Contract Risk

Recognizing Contract Risk and Opportunities

Recognizing Contract Risk and Opportunities
To all Management at Span Systems:
As all of you may know, we at Span Systems have been working with Citizen-Schwarz AG (C-S) on an extremely important banking software project. I am writing this memo to briefly discuss what has been happening in this situation and to address ways we can avoid some of the issues and minimize liabilities in the future. As all of you also may know, things have not been going as planned. Much of the issue was created with the vague wording of the contract. We must remember why we signed a contract with C-S in the first place. “The driving force behind these negotiations is a voluntary cooperation between two or more business partners who would like to explore potential business opportunities that might result in a contract explicitly formalizing mutual obligations” (de Moor, 33).
About eight months into the $6 million one-year contract, Citizen-Schwarz threatened to rescind on the contract sighting a material breach. “A material breach of a contract occurs when a party renders inferior performance of his or her contractual obligations that impairs or destroys the essence of the contract” (Cheeseman, 249). In the original contract, there were multiple clauses that would protect us against a potential rescission. Our goal as a company is to see what clauses were beneficial and which were not. The first potential protection is an internal escalation procedure for disputes. This clause states that prior to filing any formal proceedings, the invoking party, Citizen-Schwarz, should call for progressive management involvement in the dispute and produce notification in writing (University of Phoenix). C-S was in clear violation of this clause when they threatened for rescission of the contract. If trial was necessary, this would have been our strongest defense. We did not have to go to trial, but all contract writers should note that a clear policy... [continues]

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