Autor: yan000 16 February 2010
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Contract Creation and Management Simulation
University of Cincinnati
Legal Environment of Business
Judge Jim P. Ponder
July 2, 2000
Contract Creation and Management Simulation
The simulation begins in the middle of a major dispute between a software-developing company, Span Systems, and one of its customers, Citizen-Schwartz AG (C-S), a large German bank. The two companies are in dispute over the quality and timeliness of deliverables. There have been major bugs found by C-S during testing and are worried about Span not fulfilling the one-year contract, which is worth $6 million. Spanâ€™s main concern is securing a larger contract with e-CRM, which is tangent on the outcome of the current contract. C-S has requested all code and asserted the rescission of the contract.
Future Business Opportunities
Performance of Contract
The contract states, â€œâ€¦ neither party may cancel this agreement, in whole or in part, subsequent to more than 50 percent of the consideration having been tendered by the otherâ€ (UoP Simulation). Since C-S requested all code, it is in breach of contract because more than 50 percent of the deliverables have been delivered. By looking at the big picture, the e-CRM contract, Span is willing to discuss and give concessions regarding the quality issue.
Internal Escalation Procedure for Disputes
The current contract covers the internal escalation procedure for disputes. The party believing itself aggrieved shall call for progressive management involvement in writing to the other party (UoP Simulation). C-S requesting all finished and unfinished code is a direct violation of the current contract. Span is willing to set this aside if C-S rescinds its request.
Change Management. The current contract is written to cover a one-year time frame. C-Sâ€™ user and system requirements have grown, especially in the software arena. The original contract should have addressed â€œout of the ordinaryâ€ changes, but it didnâ€™t. Spanâ€™s Change Management office is responsible for reviewing, approving and scheduling software changes. When C-S began requesting major software changes, Change Management should have escalated C-Sâ€™ requests to upper management for disapproval. Terms for â€œout of the ordinaryâ€ additions and changes needed to be negotiated before C-Sâ€™ requests. In the beginning, almost to a fault, Span placed more priority on meeting milestones and less on quality control.
Resolution approach. In an effort to reduce conflict and come to amicable terms, Span will suggest a proactive approach to resolution. Span is looking at future business opportunities with e-CRM. C-S needs to be convinced that Span will fulfill its end of the contract.
Span needs to help C-S achieve its business goals. Fighting over the contract wonâ€™t help either company. The companies need to productively negotiate to achieve mutual resolution.
Positional Bargaining Strategy
Positional bargaining is typical in many business situations and in many cases accepted as the norm. A party involved in positional bargaining typically will review the situation, decide what outcome he or she wants and then state his or her desired outcome/position to the other party. Sometimes it is stated softly as an offer, other times as a demand (Magnuson, 2005). The chance of a negotiated settlement through positional bargaining is minimal (Reed, 2001).
A better approach to negotiating among disputing parties has been described as principled interest-based negotiations (Reed, 2001). This strategy is most suited to financial negotiations because of its emphasis on creating a cooperative, problem-solving environment that aims to address as many problems as possible, and simultaneously lays the groundwork for future cooperation by emphasizing the importance of building trust-based relationships (Grant, 1994). If Span and C-S plan to resolve their issues, they will use interest-based negotiating.
During interest-based negotiating, Span will express its intent to revitalize the current contract. To secure future contracts, this project needs to be put back on track so both companies can achieve mutual profitability.
Span must recognize its role in the negotiations process. It has a short- and long-term goal. The short-term goal is to achieve an amicable conclusion to the current contract. The long-term goal is securing future contracts.
Control Customer Expectation
The best way to achieve the long-term goal is to control customer expectation. Span could focus on the short-term goal and successfully negotiate the current contract by giving in on all concessions. But if it does that, over time there will be a drop in the perceived service quality and C-Sâ€™ high expectations will result in a widening service gap. Span needs to enforce some of the contract. If it doesnâ€™t stand firm on a few of the important issues, C-Sâ€™ expectations and perceptions of service quality will be drastically inaccurate. The next contract will be very difficult to enforce. C-S will get the indication it can demand whatever it wants and Span will concede.
Span needs to carefully select which items it needs to negotiate fiercely and which ones it needs to concede. There must be balance; Span has to successfully renegotiate the current contract without the perception of being weak.
Change Control Panel
To preserve a healthy relationship, Span proposes to appoint a change control panel to review change requests and flag any changes in project scope (UoP Simulation). This enables Span to better control drastic project-affecting changes. C-S is very content with this and recognizes Spanâ€™s desire to settle this dispute amicably.
Project Manager at Span
The next role Span proposes is to invite a Project Manager from C-S to serve in a quality control capacity. This will incur additional funds to billet the individual, but the payoff should be less delays and increased communication between the companies.
Increase Team of Programmers
The final negotiating point Span proposes is to increase the size of the programming team. Again, this will incur an increase of resources. The good news is a larger programming staff will have an immediate positive impact on deliverables. It also will enable Span to better handle all future programming needs. C-S, once again, is pleased with Spanâ€™s actions and recognizes its aspirations to settle this dispute harmoniously.
Clarity of purpose in contract writing is paramount. Contracts usually are found to have interpretation issues. U.S. courts in the last two years have handed down more than 30 significant verdicts in contract-related disputes based entirely on the â€œreasonablenessâ€ of contracts. Contract law is in a stage of evolution and verdicts usually hang on how courts interpret contracts (UoP Simulation). An ounce of prevention is worth a pound of cure! If more companies took the time to create clear and concise contracts, less of them would end up in litigation.
Grant, Bilateral, and Multilateral Negotiations. (1994). Negotiations in Debt and Financial Management. United Nations Institute for Training and Research (UNITAR). Retrieved July 22, 2000, from the web site: http://22.214.171.124/search?q=cache:Esr5UlF5IvIJ:www.org/dfm/Resource_Center/Document_Series/Document4/DocSeries4.pdf+%22Interest+Based+Strategy%22+results&hl=en
Magnuson, J. (2000). How You Can Win With Negotiation. Business Development