Span Systems.
If these three clauses are incorporated in the contract, then it will give a way to properly fulfill the contract. Other small changes that can be made in the contract are adding the term ‘subject to clearance of all payments’ to the termination clause, which will ensure that Span Systems get their payment, and C-S gets all the products completed and those in the pipeline if the agreement is terminated. Another term that could be added is that ‘the Change Control Board (CCB)’ will decide if the changes are to be accepted or rejected. This allows a team that comprises from people from both companies to mutually decide the changes made in the product. (University of Phoenix, 2010)
In order to further minimize the risks, we have to ensure that the language that we use in contracts is clear, concise, and outlines what is expected from the parties involved. More specifically, as seen with the issues that arose out of the C-S contract, we should also include matters such as price, payment, and delivery terms as well as performance times and deadlines. Furthermore, we should take the opportunity to instate an Alternative Resolution Clause within the contract (Keenan & Riches, 2004). This will allow both parties involved the ability to use another form of resolution in legal matters. This is extremely beneficial when trying to avoid the exuberant costs associated with litigation. Furthermore, we should always have Harold Smith, our company lawyer, look over any contractual agreement we may enter in the future to minimize the risk and liabilities that may arise. Failure to look at these problems will make it difficult for the parties involved to accomplish a common goal.
In conclusion, I have reviewed the potential risk, liabilities, and opportunities that rose from the contract between Span Systems and Citizen-Schwarz and identified what managers can do to avoid those risks and liabilities. Both companies now have alternative means of working to complete the project in a productive and timely manner, which makes the working relationship better. The new amendment also keeps both companies for any litigation processes.
Jennings, M. M. (2005). Business: Its Legal, Ethical, and Global Environment (7 ed.). Mason, OH: South-Western College/West.
Keenan, D. J., & Riches, S. (2004). Business Law / Denis Keenan, Sarah Riches (7 ed.). White Plains, NY: Longman Publishing Group.
University of Phoenix (2010), Legal Environment of Business. Contract Creation
and Management Simulation. Retrieved August 1, 2010 From University of Phoenix rEsource;https://ecampus.phoenix.edu/secure/aapd/vendors/tata/sims/legal/contract/legal_contract_frame.html