Recognizing Contract Risk and Opportunities - Coursework Example

Running Head: Recognizing Contract Risks and Opportunities Contract Risks and Opportunities that are present in “Contract Creation and Management Simulation” Your name University Date Introduction A contract is a particular term of legal action by which promises are exchanged between two or more parties to do or to refrain from doing an act. In forming a contract, all the relevant and necessary terms and conditions must be fulfilled. According to American law Institute, “a contract is a promise or set of promises for breach of which law gives a remedy, or the performance of which the law in some way recognizes as a duty” (Jennings, 2005, p.497). The contract is generally based on the intention of both parties to create, negotiate or terminate a legal relation among them and this legal relation is concluded only when the parties agreed upon the terms of the contract. This paper presents legal risks and opportunities that are present in the “Contract Creation and Management simulation”. This piece of research work identifies and analyses what measures a business manager can take in order to avoid risks and mitigate liabilities that arise from legal contracts and how can an effective manager benefit from the contractual opportunities. The legal principles related to risks and opportunities have been described in this research work. Legal risks and opportunities present in Contract Creation and Management simulation The parties to a contract can make changes to the terms of the contract during the formation, but, if the contract is signed upon, the contract is concluded and the deal is almost done. The Contract Creation and Management simulation is an illuminating example that can teach the relevance of reviewing on the existing contract or new business contract so that legal misunderstanding can be avoided and legal liabilities can be mitigated. Citizen-Schwarz entered in to a contract with Span Systems to create software related to net banking. The contract they both entered in to has outlined the terms regarding the arrangements including timelines and standards of the products. Communication between both parties and necessary arrangements for changes in the system requirements, intellectual property rights and dispute resolution systems have been detailed in the contract (University of Phoenix, 2008). There were several risks associated with and are assumed by Citizen-Schwarz and Span system as involved in their contract. A contract is formed when both parties are in legal intention and within the legal boundaries. According to Jennings (2005), “a contract is formed when two parties with the correct mental intention, under the correct circumstances, within the boundaries of law, and with some detriment to each of them agree to do certain acts in exchange for the other acts” (p. 505). The contract between Citizen-Schwarz and Span System was formed legally, with correct intention and within the legal boundaries. But, there were some risks that arise from the contract due to ambiguities in the contract. According to the ‘contract Creation and Management simulation’, neither Span System nor Citizen-Schwarz can void the contract once more than 50% of the proposed project is complete. There was ambiguity regarding 50% completion. What constitutes 50% of the proposed project was not fully known to them both. This remained as risk for both parties. There can be different arguments between both parties about 50% completion of the project. The structure of the contract between Citizen-Schwarz and Span System is that one party made offer and the other accepted. Once they both faced problem regarding the deliverables and standards, instead of spending more on courts procedures, they both came up to the agreement by ambiguities that are present in their contract. Adams (2005) stated that a contract provision is ambiguous if it is capable of having two or more inconsistent meanings. Ambiguity and vagueness are different that vagueness is a standard drafting tool and ambiguity generally goes unnoticed at least after some time the contract is signed (p. 115). Breach of contract under substantial performance Citizen-Schwarz needs on time deliveries of products. In case, if Span System cannot fulfill the requirement a penalty will be there and Span System will receive payment for the completed work only. Without proper checking the performance and functioning of the software, the Citizen-Schwarz will be liable for cost that is associated with any work Span System completes. A clear term needs to be stated about breach of contract and the risks that each party may face in the case of contract cancellation or termination. The contract included several clauses and the first breach of contract was under substantial performance of contract. Even after 50% of the project was completed, neither Span System nor Citizen-Schwarz could cancel the contract. Jennings (2005) argued that the doctrine of substantial performance will be applied in some cases, for example in a construction contract. “It means that the constructed building is for practical purposes just as good as the one contracted for. A builder might have substituted a pipe when the brand name specified in the contract was not available. The substitution is a technical breach of contract, but it is a substitute that is just as good” (p. 562) Breach of Contract under Communication reporting Citizen-Schwarz needed to be notified with all status reports and progress or any other changes with the Span software. This is to avoid issues regarding communication reporting and in order to negotiate in good faith. If effective communication is carried out between them, no risk will be involved. Breach of contract under requirement changes Citizen-Schwarz is entitled to involve in the revising, updating and modifications of software issues by Span. But same time, Citizen-Schwarz should not interfere with any changes in software license. In this case, managements must have proper and effective measures that can bring change control standards and procedures for both parties. If Citizen-Schwarz makes any changes without duly notifying the Span, there may be delay in receiving the products by Citizen-Schwarz. In this case, quality assurance and security will be risks if they are not implemented properly. Measures to take to avoid risks and mitigate liabilities Generally, wherever legal risks or general risks make challenges on business, effective management measures can be taken in order to avoid risks and mitigate liabilities. Basically, a party to a contract can avoid risks by ensuring that they are abiding what they have agreed upon with contract. In the case of Span systems and Citizen-Schwarz, Span could have avoided risks by making sure that it is completely abiding to the terms of the contract. If both parties are in mutual understanding of what is going on between them, a large number of legal risks can be avoided or mitigated. Better reviewing and understanding a contract well before its completion is very crucial for the success of the contract. Citizen-Schwarz and Span were able to settle the dispute without taking the issue to the court is an enlightening lesson to managers that they can avoid expensive legal procedures if there is a mutual understanding. Span and Citizen-Schwarz agreed that a project manager will be appointed to manage quality control. He will monitor defects and find out remedies. Span agreed to upload daily project improvements so that Citizen-Schwarz can review them on time. Span could minimize the liabilities by allowing managers of Citizen-Schwarz to help in possible quality control capacities. In a general view point of business contracts, the fundamental factor that managers need to take in to account is to avoid ambiguities in the contract. When a contract is created, both parties must analyze the wordings and try to trace out any wordings that may later on create ambiguities between both parties. All the necessary details regarding business offers and acceptances must be stated clearly in the contract so that risks due to ambiguities can be avoided. Business managers can benefit from opportunities from a contract when there are mutual understandings between both parties of the contract. Span System can benefit from these measures because there is an opportunity that Span can sign larger contracts and it will benefit the company as a whole. Span System and Citizen-Schwarz agreement has allowed employees to identify the project progress with the help of internet and quality control managers. This shows how managers can benefit from the opportunities. Legal Principles related to Business risks and opportunities There are legal principles that companies have to follow in order to avoid risks involved from employee getting hurt in a workplace, manufacturing defects, health or natural hazards etc. Thomas (2005) describes that a legal principle, be it associated with risks or anything that relates to business, is a norm, interest or value that are vouched in relatively general terms that commands general respect and acceptance in the legal process. (p. 343). With relation to general risks and opportunities associated with business contracts, there are principles like tort law, intellectual property principles, product liability and other principles. Alternative Business Approach In the Contract Creation and Management simulation, the alternative business approach was to appoint a review panel that can trace the changes that Citizen-Schwarz wanted to perform. A review panel is appointed for addressing changes seems to be an effective alternative because there can be a number of changes in any business contract after the contract was formed. Same time, if parties to a contract put a time frame in advance and address the future changes within that time frame it can reduce frustration between the parties. I would recommend that appointing a review panel is the best alternative because the changes that arise in a business can be well monitored. A review panel may be able to review and analyze the changes to the business after the contract has been completed and necessary arrangements can be taken by managements after recognizing the changes. Conclusion This paper presents a brief analysis of legal risks and opportunities that are present in the Contract creation and Management simulation. Ambiguities in contractual wordings are crucial that it can create troubles among all the parties of the contract. This paper identifies ambiguity in contract as a main legal risk associated with a business contract. The paper identifies specific measures that managers can take to minimize legal risks and benefit from legal opportunities. This piece of research work recommends that a reviewing panel is a best alternative that business mangers take as a measure to avoid or mitigate legal risks. References Adams K.A (2005), A manual of style for contract drafting, Manual of Style for Contract Drafting, American Bar Association Jennings M.M (2005), Business: its legal, ethical, and global environment, Chapters 13 & 14, Edition 7, Illustrated, Cengage Learning Thomas E.W (2005), The judicial process: realism, pragmatism, practical reasoning and principles, Cambridge University Press University of Phoenix (2008), Contract Creation and Management Simulation, Retrieved on August 31 , 2009 from UoP rEsource Read More