Business / Contract Creation And Management Simulation

Contract Creation And Management Simulation

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Autor:  anton  19 June 2011
Tags:  Contract,  Creation,  Management,  Simulation
Words: 2572   |   Pages: 11
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In today’s business environment companies are choosing to renegotiate contracts rather than go to court to have the contracts enforced. A court remedy breach of contract can be lengthy, costly, and in the end no one wins. Companies such as Span Systems and Citizen-Schwarz (C-S) should have a clear understanding of contract laws, as well renegotiation practices designed to remedy breach of contract. Both parties are obligated to fulfill each part of the agreement, and failure to meet the terms of the contract by law can be consider a breach of contract. This breach can occur when parties such as Span Systems, whom fail to perform within the guidelines of the agreement.

When parties such as Span Systems a leader in banking software and its client Citizen-Schwarz (C-S) enter into a one year legal agreement worth six million this constituted a valid contract. Span System will produced and provide updated banking software to Citizen-Schwarz within the one year contract. As with any project delays issues such as poor performance, project delays, organizational changes, and possible contract violation have arisen within the project. Such elements have led to dissatisfaction from both companies which could lead to a breach of contract if certain contract clauses are not addressed. Span Systems and Citizens-Schwarz must negotiate remedies for breach of contract in order to complete the current project and resolve any contract disputes.

Both Span System and Citizens-Schwarz believe the other to be in breach of contract, each company must evaluate the problems associated with the project development paying attention the project scope, delivery schedule, and technical performance. By developing an acceptable contract by both parties, the software project results should be should be successful. Completion of the project will free Span System and Citizen-Schwarz from contractual obligations.

Span Systems will attempt to resolve its issues with the Citizen-Schwarz by initiating non-litigation tactics such as mediation or other resolution methods. “Mediation is the process by which a third person, called a mediator, attempts to assist disputing parties in resolving their differences.” (Reed, Shedd, Morehead, & Corley, 2005, p.122) It is in the best interest of Span Systems to maintain a good business relationship Citizen-Schwarz because the e-CRM contract is contingent on the successful completion of the Citizen-Schwarz’s software project. By implementing non-litigation tactics such as mediation or other resolution methods, will allow Span Systems to increase its chances to resolve the contractual issues with Citizen-Schwarz AG and prevent costly lawsuits. The contractual amendments agreed upon by Span Systems and Citizen-Schwarz from the negotiations meeting are listed below.

Amendment Contract Terms

Performance of Contract

The contract states, neither party may cancel this agreement, in whole or in part, subsequent to more than 50% of the consideration having been tendered by the other. (UoP Simulation)

Over the last couple of months, the completion of Span System’s deliverables have been behind schedule. Citizen-Schwarz is not happy with the quality of the deliverables. During the user testing phase, several software defects were found. Now Citizen-Schwarz is requesting the transfer of all unfinished codes and has asserted the rescission of the contract. Since Citizen-Schwarz is requesting all of the unfinished codes, the company is in breach of its contract obligations because more than 50% of the deliverables have been completed by Span Systems. However, Citizen-Schwarz disputes this claim because according to their project schedule, only 40% of the project has been completed.

To resolve this issue, both parties have agreed upon performance measures which are outcome oriented. However, due to the high risk nature of the work being performed, a detailed work authorization requiring both parties to follow protocol and specifications. Performance measures will be used to enable the quality assurance plan and schedule payment solution to foster better performance by Span Systems. The parties performance based contract will include the following:

• At the expense and discretion of C-S, a release manager with added specifics to the deployment of software.

• C-S will closely monitor the direct removal efficiency of Span Systems and communicate a benchmark to Span Systems in one month from the date of contract sign off.

• Use of measurable performance standards in terms of quality, timeliness and payment schedule.

• Span Systems will be entitled to payment for the percent of services satisfactorily completed as of the date of termination or cancellation. Beta testing performed 30 days from contract sign off will be used as a deliverable to meet product satisfactory. Beta testing period will be fro 30 days.

• Span Systems will certify the software for acceptance testing, Acceptance period will start 1 day after installation of software for the 30 day testing period.

C-S will closely monitor the direct removal efficiency of Span Systems and communicate a benchmark to Span Systems in a month from the date of renegotiation. By implementing monitoring and status reports, a positive and negative feedback will be acknowledge, reinforcement for more workers (if needed) on the project and consideration of the budget of the anticipated deliverable. C-S and Span System will communicate on the progress and status of the deliverables and meet deadlines to stay within the contract.

C-S may terminate this agreement, in whole or in part, for any reason upon seven days prior written notice. Due to early termination C-S 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. “Contract law covers when agreements to exchange resources can be enforced.” (Reed, 2005 p.8) Agreed upon by both parties for schedule of payments is the following:

• Upon start up of beta testing, 50% of payment will be paid.

• Upon completion of acceptance testing with or without deficiency, 25% of payment paid

• Upon completion of project, remaining 25% is allocated to Span System.

Change Control Panel

The contract states, through the event of Citizen-Schwarz requiring any ordinary change or the user and system requirements originally agreed to, Citizen-Schwarz will notify Spans Systems as soon as possible during regular business hours any pay Span Systems any accruals at the rate agreed to. Any changes in functional requirements or enhancements will be handled as per procedure outlined in information Technology Project Methodology Standards. (UoP Simulation)

The current contract was originated to cover a one year time frame. However, Citizen-Schwartz’s user and system requirements have grown since originally determined by the system study stage, making them difficult to accommodate within the originally agreed upon cost and timelines. The original contract should have addressed any changes that were not ordinary. To resolve this issue, Span Systems and Citizen-Schwarz has agreed to establish a Change Control Panel to review project changes and highlight any changes in the scope of the project. The creation of a Change Control Panel will enable Spans Systems to control any changes that might affect the outcome of the project scope.

Appointment of a four member change control panel to ensure that the interest of both parties are considered and comprehensive documentation of change requests are in place to protect both parties in the event of further disputes. The panel will be comprised of two representatives from both parties and will be established within three days of contract sign off. Both parties have agreed upon, as to what defines sizeable change at time of contract sign off. As stakeholders perspectives differ, C-S may not perceive the magnitude of a change in the way Span Systems does. The purchase of the software program will immediately be signed off by C-S. Implementation will be conducted within three days of contract sign off and will solely become the property of C-S.

In addition to a change control panel, C-S would like for both parties has reached a consensus for the need to establish an integrated cost and schedule control system in which it will be established by C-S and implemented within five days of the sign off. C-S agrees fund the cost of establishment and labor.

Communication and Reporting

The contract states, the duration of the project there will be regularly scheduled meetings. The Citizen-Schwarz AG & Span Systems Project Managers will determine the frequency and location of these meetings. It is anticipated that the beginning of the project will require at minimum, biweekly meetings. These status meetings can be conducted either in person, via the telephone, or through electronic means, namely video conferencing, e-mails, instant messenger, Internet conference, or any combination thereof. The output of the meetings will be minutes which will serve as the project status reports. The reports will be transmitted to the Citizen-Schwarz AG Project Manager (via facsimile, e-mail, or any other means mutually agreed to by the Citizen AG and Span Systems Project Managers respectively). (UoP Simulation)

Citizen-Schwarz AG recently made some changes to its project management structure. Citizen-Schwarz AG’s decision to change its project management structure eight months into the project caused serious delays with the project deliverables. Span Systems believes Citizens-Schwarz AG breach its contractual agreement when they failed to communicate the project management structure changes. Although Citizen-Schwarz AG does admit the changes in the company’s project management system probably caused some minor project delays, but the company denies it has breach its contract.

In the business relationship, it is neither feasible nor desirable to litigate each dispute that arises. “Time is money, and one small delay in the court proceedings can cause larger and longer delays down the line.” (Reed, et al., 2005) In order to avoid litigation and in order for Span Systems and C-S to benefit and progress in the business relationship an amendment to the contract clause is being implemented.

Span Systems wants Citizen-Schwarz AG to provide a Quality Control Panel for the remainder of the project. The Quality Control Panel would be responsible for reviewing the quality of the project deliverables. Citizen-Schwartz AG would be responsible for the total cost of stationing the Quality Control Panel at Span Systems corporate offices in California.

• Appoint a project manager

• Schedule and scope changes briefed on a weekly basis.

• Employ an Earned Value reporting system.

• Project status reports: meetings, bulletin boards, portal, bring in CS project manager to work with Span Systems project manager to oversee changes and performance.

• Implement expanded dashboard.

Project Structure

The contract states, Span Systems will allocate eight programmers, led by a competent software engineer, who will work closely with the team of developers at C-S in relation to the administration and other matters relative to the technical activity of the project.

Citizen-Schwarz is afraid that Span System would be unable to meet the original 12 month deadline. Citizen Schwarz believes Span Systems should have completed 60% of the project according to the schedule, only 40% of the project has been completed. The quality of the completed deliverables has been consistently deficient. However, the project team at Span Systems has gone out of its way to meet the project schedule, but the quality might have neglected in efforts to meet the original deadlines and accommodate the changes within the originality of the delivery schedule. To resolve this issue, Span Systems proposes to increase the size of the current programming team.

Both parties have negotiated and are in agreement to increase the number of programmers for the duration of the project. An additional 10 programmers will be added to the project within five days of the contract sign off. Both parties have agreed to the cost being distributed at a 70-30 ratio. Span Systems is responsible for 70% of the cost incurred for the expansion of programmer workforce. C-S is responsible for the remaining 30% of cost incurred.

The addition of a project management consultant to oversee project scope and change control has been agreed upon with the cost being split 50-50 amongst both parties. A project management consultant will be brought on board within three days of the contract sign off. The project manager will advise and consult with the change control panel as change occurs and/or creep is identified. Both parties agree the cost associated with additional programmers and a project management consultant will contain cost over the long haul and position the project to be completed in a timely manner.

Both parties are in agreement of housing C-S and Span Systems technical staff in the same location to enhance communication and information exchange. The cost involved will be divided 50-50 by both parties. The co-location will be in effect within five days of the sign off.

Both parties will establish who has the authority to direct changes based on the change control panels recommendations within two days of the contract sign off. There will be a representative elected from both parties who have the collective authority to direct changes. Both parties will be responsible for the cost incurred of their own representative. Both parties must accept the other party’s representative by written agreement within three days of contract signs off to ensure that the level of expertise and the commitment to the project is of the highest regard.

“The implementation of WBS will provide accountability, alignment of cost and schedules, individual task and budgets and focus on milestones.” (Leeman, 2002) “A lack of focus allows for temptation to add functions and capabilities that are not specific to the project.”(Leeman, 2002) The WBS will be established and implemented five days from contract sign off. The WBS will be a joint effort by both parties and the cost incurred will be shared equally.

Dispute Resolution

In the case a non-performance of contract arises, dispute resolution will take place. The both parties have agreed to place an Alternative Dispute Resolution clause in the contract to help minimize risks for both parties. During negotiations, both parties will attempt to use interest-based negotiation. Quoting Reed et al., (2005) have stated principle interest-based negotiations is a best practice approach to negotiating among disputing parties. Interest-based negotiations address seven elements:

• Communication-clear communication between two parties may assist in each of them becoming joint problems solvers, rather than blame gamers.

• Relationship-each party would likely benefit by retaining their relationship and maintain, or even enhancing their opportunity together.

• Interests-both parties may have similar if not the same interests which cannot be established without open communication.

• Options-brainstorming possible options or solutions under the agreement an idea expressed are not an actual proposal for compromise.

• Legitimacy-applying accepted standards to the topic negotiated rather than having the parties’ state unsupported propositions.

• Alternatives-understanding the possible outcomes which are possible without the agreement of the other party.

• Commitment-successful negotiation must conclude with the parties making realistic commitments which can be put into practice.

All seven elements help both parties express the factual situation to locate possible problems. Interest-based negotiation also encourages both parties in becoming joint problem solvers instead of blaming one another. Both parties will benefit from maintaining or even enhancing relationship through effective communication. Communicating both parties real interest and exploring numbers of options and alternatives may help prevent issues to get out of hand and avoid costly expenses of litigation. Both parties have agreed upon a binding clause of mediation and arbitration within the contract if interest-based negotiation fails. This clause would enforce each party to submit to these suggested ADR techniques and would mitigate the risk associated for each party; in essence avoid litigation.


Leeman, T. (2002, September-October). Managing the chaos of change. Journal of

Business Strategy, 11(5). Retrieved February 3, 2008, from Thomson-Gale PowerSearch database.

Reed, O.L., Shedd, P.J., Morehead, .W, & Corley, R.N. (2005). The Legal and Regulatory Environment of Business, 3e, Chapter 8 Principles on Contract Law. New York: The McGraw-Hill Companies.

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