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Law 531 - Contract Risk and Opportunity Paper

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Contract Risk and Opportunity Paper

LAW 531

As you may know, we are leading our biggest and most prestigious banking system project with Citizen-Schwarz AG (C-S). The contract between Span Systems and C-S is for one-year, which is worth $6 million. However, C-S managers are disputing over the quality and schedule of the deliverables. According to them, our deliverables have been behind schedule and unacceptable for the past few months, putting them at risk for a deadline to release the software. Leon Ther, the IT Outsourcing Director and one of the toughest, influential negotiators at C-S, has asked for an immediate transfer of all unfinished code and is requesting a rescission of the contract, "an action to undo a contract" (Cheeseman, 2010, para. 30). Of course, Span Systems does not want to lose the contract with C-S. Although we are aware of the potential issues involved in contracts, we will discuss ways to avoid the risks of breaching a contract and the benefit from the opportunities at hand.

First, the Restatement (Second) of Contracts defines a contract as, "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" (Cheeseman, 2010, para. 5). According to our contract with C-S, we have a planned schedule slip for more or less than five days per deliverable with no defects in a quantity of 940 points. Unfortunately, the user and system requirements that were determined during the study stage, is not as easy to accommodate as expected during the actual process and is more difficult to attain in regards to cost and timelines. In other words, "although 'ordinary' requirement changes had been agreed to in the contract, the actual change requests have been anything but ordinary" (University of Phoenix, 2010). The actual schedule slip is more than two days with five defects per deliverable in a quantity of 1015 points.

Now, keep in mind that we have been in this contract with C-S for eight months. If Ther wants to request a rescission of the contract, this will involve a material breach of the contract. As defined by Cheesman (2010), "a material breach of contract occurs when a party renders inferior performance of his or her contractual obligations that impairs or destroys the essence of the contract" (para. 9). Accordingly, we will have to transfer all unfinished code to C-S as well as be accountable for the remaining balance of the $6 million contract, which will discharge us from further performance under the contract. On the hand, C-S can also request for a breach of contract under substantial performance of the contract. This occurs when, "a party to a contract renders performance that deviates slightly from complete performance" (Cheeseman, 2010, para. 7). However, the project is more that fifty percent complete, which usually means that C-S cannot rescind the contract at this time, but with the defects involved, they are well within their rights of doing so. We can convince C-S that we will correct the defects in the deliverables in an attempt to

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