Contract Negotiation Memorandum
April 25, 2011
Pamelya HerndonTo: Kevin Grant Project Director
CC: Harold Smith Legal Counsel
From: Greg White Project manager
Subject: Negotiation of contractual considerations with Citizen-Schwarz AG
In consideration of the communication from Leon Ther and his request to rescind the current contract I am writing this memorandum. The intent of this memorandum is to identify potential opportunities within existing clauses of the contract that would serve as starting points of negotiation to avoid litigation. The selected clauses will promote leverage for Span in the negotiation process as we offer plausible actions to remedy the conflict. Finally, it is the intent of this memorandum to offer amended clauses to the existing contract that should dispel ambiguities and better define our obligations in fulfilling the contract.
First, allow me to suggest that it is to our advantage to negotiate this resolve instead of seeking a court settlement and likewise it is to Citizen-Schwarz??™s advantage to allow us to complete the project as we have contracted. I believe we have properly established a negotiation process that was accepted in the original contract under the dispute clause.
I have identified five potential areas that could serve as negotiation points in considering breach of contract. Each of these areas offers both pros and cons when considering the potential use in negotiation. The first clause is found in the area of substantial performance. C-S suggests that they wish to rescind the contract. Based on the principle of performance, the contract, according to the Contract Creation and Management simulation (University of Phoenix, 2002, p. 7), specifies that??? neither party may cancel this agreement, in whole or in part, subsequent to more than fifty percent of the consideration having been tendered by the other.??? The disadvantage to the argument is a discussion of quality of deliverables even though our timeliness is within performance guidelines. I would choose not to make this a negotiation talking point more than offering a resolution to improve quality control. Ultimately, Ther will concede that the 50 percent clause is applicable if we accommodate their desire for timeliness and quality of product.
A stronger argument for Span is foundation of the clause of Internal Escalation Procedure for Disputes. This clause outlines a step-by-step procedure of negotiation. Ther is in direct violation of the process when he demands rescission of contract without following written notice procedures defined in the clause. The primary and second step of the process has been ignored and a project management change by C-S has prevented proper communication chains in the past. I suggest we focus our talking points on this clause and reiterate its importance.
Another strong negotiation point in our favor is the clause identifying requirements changes as determined by C-S. We should recognize that ambiguities exist in this clause and I will suggest changes in the processes of determining acceptable changes along with recommended amendments in the contract clause to eliminate these ambiguities. The question of what are reasonable changes should be addressed with all clarity. This discussion point should favor our company if we are willing to address timeliness of deliverables on acceptable changes by increasing our labor force in correlation to higher fees for the changes outside of the acceptable guidelines.
Another consideration of breach of contract exists in the clause concerning communication and reporting. It is favorable to Span in the aspect that the review of the deliverables has been delayed in the project related to project management structural changes at C-S. The evidence of this can be identified with a request of communication records from C-S internal reviews. Ther will agree that this has been an internal problem.
Finally, in response to the potential violation of intellectual property rights having been violated, I suggest that we simply reiterate the existing clause. By directly communicating our concern of the potential negotiation between C-S and another vendor with granting the other vendor access to our code, we should extinguish any industry rumors. This is not a good talking point as it would only serve as an idle threat. This talking will cause possible hostility and would be hard to prove.
The three best clauses for Span will be the Internal Escalation Procedure for Disputes clause, the Requirement Changes clause, and the Communication and Reporting clause.
Below are steps for action that will decrease our risk of breach of contract in the areas that I have identified:
1) Communicate concerns for intellectual property rights violation to extinguish rumors of another vendor in negotiations with C-S.
2) Suggest that C-S hire a project quality control manager to operate at our facility in conjunction with a realigned quality control panel.
3) Establish a change control review team that will determine requirement changes to be implemented along with additional consideration costs for changes made.
4) Hire additional employees to expedite timeliness of the deliverables as the requirement changes are implemented. Notify C-S of the resumes of the new employees to verify qualifications of the workforce.
The following amendments should be added to the existing contract to clarify all the negotiated changes according to the Contract Creation and Management simulation (UofP, 2002, page 22):
1) ???Performance- Citizen-Schwarz AG may terminate this Agreement, in whole or in part, for any reason upon seven (7) days prior written notice. Span Systems shall be entitled to payment for the percent of services satisfactorily completed as of the date of termination or cancellation. Citizen-Schwarz AG shall be entitled to receive all work products in progress or completed as of the date of termination or cancellation, subject to clearance of all payments due to Span Systems. The Acceptance Testing period shall be thirty (30) calendar days starting from the day after the Software is installed and Span Systems certifies that Software is ready for Acceptance Testing. Citizen-Schwarz AG will review all pertinent data and shall maintain appropriate daily records to ascertain whether the Standard of Performance has been met. Citizen-Schwarz AG will closely monitor the defect removal efficiency of Span Systems and communicate a benchmark to Span Systems in a month from the date of renegotiation.
2) Change Control- Any changes to the user and system requirements originally agreed will be monitored by a Change Control Board (CCB) comprised of the project manager and lead software engineer from Span Systems and Citizen Schwarz AG. The CCB will decide the changes to be accepted or rejected. The CCB will also determine the resulting change in size of the project. Citizen Schwarz AG agrees to compensate Span Systems for subsequent new requirements as per the following terms:
?· Features added 3 months after signing contract – $1,100 per function point change
?· Features added 6 months after signing contract – $1,250 per function point change
?· Features added 9 months after signing contract – $1,500 per function point change
?· Features added 12 months after signing contract – $1,750 per function point change
3) Communications and Reporting- Project status reports, in the form of minutes of meetings and tracked project plan, will be uploaded on Spans extranet available to authorized C-S personnel. A project manager from Citizen-Schwarz AG will be stationed in Span Systems offices in California. This person will participate in project meetings and act as the direct interface between Citizen-Schwarz AG and Span Systems. The cost of stationing the project manager will be paid entirely by Citizen-Schwarz AG.
4) Project structure- In order to meet the software delivery schedule originally agreed to, Span Systems will scale up the team size by at least ten (10) additional programmers within ten (10) days of the effective date of this contract. Span will send the resume of each new programmer to Citizen-Schwarz AG within five (5) days of the effective date of this contract. The costs of training the new team members
will be paid by Span Systems.???
To prevent future contract litigation potential threats, we should focus on clarity of contract clauses that define the specific standards of performance, acceptable changes of requirements within industry standard, well defined communication processes, and a project structure that is amicable to all parties. The principles defined in this memorandum will serve well as standards for future contract development.References-
University of Phoenix. (2002). Contract creation and management simulation [Computer Software]. Retrieved from University of Phoenix, Simulation, Law/531 website.
Contract Negotiation Memorandum