Recognizing Contract Risks and Opportunities
Jennifer Breeden
Law/531 Business Law
March 6, 2011
Monica Cosentino-Benedict
Recognizing Contract Risks and Opportunities

MEMO
To: Span Systems Management
From: Jennifer Breeden
Date: March 6, 2011
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Subject: Recognizing Contract Risks and Opportunities

The purpose of this memo will be to analyze the recent contract between Span Systems (Span) and Citizen – Schwarz AG Bank (C-S). This contract’s purpose was to have Span build a transaction processing-based software system for C-S and in return C-S would pay $6 million dollars (University of Phoenix, 2002). These two companies come up against many disagreements about the language and meanings of the contract. In the end, Span worked very hard to renegotiate the clauses of the contract to continue a positive working relationship with C-S. This memo reviews the legal risks, liabilities, and opportunities that occurred during this process to make future business with C-S and other companies to come more enjoyable for both sides.
Risks and Liabilities A breach of contract is the first accusation C-S made of Span, which starts the list of risks and liabilities. C-S said that the deliverables were below the standards agreed upon and were not delivered on time. C-S claimed that Span was producing deliverables of substantial performance, meaning that they were below standards set up in the contract. Span could have also claimed that C-S was asking for changes to the software considered no longer “ordinary” as called for in their contract. These changes were causing Span to have to put in more man hours and causing them to fall behind schedule. Both companies could accuse each other of minor breaches. If this dispute had not been resolved, C-S could have gone to court and asked for damages. Rewarded damages would result from C-S having to pay another company to fix the defects in the software Span delivered. As the dispute grew more heated, C-S and Span could easily have accused each other of material breaches that raise the liability level for each side. If Span had not agreed to work with C-S, they could have accused them of inferior performance due to the fact that bugs were in the software delivered, along with Span working behind the timeline. Span heard a rumor that C-S was in negotiations with another company to complete the rest of the project and gave the other company all of the codes needed for the software. If Span’s intellectual property had been given to another company, this could have also been considered a material breach, meaning serious failure to follow the contract clauses. The issue of the timeline was something that kept coming up, which could have been an anticipatory breach by Span. Both companies were to have management meetings with each other to examine the deliverables on a bi-weekly basis. Because of project management changes, these meetings were not being held and that gave Span no option to disclose an anticipatory breach where they could have told C-S that they anticipated being behind schedule. If C-S had decided to take this breach to court, they could have asked for consequential damages because if Span did not complete the software for C-S they could have lost a huge business venture. C-S decided to threaten a rescission because of these breaches, but Span was ready to negotiate due to the fact that C-S had not followed through with all of their clauses. The review meetings were not happening; requirements continually changed out of the “ordinary,” and the ‘Internal Escalation Procedure for Disputes’ not followed all led both sides to negotiate (University of Phoenix, 2002). These liabilities and risks can be common with many contracts between businesses. To move ahead from these risks, opportunities, and alternatives need to be addressed to keep working relationships intact. Span needs to maintain a working relationship with C-S for future business endeavors as well as with any customer encountered.
Opportunities/Alternatives
When any dispute arises, both parties must agree to work together to keep the relationship intact and to focus on the rewards reaped. In the situation with Span and C-S their contract disagreements gave many opportunities for both companies to mitigate risks and steer clear of future liabilities. Both companies could have accused each other of breaches of contract and both had substantial evidence to prove their case in court. Most businesses do not want to move to a courtroom due to the legal expense, loss of time and production and the damage it does to business relationships. For Span, there were many opportunities to attack C-S. The company did not follow through with “ordinary” requests, did not follow through with alternative dispute resolution clause, did not conform to bi-weekly meetings, etc. All of these opportunities for legal action were avoided by negotiating with C-S and working with better alternatives. C-S had the opportunity to file legal action due to the fact that Span’s deliverables were late and of bad quality. When both companies worked together, the alternative opportunities they agreed upon were much more positive. The negotiate contract allowed each side able to terminate the contract no matter what percentage of the work was complete. More programmers were added to help achieve the timeline dates. A member of C-S was brought on to help with quality control through a Change Control Board. Project status reports are delivered through the company’s extranet so that C-S could view them. These measures were put into place to allow Span to complete their obligations of the contract, like their tender of delivery obligation. The alternatives and positive opportunities are adopted into everything that Span management does. When conflict arises, our managers need to be aware and ready to work together with other managers and our clients to steer clear of legal disputes and days in court. Like our negotiations with C-S, Span is always willing to add more members to a project to increase our quality and to deliver products on time. Span is also committed to changing clauses in our contracts to ensure that both parties are happy with the business transactions. Quality control is very important to us, so the idea of bringing on members from our clients to ensure that our performance meets their standards is the most effective idea learned from this conflict. Bringing both companies together to meet in the middle with quality standards is an idea that should be written into our contracts in the future. The second best idea that came from this contract, is updating our clients on our website with the status of their deliverables. This holds us accountable and ensures that our clients know where their project is and allows them to be continually informed.
Conclusion
Span’s managers will use the conflict with C-S to put into place measures to avoid risks and liabilities that this contract encountered. All contracts will be in writing, whether the law requires them to be or not. Once a contract is near completion, managers will send these to our legal team to ensure there is no ambiguous language. Courts look at contracts and apply the standards of interpretation concerning ordinary, technically, and other words (Cheeseman, 2010). Our legal department will ensure that no words or ideas or left to interpretation. Our managers will now appoint a project manager to each project who is in charge of the budget, the timeline and updating our website with the status of the project at least twice a week. This project manager will also be in charge of orienting and setting up meetings with the client’s employee who will be on our new Change Control Board that will be set up for each project. This Project manager and our managers will also be in charge of keeping on top of all of the clauses of a contract and ensuring that we are ahead of the game in terms of timeline and deliverables. Our clients will also be brought into inspect the product several times throughout the project, fully using their right of inspection. The managers at Span will learn from our mistakes and our company will move forward and succeed with C-S and with our clients to come. The opportunities and alternatives discussed with help minimize our liabilities and risks, along with allowing us to maximize on the possibility of benefits available to us.

References
Cheeseman, H. R. (2010). Business Law: Legal Environment, Online Commerce, Business Ethics, and International Issues (7th ed.). Upper Saddle River, NJ: Prentice Hall.
University of Phoenix. (2002). Contract Creation and Management [Computer Software]. Retrieved from University of Phoenix, Simulation, Law531 Business Law website.