Contract Liability

Findings Software developer, Span Systems and a German Bank, Citizen-Schwarz AG (C-S) decided to collaborate in a contract to fulfill a project. The project is one-year long and is worth $6 million. Span Systems experienced late deliverables and quality issues, which affected the project’s timeframe. Span Systems and C-S have decided to re-negotiate the contract because the requested changes affected the project’s scope. Kevin Grant, the project director for Span Systems and is in charge of monitoring the performance of the project. Harold Smith is representing Span Systems as their attorney, and Leon Ther is the top negotiator for C-S.

Span’s marketing manager in London reports that C-S is talking to an Indian-based software developer about completing the project Span started. The marketing manager also alleges that C-S shared software codes with the Indian business and the company began working on completing Span’s partial development (Contract Creation and Management, 2011). Breach of Contract under Requirements Change Issue Can C-S make changes to requirements and still expect Span to deliver quality work in a timely fashion? Rule C-S was to notify Span about any ordinary changes as soon as possible and pay Span Systems any accruals at the rate agreed.

Enhancements were to be handled as per the procedure outlined in Information Technology Project Methodology Standards. Analysis Breach of contract under requirement changes is one of the clauses that give both companies the most difficulty. The clause was not specific enough when first written and leaves much room for error. The requirements from C-S are not ordinary, but grew unusually according to Span. Span will have to prove that the unacceptable deliverables were because expectations skyrocketed at a high pace. Span could argue the breach of contract under requirement changes clause and most likely win.

However, Span does not want to lose C-S’s business, and the developer should recommend negotiating and amending the clause. Conclusion To help minimize the legal issues and risks for both companies, any changes to the end user and system requirements other than those stipulated in the contract will be monitored by the Change Control Board (CCB). CCB is comprised of a project manager, and a lead IT engineer from both Span Systems and C-S to identify the impact of change, to monitor the performance, and communication between the companies. Both companies should pay for the costs.

C-S will also upload daily project updates on the extranet for its authorized personnel to inspect. C-S agrees to compensate Span Systems for the changes of new requirements. Breach of Contract due to Span Systems Failure to Perform Issue Can Ther ask for immediate transfer of all unfinished code and rescission of the contract by claiming breach of contract under failure to perform? Rule The contract states neither party may cancel this agreement in whole or in part subsequent to more than 50% of the project completed. Analysis Span Systems is eight months into a one-year contract.

Span Systems complete more than 50% of the project however, the quality is unacceptable. Span is not meeting standards and it does not seem like C-S will meet their deadline for the end of the year. Even though Span Systems has reasons for falling behind, those exceptions were not included in the original contract. Conclusion C-S has the right to rescind the contract and search for another company to complete the project. The company should avoid these risks in the future; the manager should make sure Span’s ideas about the project mirror C-S’s perspective.

The contract needs to be more specific, and anytime changes are made that are not “ordinary” action should be taken. In regard to Performance- weekly analysis on the project dates should take place and any updates should have recorded as should changes in the size of the project or quality. The company will lose a great deal if C-S calls for rescission of the contract. The company’s best interest is to avoid arguing with C-S. If Span Systems loses C-S to another company, then the developer will be giving up a larger more lucrative contract with C-S in the future.

Breach of Contract under Intellectual Property Rights Issue Should Span and C-S end the contract based on breach of contract under Intellectual Property Rights based on allegations made by Span’s London-based marketing manager? Rule Trade secret owners are protected under the federal law, Economic Espionage Act of 1996 (EEA). The law indicates that anyone who illegally obtains a trade secret and uses it to benefit people other than the original owner, and intends to or does cause injury to the owner has violated the EEA (Cheeseman, 2010).

Analysis C-S and Span currently have not determined that both parties are willing to terminate the contract. C-S is not allowed to share the software codes because the company does not own the software due to payments owed. The contract between C-S and Span states: On payment of all sums due to Span Systems under this agreement, Span Systems hereby grants to Citizen-Schwarz AG an unrestricted, royalty-free, perpetual, irrevocable license to make, have made, use, market, import, distribute, copy, modify, prepare derivative works, perform, display, disclose, and sublicense such work products (Contract Creation and Management, 2011).

If Span alleges that C-S breached the contract under Intellectual Property Rights, and tries to sue C-S for damages, Span risks expensive fees and time-costs associated with lawsuits; damage to Span’s reputation because C-S will most likely state that Span’s production was inadequate; Span may find proving C-S’s breach difficult, and the courts interpretations of the contract may not lean in Span’s favor. Span may risk committing a defamation of character tort under slander and possibly libel if the statements are false and published by a third party (Cheeseman, 2010).

The opportunities for Span include (1) avoiding a possible long legal process if C-S and Span reach an agreement, (2) settle the debts owed to Span, and (3) terminate the business relationship. Although Span does not want to end the business relationship now, the company may want to consider ending the contract due to higher risks of liabilities, torts, and future breaches. The relationship has lasted for eight months and both parties have not performed their parts as agreed in the original contract (Contract Creation and Management, 2011). Conclusion

The liability and tort risks are high if Span alleges that C-S breached the contract under Intellectual Property Rights. The courts will not likely find that C-S breached the contract because the allegations regarding sharing software codes with the Indian Vendor will be difficult to prove. Breach of Contract under Communications and Reporting Issue Is Span responsible for Breach of Contract under Communications and Reporting while conducting a project for C-S? Rule Lack of assignment of rights was displayed when C-S did not notify Span Systems of all changes to the project in writing.

Under the Uniform Commercial Code (UCC) the contract applies to article two sales, article three negotiable instruments, article four A funds transfer, article eight investments securities, and article nine secured transactions (Cheeseman, 2010). Analysis Span was obligated to perform a project within a certain timeframe. C-S’s schedule was extremely sensitive and needed to be fulfilled so the bank can perform the software release to the market. Span was not able to meet scheduling deadlines due to quality interference. C-S is responsible for notifying Span Systems with all changes of the contract.

The courts will always refer to the four corners doctrine. This document stated all timeframes associated with the contract. Conclusion In conclusion, the court would have most likely sided with Span Systems in Breach of Contract under Communications and Reporting. Breach of Contract under Internal Escalation Procedure for Dispute Issue Can C-S request rescission of the contract without giving Span prior notice? Rule The contract clause states that prior to the filing of any formal proceedings, the party with the complaint must call for management involvement by written notice to the other party.

The clause includes a three step procedure that starts from a first level complaint and then goes on to state what the proceedings should be up to the complaint escalating to a third level. Analysis C-S is in breach of contract by unilaterally indicating rescission of contract without giving the proper notice via the four corners doctrine (Cheeseman, 2010). Conclusion The clause will likely work in Span’s favor since C-S violated the obligation of progressive management involvement. Span Systems faces no cons in the situation.

Conclusion for Contract Liability The Span project manager must eliminate risks by verifying that all agreements of the contract are realistic, are set within a reasonable timeframe, and deliverables meet the given requirements. The contract must be communicated efficiently with specific details. All parties associated need to review the contract before signing. Both companies may also want to hire an attorney to conduct the proper negotiation of the contract. The project manager and team must do thorough research on all obligations for the contract to ensure a successful outcome.

If the contract is not providing the results needed for all parties, then the companies should negotiate a solution to prevent legal action. Renegotiating the contract is extremely cost-effective and will provide remedies to eliminate risk, liabilities, and further financial loss. References Cheeseman, H. R. (2010). Business Law: Legal Environment, Online Commerce, Business Ethics, and International Issues (7th ed. ). Retrieved from University of Phoenix eBook Collection database. Contract Creation and Management Simulation, (2011). Law 531/ Business Law. Retrieved from UOP website, Mar 26, 2011 from http://www. ecampus. phoenix. edu.