Legal Issues

Memo
Re Citizen Schwartz Project Legal Risks and Opportunities
The client has raised significant issues related to Span Systems (SS) contractual responsibilities and has threatened to cancel the contract.  From the wording and interpretation of the contract, the client has valid grounds to terminate the agreement based on performance, quality control and deadline timetables. However, SS have a strong case with regard to breach of contract under the following titles
i. Substantial performance of contract
ii. Requirements change
iii. Communications and reporting

My legal opinion is that the company should investigate the claims by C-S AG with a view to addressing the clients key concerns and renegotiating the contract to reflect these changes. Pursuing a legal case for breach under any of the above titles is expensive, time consuming and will jeopardize any chances of C-S AG awarding SS any further contracts.

Legal risks
Span Systems has worked on the project for eight months out of the contractual twelve. With only four months left to the expiry of the contract, the legal perspective is that this constitutes substantial performance. Based on this argument, Span Systems has a good case and the court may rule in their favor. However, for a substantial performance claim to succeed, a report comparing the overall performance and contractual metrics must show the company fulfilled at least 50 of the expected work. If the performance falls below the halfway mark, the client is at liberty to terminate the contract. SSs performance record is at 40 against an expected 60 while the reasons for delay are largely due to the clients fault, debating this issue in court is risky.

Suing C-S AG for breach of contract under requirements change presents a good chance for SS winning a court case. The contract stipulated that Span Systems would incorporate ordinary changes to the contract design to factor in user needs. C-S AG has made alterations that fall outside the scope of ordinary changes and involve substantial workload for SS staff. Despite this challenge, SS has exercised diligence in developing the necessary software to ensure the system works efficiently. Their performance has been above the contractual and industry standard size of 940 while the schedule slip is below the plus or minus five threshold. C-S AG defense would highlight that SS has been behind schedule in delivering products and that the deliverables have on average 5 defects against a zero tolerance benchmark. This aspect may result in a ruling favoring the client.

The communication and reporting title approach to breach of contract is tricky in that irrefutable evidence is required to prove project delays were as a direct result of slow responses from the client. In the absence of such evidence, SS chances of winning the case are very slim. In their defense, the client will argue that staff turnover was beyond their control and they acted judiciously to fill vacant positions. My opinion is that arguing the case based on this title would be time consuming and chancy.

C-S AG demands that the company hands over all unfinished codes relating to the project. Suing for breach of contract under the intellectual property rights title based on nonpayment of outstanding dues presents two unfavorable scenarios
i. the client could pay the balance due and rescind the contract
ii. the client may forgo the code, terminate the contract and look for alternatives.
In either case, the Span Systems loses an opportunity of doing further business with the client.

Opportunities
 The challenges faced by both parties present a perfect opportunity to renegotiate the contract and factor in clauses addressing key concerns. C-S AG has issues with the quality of the deliverables and the delays in the original schedule. SS argues that frequent changes in the deliverables design that were more complex than earlier envisaged contributed to these delays. SS admits having increased the pace of work in order to satisfy the client this has contributed to deliverable defects. Secondly, SS alleges changes in the management at C-S AG have slowed down approval and review of the project. These delays have had a negative effect on the projects completion.

By adopting a pro-active approach, SS managers can identify potential conflict areas and arrange meetings to resolve challenges before they explode into legal suits. Regular evaluation and assessment of project schedules will identify project downtimes and reveal operational challenges. Project managers should liaise with the clients contact in charge of the project to brainstorm on the best way to resolve such problems. Span Systems failure to consult with the client in a timely manner concerning quality issues and delays in deliverables almost led to cancellation of the contract. In future, regular reviews of performance benchmarks will ensure the implementation of corrective measures aimed at improving outcomes.

Avoiding ambiguity and vagueness in contracts will reduce any misunderstandings that are likely to arise. SS revised its work to incorporate fundamental changes without altering original budget and timelines based on the ordinary change requirements clause. This put tremendous pressure on the companys workforce to deliver quality products on time.  In a normal situation, SS would have requested for additional time and money to complete the new tasks. By failing to define the term ordinary change requirements, either party could dispute any revisions to the original project scope.

Remedies
Major problems identified in the simulation include delays in deliverables, ineffective communication channels, poor quality claims and changes to the original project scope. Appointing a change control panel to assess any changes to the original plan and advise on budget changes or timeline extensions will eliminate disputes over schedules. With adequate time to develop project solutions and conduct testing of the software, the incidence of deliverable defects will drastically reduce.

Stationing someone from C-S AG at SSs to serve in a quality control position will ensure that quality issues are identified early and rectified before delivery to the client. This person will contribute to improving performance outcomes by demanding that quality standards are maintained as per the contract terms.
With time running out, SS should increase the number of staff working on the project to ensure that it is completed on time. While this measure will entail additional costs, timely completion of the project can contribute to SS clinching further contracts with the bank. Having C-S AG approve of new hires creates confidence in SSs ability to deliver despite the tight deadlines. It is beneficial to both parties in that the quality of staff has a direct bearing on the performance outcomes of the entire team.  Achieving consensus on the quality of the team will reduce issues of poor workmanship due to incompetent staff.

Conclusion
Both parties are advised to seek common ground and renegotiate the contract to their mutual benefit. Seeking legal redress is expensive and likely to damage the existing working relationship between the two companies. In terms of time, the bank would have lost an opportunity to launch its system on time while SS stands to miss future lucrative contracts.