Contract Risk

The contract between Span Systems and Citizen Schwarz AG (C-S) has many flaws that must be addressed. There are many kinds of contracts including unilateral and bilateral, which base the agreement upon either completion or acceptance of a task or job. Regardless of what kind of contract exists they all have some things in common. Contracts can involve multiple parties but must have a minimum of two parties. Of these two parties there must be an offeror and an offeree. ???The offeror is the part who makes an offer to enter into a contract??? (Cheeseman, 2010). Citizen Schwarz AG (C-S) would be the offeror of this contract because it has hired Span Systems to create software to improve their banking endeavors. This makes Span Systems the offeree of the contract. ???The offeree is the party to whom the offer is made. In making an offer the offeror promises to do-or refrain from doing-something??? (Cheeseman, 2010). The only way a contract can be created is through the acceptance of an offer from another party. In this case it is Span Systems has accepted to offer to create banking software for C-S, in exchange for six million dollars. The project was designed to be completed within one year. The most important thing about this contract is that there may be upcoming contacts that could be offered to Span Systems as long as they satisfy the current contract within the timeframe allotted.
C-S is not satisfied with the progress made on the project and the amount of glitches in the completed software and is threatening to cancel the contract. C-S cannot afford to be behind schedule and is demanding that all the completed software be handed over for another software development company to finish. Span Systems recognizes the possible slips in quality but they have been made in order to meet the constant changes in the C-S management structure. The contract does allow for ???ordinary??? requirement changes, but the changes made so far by C-S have been numerous and not good for production. By C-S demanding the immediate transfer of all unfinished code this would terminate the contract.
By demanding the unfinished code, this puts C-S in breach of contract under ???Internal Escalation Procedure for Disputes and Communications and Reporting.??™ The changes made in the management structure of C-S has caused a breakdown of communication between the two companies, making it impossible to address and resolve issues through the agreed avenues of dispute resolution. Also reviews of the deliverables have not happened due to the changes of the project management structure changes within C-S. Without the use of the agreed reporting policies there would be no way to be on the same page as the other party. This hold C-S accountable for some of the project??™s setbacks and productivity cannot improve without this understanding.
After hearing of talks of C-S having meetings with an Indian software company to finish the project it becomes even clearer that the issues with this contract must be resolved soon. It has been rumored that C-S has even shared some software with the Indian competition which is a violation of the ???Intellectual Property Rights??™ section of the contract. Span Systems does not have to give any software to C-S without payment. This is a risky point to present to C-S because they can opt to pay and end this would terminate the contract. This as a clear violation of the contract on the substantial performance and copyright fronts. I would present this to C-S because this would prove to be a strong defense in future negotiations.
After being reassured that the copyrights of the developed software have not been infringed upon, I would recommend C-S sending a manager to the site of development in California to serve as a component of quality control for the changes that are sure to keep coming. This way if there are any disagreements in the future about the creation of the software, C-S will be more willing to take responsibility. By having a C-S manager on hand this would allow them to have a more hands on approach and be able to get the feedback they want. This would make communication a lot easier and transparent. With better communication and an understanding that both companies must designate time to meet and discuss the project, there is more time to adjust specs accordingly. Communication is very important to any agreement and having a C-S manager on site would improve relations between the two companies.
In the simulation one option was to create an amendment to the contract that would create a Change Control Board, which would evaluate the changes to the software and see if they can be done in a reasonable amount of time in relation to the timetable created by C-S. I would rather have one person that works directly with the developers to make that decision, but before making it present the additional costs and time of the changes to C-S. If they are willing to accept the necessary time and funds to make the changes then they can happen, if not then the changes will not be made. This makes more sense to me than having a group of people come to a consensus that one person could evaluate and present to C-S.
I would create an amendment that would make C-S responsible for the addition of one of their managers to the team already working on the project. Span systems should not have to incur the fees of having someone come and watch over our shoulders. This would be a non-negotiable in the amended contract.
A report would be available for them to see what additional costs they would pay to have more engineers on the project to meet their demanding needs. If they agree that the added engineers are worth the time saved by having them then we could recruit people for the project. C-S would not have any part in the selection of the engineers because they do not have the expertise in software development, or else they would be making it themselves.

By adding a member of the C-S staff to the project, a person evaluating the proposed changes to be made, can decide which is more important, timetables or funds it allowing C-S to play a very pivotal role in the creation of the software. They also have these decision making opportunities in order to allow them to see what goes into the project they want completed. They can not only see the choices being made first hand but can change end result through effective or ineffective management choices.
As a manager I would only enter into bilateral contracts. These are contracts that are ???a promise for a promise??? (Cheeseman, 2010). By entering into a bilateral contract as the one for the C-S and Span Systems project, it holds both sides accountable for their actions. The only reason why I would not enter into a unilateral contract is because the offeror could terminate the contract after work has been done. They would not be held responsible since the agreement was for the work to be completed for payment to be made. My main concern would be the contractual capacity of the other party in a bilateral contract. If I felt as if the other parties were not financially secure or were at risk for a merger or takeover, I may not agree to a very strict contract. I would try to negotiate different terms for these kinds of organizations. First I would be concerned about the money and want a clause in the contract that if a merger, takeover, or bankruptcy were to happen the funds for this project would be paid immediately and before all other debts and liabilities. If this were not an option then there may not be a contract between that company and my organization. An effective manager would consult with lawyers to express all their concerns as to make sure the contract was safe for his or her organization to enter.References
Cheeseman, H.R. (2010). Business law. Legal environment, online commerce, business ethics, and international issues. Pearson Education.

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