Contracting Risks and Opportunities

Contracting Risks and Opportunities

Span Systems and Citizen-Schwartz (C-S) are working together under a valid, express (written) contract under the common law of contracts, meeting the reasonable person standard under the objective theory of contracts; however the express terms are vague. Article two of the Uniform Commercial Code (UCC) does not need to be met as the contract is primarily for services (development) of the software C-S is purchasing. Several issues are currently challenging the working relationship of Span and C-S.

A breach of contract occurs when either or both parties fail to perform a duty owed the other under the contract. A breach may be minor (substantial) if the performance deviates slightly or may be material if there is inferior performance that impairs or destroys the essence of the contract. C-S is claiming a breach of contract by Span and is requesting a rescission of the contract based on material breach of contract. In addition, C-S is requesting Span turn over all unfinished code. Admittedly Span is behind schedule and the quality of the product to date has been below acceptable levels; however C-S has placed requests for changes that have been beyond “ordinary” and the change in management structure has had a negative impact on communications between the companies. In addition, Span has done everything possible to go out of the way to meet schedules with the increased demands from C-S.

On review, there is a breach of contract by Span in relation to substantial performance; however there has been a breach of contract from C-S on requirements change and an alleged breach of contract from C-S on intellectual property rights. In addition there is a breach of contract from both companies in relation to internal escalation procedure for disputes and communications and reporting.

In an effort to minimize legal risks and salvage the relationship between C-S and Span there are several recommendations I am proposing the following for...