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Recognition of Contract Risks and Opportunities Memo


Contracts guide dealings between two or more parties. It involves a set of promises that each party owe to each other during their dealings. Additionally, it provides for legal remedies in case of breach by either of the involved parties. The law acknowledges performance of contracts as a legal duty. Prior to signing a contract, it is important that each party understands the terms and conditions of the contract. A contract worth $6 million a year was signed between Span systems and Citizen-Schwarz AG. As a result of the contracts performance, a dispute arose putting its continuation at a position of uncertainty.

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The magnitude of the conflict was reflected by the threat of C-S negotiator to have all the unfinished codes transferred and the project rescinded. However, after a series of consultations with the negotiator, both parties agreed to have the contract re-drafted via negotiations to satisfy the involved parties. This was after frantic efforts by Span system to salvage the contract of which a loss would have resulted into loss of an even larger forthcoming e-CRM contract. This memo discusses the issues arising between the involved parties in addition to possible measures that could be put in place to avoid possible future liabilities.

Background information

The problems arising from this dispute included significant delay as well as poor quality of the deliverables. The quality was compromised by consistent bug and system failure reports. Span systems on the other hand held that the growth of C-S had impacted on the timeline and budgetary requirements of the contract. The growth had significantly altered the end-deliverable requirements and hence the resource and time strain. Changes in project managers at C-S further impacted on the project’s schedule. It is also important to mention that the position of renegotiation was largely influenced by prospect of Span systems landing a larger contract by the company in future.

Newly amended clauses

The performance clause agreed upon in negotiations, provides that the receipt of incomplete or complete work upon termination or cancellation of the contract is subject to clearance of all payments due to Span Systems. The 50% quote stated creates a loophole that could see Span systems loose the second art of financial agreements with C-S. Another important amendment aims to shield Span systems against expounded changes which may impact on its schedule. It further provides for a basis upon which changes other than the ordinary may be approved and appropriate compensation allocated. The communications clause on the other hand, ensures that progress information is constantly availed to C-S. Additionally, the clause allows for inclusion of a manager from C-S at its offices to keep monitor of progress and performance.

Issues of concern to Span Systems

The performance clause allows C-S to terminate the contract via a 7-day written notice. While span systems benefits from the assertion that the whole payment must be made prior to such termination, the clause allows C-S intellectual property rights. This clause could easily allow the code to fall into the hands of another software company as witnessed during the conflict duration. The code could eventually be used by another software company to develop a competing product. This could be dealt with by inclusion of a clause barring C-S from availing the incomplete code to another company of competing interest.

The amendment further proposes 30-day duration of testing before acceptance. This empowers C-S to either accept or reject the code based on its performance. C-S, as per this clause would maintain a record of data used in ensuring product compliance to requirements. This clause works to Span Systems advantage as it provides an avenue upon which it may draw from in making improvements to its codes and hence future programs.

The change clause also presents opportunities and challenges to both span systems. Under the clause, C-S is obligated to compensate Span systems for change s made to requirements provided they are approved by the CCB upon renegotiation of the contract. This allows span system s to make changes to suit changing requirements without having to incur additional costs.

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The contract clauses additional require regular holding of meetings. the frequencies of such meetings are to be determined by the representatives from both sides. While this clause enormously favors C-S and ensures that it is strictly updated and schedules maintained, it remains silent on the responses from C-S. It fails to acknowledge that delays could as well result from delayed responses from C-S.

Contract clauses from C-S’s perspective

Like Span systems, there are some proposed clauses which are likely to be beneficial or disadvantageous to C-S. Firstly, the performance clause would help ensure that C-S’s deadline schedule is strictly adhered and hence unnecessary inconveniences which may affect its operations are minimized. The clause, allowing C-S to retain the incomplete codes in case of the contract’s termination, gives C-S intellectual rights to the codes, and allows it to use it for whichever purpose they prefer upon termination of the contract.

The internal escalation clause is however detrimental to C-S as it compels the company to engage in negotiations prior to termination of the contract. Something of which may significantly impact on its schedule. Further the requirements clause could the cost of project incurred by C-S drastically rise over the project’s cycle.

However, the communications and reporting clause is largely expected to benefit C-S although at a cost. Stationing a project manager at Span Systems offices will allow frequent updates on progress and problems. This would allow C-S to take timely actions in case of foreseeable schedule and performance problems.

Remarks and proposals

It is important to note the highlighted issues are fundamental to the future of the contract as it will shape the relationship and possible success of the contract, where success is in context of both timely delivery and quality expectations attainment. However, most of the proposed actions lack proper definition and context of application. It is therefore vital that the context, upon which respective actions are to be taken, be well defined to avoid interpretation conflicts. For instance, insinuation by Span systems that it would deliver the resumes of ten programmers within ten days of the contracts signing fails to specify whether such are working days or normal days.

Additionally, no clear criterion for rejection or acceptance of the programmers is elaborated and Span systems could as well claim to have sufficed the contracts requirement regardless of whether the programmers were approved or rejected. Further it is important that5 deliverable quality requirements are defined within the contracts context rather than solely by C-S especially noting its regularly changing requirements. For span to claim change, it must have a reference point upon which it bases its argument. Further, a clause should be included specifying the reasonable duration with which C-S is to respond to any queries from Span Systems.

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