Contract Creation And Management Simulation
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. Span’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, “… 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 other” (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-S’ user and system requirements have grown, especially in the software arena. The original contract should have addressed “out of the ordinary” changes, but it didn’t. Span’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-S’ requests to upper management for disapproval. Terms for “out of the ordinary” additions and changes needed to be negotiated before C-S’ 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 won’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.
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