Recognizing Contract Risk and Opportunities

Recognizing Contract Risk and Opportunities

LAW 531

February 4, 2013

Ben Waggoner

Recognizing Contract Risk and Opportunities

Introduction

Citizen-Schwarz AG (C-S) is a German-based company with $20 billion in revenues. C-S has a one-year contract worth $6 million with Span Systems to develop banking software. Span Systems, located in California is an e-banking software company. According to Cheeseman (2010) the definition of a contract is written by Restatement (Second) of Contracts as, “A contract is a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty” (p. 153).

It is important that before any contract is agreed upon by both parties they must understand the terms and conditions of the contract. Negotiating contracts gives each party the chance to make changes and give feedback before anything is put into writing. The parties involved in the contract agreement can encounter issues down the road because they did not ask questions or read the fine print within the contract. This paper will cover the issues that arose between the two companies as well as the legal risks and how to avoid these issues in future projects.

The Issue

Leon Ther, C-S IT outsourcing director has written a letter to Kevin Grant, Span Systems director – projects outlining that in the past couple of months Span has delivered below par software with bugs and the schedule of the delivered software has been behind the agreed upon timeline. As the negotiator Ther wants to transfer the unfinished code to C-S and withdraw the contract. Span Systems does not want to lose this contract because C-S has a larger e-CRM order in the works with them.

Span Systems believes the issues are with both companies, user and system requirements have changed so it has been tough to make deadlines even though in the original contract “ordinary” changes were acceptable. C-S’s turnaround times for...