Contract Dispute Resolution.

Memo

To: Kevin Grant, Director

From: Learning Team C

CC: Harold Smith, ESQ

Date: May 9, 2007

Re: Citizen-Schwarz AG (C-S) Contract Dispute Resolution

Last year, when we were awarded the Citizen-Schwarz AG (C-S) contract, we anticipated that upon completion, this would open bigger opportunities for Span Systems. Unfortunately, the opportunity was almost lost as contract disputes began with C-S eight months into the project. The problem stemmed from increasing and changing requirements that were being expected by C-S, coupled with C-S changing project management structure. In addition, Span missed deadlines and product quality was affected.

In December, Leon Thur, Chief Negotiator at C-S began threatening a rescission of the contract. We immediately sought the advice of our transactional attorney, Harold Smith. After meeting with Mr. Smith, it was determined that it would be necessary to prepare a defense in the event that C-S would begin proceedings to rescind the contract. We based our defense on the fact that the rescission order came eight months into the contract and even with the changes in the project management structure at C-S, we were still keeping up with the changes. Also, C-S was not abiding by their initial escalation process, which was clearly defined in the initial contract. All of which can be considered breaches of obligation. We presented this information to Mr. Thur and Kevin Grant, Director of Projects at Span. Concurrently, Jim Boxer, Marketing Manager for Span in London received word that C-S may be in contract negotiations with another software developer and there was a possibility that some of Span’s codes for modules were being shared. C-S was confronted immediately and Mr. Thur assured us that there was no breach of obligation under the “Intellectual Property Rights clause.”

We immediately began brainstorming. We understood that the problems that were arising were two fold and Mr. Grant led the argument that future business was at stake and we had no choice but to complete the C-S project. We immediately changed from a defense strategy to a proactive strategy. By January, our plan was complete. We offered C-S a daily update of all projects and we invited a C-S Project Manager to be on-site at Span to serve in quality assurance capacity. We also increased the number of programmers on staff to better meet the demands of C-S.

Mr. ...

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Mr. Thur was impressed by our take-charge attitude and requested that Span submit their action plan in the form of amendments to the contract by February 1st. The following amendments were presented and accepted by both Mr. Thur and Mr. Grant.

Performance – “Citizen-Schwartz AG shall be entitled to receive all products … as of the date of termination or cancellation subject to clearance of all payments due to Span System.”
Change Control – Any changes to the user system requirements … will be monitored by a Change Control Board (CCB)… The CCB will decide the changes to be accepted or rejected… C-S agrees to compensate Span Systems… based on incremental changes.”
Communication & Reporting – “In order to meet the software delivery schedule … Span Systems will scale up the team size by at least ten (10) additional programmers. The cost of training … will be paid by Span Systems.”
Project Structure – “Project status reports … will be uploaded on Span’s extranet available to authorized C-S personnel. A project manager from C-S will be stationed in Span Systems … The cost of stationing the project manager will be shared by Span Systems and Citizen-Schwartz AG.

On February 16th, we reviewed the key learning from this experience, to include all that went wrong, correct and corrective actions. From this process, we began the creation of a quality assurance system that would allow us to track our progress with stricter measurables that would make us more accountable to suppliers of issues as they are encountered. We created a performance improvement matrix that allows us to visually understand our strengths and weakness, as well as create action plans to resolve open issues. We used this matrix to in our weekly quality meeting to remain focused on continuous improvement of current and future projects.

The biggest Key learning was that a contract is a roadmap to the future. If it is clearly written and all parties understand their obligations, the treasure will be found and shared by both parties. If it is not, the treasure will remain hidden until the next group of adventurers, with a better map, discovers its riches.

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