Contract Negotiation

In the contract creation and management simulation involving Span Systems and Citizen-Schwarz AG (C-S) the conflict involved and possible resolutions could be beneficial or catastrophic for both companies. Legal risks for corporations in the process of implementation and development of a program are many. To prevent this there must be direct, quantifiable benchmarks that are acknowledged by all parties involved. Any contract ambiguity that occurs can result in differences in opinion on interpretation and the resulting need for negotiation, mediation, and possibly litigation.

This would result in time, money, and effort for both parties which is not a desirable outcome. The simulation starts with a difference in opinion between companies on progress and defects in workmanship, which has pushed C-S to the point of threatening a cancelation of the contract if not rectified immediately. The contract is clear in many ways but both companies have drifted from the benchmarks and communication procedure established.

Additions and alterations to the original program has resulted in an effort on Span Systems part in order to please C-S, but has cut corners to meet the deadlines. With the delays in production and the error rate occurring C-S is nervous that the project will not get completed on time. C-S and Span Systems have both failed to employ the “Communication and Reporting” clause and as a result there are differing opinions on the position the project is in. As the simulation progresses there are paths that create an adversarial relationship and ones that foster good will.

Since this is a negotiation process at this time as a manager it is important to be realistic, offer middle ground, and understand where each other is willing to adapt to make the project successful. An example would be bringing in a C-S project manager to review and give input to the project in real-time. Span Systems could give monetarily to the solution by paying for the C-S project manager but that is not necessary as C-S’s motivation to succeed in the project and would pay for that themselves so offering that would just cost money for Span Systems that it did not need to spend.

As a manager it is his or her responsibility to evaluate the risk of causing further chances of litigation by asking C-S to pay for the cost of the manager. Through the end of the simulation it becomes apparent that the contract is sound, but the transparency and communication process should have been stronger. Allowing communication to occur in such varying methods and not adhering to the contract terms of two-week updates have caused miscommunications between the companies.

The risks involved are the loss of future contracts and the financial gain, loss of revenue on the current project through increased investment to complete the project, loss of revenue through cancellation of the contract, or litigation that will result in legal fees, downtime in the project and the possibility of a monetary penalty if a negative ruling. There is a risk of revenue loss for both sides, but primarily for Span Systems. As with many risks, the opportunities for a renegotiation of the contract are present.

Through proper communications there are improvements in the relationships between the companies resulting in the possibility of future contracts being awarded, completion of the current project in whole. Span Systems with proper negotiation in the simulation finally placed themselves in a positive light with the C-S, moved toward contract fulfillment and the possibility for future projects with C-S. The pressure from C-S and primarily Leon Ther and his demands for contract cancellation and the turnover of code to them could result in loss of intellectual property, future business development, and damage to Span Systems in the market.

By Span taking an aggressive stance they tended to alienate C-S and head toward litigation. C-S argues for cancellation of the contract based on the “Substantial Performance” clause of the contract. Span Systems has not met the benchmarks needed to prevent enacting of the clause, and they are in danger of being in breach of contract. With the current deployment of the system at 40% when they should have been at 60% according to the timeline, along with a substantial error rate, they are not in a position to argue these terms. The communication clause has been violated by both parties.

As a manager of Span Systems communicating this fact and relating the delays and errors to C-S is a strong move toward renegotiation. C-S has to be aware of the timeline changes as a result of the added programming beyond the scope of the original contract. As a manager of Span Systems openly admitting to the lack of follow through on the communication clause would save face with C-S and allow negotiations for a new plan to meet the performance clause of the contract. An improvement in the contract would have been to have a ceiling or cap on the changes over a certain period and a resultant change in timeline and fees associated (Bond, 2007).

Span Systems would be within their right to request a “Modification of Executory Contract Due to Unantipated Circumstances” due to the increases in modification of the program not anticipated at the time of original entry into the contract (Saunders & Rymsza, 2010). This is still a litigation process under Section 89 of the Restatement (Second) of Contracts. Caution should be made if this is going to be the grounds for modification as a manager at Span Systems. If negotiations do not resolve the issues between C-S and Span Systems a failure to comply with the performance clause would be a material breach of contract.

C-S’s move to get Span Systems to increase the performance to the level designated in contract is an attempt to move forward and prevent litigation; however if the standard is not met and Span is cannot reach the level designated in the contract there is also a possibility of compensatory damages. To prevent this management for Span Systems needs to move to an open position and bringing in a manager from C-S allowed a streamlined level of communications. Adding this to the communication clause from the beginning in a new business relationship would be a way to prevent miscommunications.

In this simulation the efforts and attitude of Ther is the effort to increase the performance standard. C-S has a legal duty to mitigate the damages if possible. For Span Systems managers this is an opportunity to provide a better solution through contract modification rather than litigation. Another option for C-S in this situation would be the legal right to obtain specific performance from Span Systems, but this is also an opportunity to bring the timeline and expectations under control for Span Systems. As manager with Span Systems the risks could be avoided through increased project management oversight of the project.

Negotiation and utilization of the communication clauses will move both parties toward resolution and create an environment of cooperation and openness. Once completion of negotiations occur both parties will enter into an accord that will be recorded, signed and the contract will move to toward satisfaction (Cheesman, 2010). Efforts by management by Span Systems to defend their position need to be from an open position in which C-S can see and understand that the goal is to succeed in this project, and provide a superior product which meets the needs of both parties.

Litigation is the last resort for all parties. Prevention of this in the future could be done by including a modification clause that would allow for timeline changes if a certain amount of modification of the original project occurred. This would have prevented Span Systems from feeling that they had to rush to meet deadlines. Both parties could have moved timelines and still been happy with the results. In the end both companies achieved the goals desire and ended the project in a better place for future activity and negotiation of contracts.

References Bond, Robert. (2004). Software Contract Agreements Chapter 7: Preparing the contracts. (pp. 171-234). Thorogood Publishing Ltd. Retrieved from EBSCOhost. Saunders, K. M. , & Rymsza, L. (2010). As Snug as a Bug In Software: A ontracts Law Case Study. Southern Journal of Business & Ethics, 227-62. Retrieved from EBSCOhost Cheeseman, H. R. (2010). Business law: Legal environment, online commerce, business ethics, and international issues (7th ed. ). Upper Saddle River, NJ: Pearson Prentice Hall [pic] CERTIFICATE OF ORIGINALITY.

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