Memo: Legal Risks and Opportunities Jennifer Stucky Law 531 – Business Law August 2, 2010 Professor Dominik Musafia Memo: Legal Risks and Opportunities MEMORANDUM TO: Kevin Grant, Director FROM: Jennifer Stucky, project manager DATE: August 2, 2010 SUBJECT: Dispute over contract with C-S CC: Harold Smith, Attorney This memo is in response to the dispute over the contract between Span Systems and Citizen-Schwarz AG (C-S). Management is taking the necessary steps in resolving the issues C-S is reporting of low quality deliverables and schedule delays.
C-S is threatening rescission of their contract and demand immediate transfer of all unfinished codes (University of Phoenix, 2002, Legal Environment of Business: Contract Creation and Management, Law 531). C-S must prove a material breach is occurring and give adequate notice to Span Systems to issue a rescission (Cheeseman, 2010). Span Systems and C-S signed a one-year contract worth $6 million dollars that has five clauses for breach of contract and a project structure clause.
This memo will identify what management is doing to avoid legal risks, minimize liabilities, and benefit from opportunities presented to make this contract successful. Substantial Performance of Contract Clause: Span Systems is stating that substantial performance of the contract is met as the project is eight months underway, which constitutes 60% of the project schedule being complete. C-S asserts that Span Systems is in material breach of their contract for inferior performance because only 40% completion of the project and the low quality of the recent deliverables.
According to metrics dashboard, the contract allows +-5 days for schedule slips and the current schedule slips is +2 days per deliverable (University of Phoenix, 2002, Legal Environment of Business: Contract Creation and Management, Law 531). The issue lies in the amount of five defects per deliverable currently and zero defects per deliverable is allowable in the contract. To meet the substantial performance clause only a minor breach in the contract can occur and only deviate slightly from complete performance of the contract (Cheeseman, 2010).
Span System acknowledges the breach of contract clause and amends the contract stating that C-S may terminate the contract for any reason upon seven days prior written notice and Span will receive payment for all completed work. Internal Escalation Procedure for Disputes Clause: The clause indicates that the aggrieved party must submit a written request for progressive management involvement for any dispute. C-S agrees that this is not occurring and they are in material breach of contract.
However, management believes that the underlying issues for C-S are the schedule slips and the quality issues and even though this gives Span an option to minimize liability it does not promote saving the contract or the business relationship. Requirements Change Clause: The project changes that C-S is requesting is beyond ordinary and have brought the current project from 940 in function size to 1015 according to the Metrics Dashboard (University of Phoenix, 2002, Legal Environment of Business: Contract Creation and Management, Law 531).
To address this issue, management is going to appoint a change control panel (CCP) composed of individuals of both organizations to review change requests and decide which are accepted or rejected and the changes in the project size. The contract amendment specifically details the compensation scale when the features are added. Communications and Reporting Clause: C-S had a change in project management increasing the delay of deliverables. This change causes C-S to be in iolation of breach of contract. To increase communication and eliminate delays, Span will upload daily project updates for C-S personnel to view. C-S will assume the cost of a project manager in the California office who will act as the liaison between C-S and Span Systems. Intellectual Property Rights Clause: The clause states that Span Systems retain the rights to the intellectual property until all payments are made. C-S cannot force span to give over the codes as payment remains outstanding.
C-S ensures that there is no violation of the copy rights and they are not in breach of contract. Project Structure Clause: Span Systems agrees to amend the clause to increase the team size to 10 people and will allow C-S to review each resume of each new programmer (University of Phoenix, 2002, Legal Environment of Business: Contract Creation and Management, Law 531). This will also foster confidence in the relationship and C-S will be able to suggest any modifications or changes to the team.
Increasing the team numbers and efficiency will assist with meeting future schedules. As the project manager, evaluating the above contract clauses and making amendments to the contract is the best alternative approach for the contract dispute between Span and C-S. Management gained leverage and minimized liability by analyzing the breaches in contract and addressing how both parties are in material breach for inferior performance.
Addressing the issues of ambiguity in the contract with clearer language will assist with minimizing additional disputes (University of Phoenix, 2002, Legal Environment of Business: Contract Creation and Management, Law 531). Management is fostering good faith and building confidence that both parties want tender of performance by increasing sharing of financial responsibility by having C-S bears the cost of the project manager in California and Span bears the cost of training the new programmers.
Please be aware that management is continuing to monitor the status of this dispute as the success of this contract is extremely important in the possible procurement of C-S’s e-CRM order. References Cheeseman, H. R. (2010). Business Law: Legal Environment, Online Commerce, Business Ethics, and International Issues (7th ed. ). Upper Saddle, NJ: Prentice Hall. University of Phoenix. (2002). Legal Environment of Business: Contract Creation and Management. Retrieved from Law 531 – Business Law. https://ecampus. phoenix. edu/secure/aapd/vendors/tata/sims/legal/contract/legal_contract_frame. html
