TO: Kevin Grant, Director of Projects

FROM: Ryland Hamlet, Project Manager

CC: Harold Smith, Esq, General Counsel
DATE: October 2, 2008
SUBJECT: Recommendations for Contract Strategies for Future Business

Dear Kevin,

I received your email regarding the phone call you received from our attorney, Harold
Smith. I would be happy to offer my advice for future contracts. This memo is written
response to your questions and a request for my recommendation for contract strategies
for future business. In this memo, I will review the current project dispute, provide
responses to your questions, then make a recommendation for contract strategies for
future business.

Current Project Dispute

As you are aware, we have been having contract disputes with one of our most important
clients, Citizen-Swartz AG, the large German bank. They chose us because of our
dominance in the e-banking application development. Our expertise in Java development
helped us win the bid for C-S’s transaction system project. The transaction system
project is valued at $6 million. We have another project in the pipeline pending
performance on this development effort. The value of that project, the development of
an electronic customer relationship management (eCRM) is worth substantially more.
Based on current and future business with C-S, we acted quickly and made amends.

The challenge presented to me is:

To recommend contract strategies for future business which avoids similar

issues and disputes.

As project manager, my first step in issue management is to take action immediately. An

approach used by many successful project managers is to gain the confidence of all
stakeholders immediately by sharing information and resolving their concerns (Keough,
Shtub, Bard, & Globerson, 1994, p. 131) . C-S concerns are that Span’s deliverables are
of low quality and are behind schedule. The late delivery is threatening C-S’s planned
release of it’s transaction software. Span is the sub-contractor with a critical piece of
their application. Until the issue was resolved, C-S was requesting immediate transfer of
all unfinished code and has asserted rescission of the contract. The issues have been
resolved this time. By answering your questions below, I hope to come up with
recommendations to guard against these issues in the future.

Responses to Questions
What should Span do when C-S continually adds to or changes their original
contract requirements?

Without a change request process in place, Span must negotiate each change. Span
should meet with Leon Ther, IT Outsourcing Director, in person to discuss the issues
generated by continual change. According to the Project Management Institute (2000),
some of the issues to expect may be related to:

• Scope, cost, and schedule objectives

• Contract terms and conditions
• Assignments
• Resources

In our case, schedule and contract terms are causing disagreements. We must maintain
open communications and negotiate each requested change. We may request a mediator
in case negotiations of changes leads to extended disputes.

How do you think the results of the negotiation might differ if both sides followed a
positional bargaining strategy versus one that is interest-based?

The outcome may have not been as positive. In a positional bargaining process,
negotiation occurs along a particular interests or needs in the form of alternative solutions
(Moore, 2004). Because the contract had already soured, interests and needs were
skewed by talk of breech of contract. The breakdown of the escalation process at C-S
proves that the vendors management team lead by Ther was not interested in alternative
solutions. Mr. Ther was furious when he realized how far we were behind schedule and
that quality was suspect. His anger may have kept Ther and Span to come to an
agreement in a reasonable timeframe. By using an interest based bargaining approach,
the negotiation between C-S and Span was more collaborative. We were able to identify
C-S’s needs and reconcile our differences. The outcome was that our amendments was
accepted.

What role, if any, should future business opportunities play in Span’s decisions to
enforce the original provisions of this contract? Why?

Span should consider the schedule impact of enforcing the original contract when
evaluating future business. Under the current contract, Span cannot be certain that scope
creep will not remain an issue. Scope creep is a process where additional work is added
to the project after the scope has been established (Kuprenas & Nasr, 2003). When the
scope creeps, there are a few options a for a project manager to get back on schedule.
They include crashing and fast tracking (Project Management Institute, 2000, p. 75).
Both can lead to other issues such as increased costs and increased risk, respectively. The
bottom line, here is that enforcing the original contract provisions place us in a resource
poor position leaving us unable to safely take on new projects.
What additional strategy (or variation on a given strategy) would you recommend to
solve the challenge given?

There are two additional strategies recommended to solve the challenge. These strategies
are to implement integrated change control (ICC) and institute a change control board
(CCB). The Project Management Institute (2000) explains that the purpose of integrated
change control is concerned with a) influencing the factors that create changes to ensure
that changes are agreed upon , b) determining that a change has occurred, and c)
managing the actual changes when and as they occur (p. 47). Span should request a
contract addendum to require ICC. By implementing ICC any changes to contract
requirements which change scope, schedule, costs or quality must be planned for and
approved. The changes should be written on a change request and evaluated for impact.
If there needs to be a credit or additional charge, then an adjustment can be made by
accounting.

Change control may not be enough. We cannot take the decision of which change to do
lightly. By accepting every change, we will be back in the same situation as we are now
with C-S. Too many changes and schedule and costs suffer, too little changes and our
customer is not happy with the product. To insure the change control process will not be
to restrictive or too loose, Span should consider creating a change control board. A
change control board is a group responsible for approving or rejecting proposed changes.
The roles and responsibilities of these groups are clearly defined within the change
control system and agreed upon by all key stakeholders (Project Management Institute,
2000, p. 49). Changes are often presented by a project manager or other a requesting
stakeholder.

Conclusion and Recommendation for Future Business

In summary, disputes like the recent ones with Citizen-Swartz AG (C-S), are a threat to
the success of our business. C-S continually adding changes to the original contract
requirements has cost time and threatened the cancellation of the project. The
uncontrolled changes or scope creep, has also placed us in a position where we cannot
accept new projects due to resource constraints. We successfully negotiated with C-S
using a interest based approach. A positional bargaining strategy approach is not
advisable. The reason is we were past the alternative solutions stage. The results was
that C-S accepted our amendments.

My strategy recommendation is to update the contract to protect against scope creep in

the future. As a $80 million dollar company, we can no longer respond to our customers
beckon call. As with C-S, this lack of change control may lead to low quality and missed
deadlines. To reduce the incident of scope creep, I recommend Span add into our
contract specific clauses mandating integrated change control and a change control board.
I am reasonably confident, this contract strategy will help us avoid similar issues and
disputes.
 References Cited

Kuprenas, J. A., & Nasr, E. B. (2003). Controlling design-phase scope creep. AACE

International Transactions, , CS11.

Moore, C. W. (n.d.). Negotiation. Retrieved May 10, 2004, from

http://www.au.af.mil/au/awc/awcgate/army/usace/negotiation.htmsequentially

according

Project Management Institute (Ed.). (2000). A guide to the project management body of

knowledge (2000 edition ed., Vol. ). Newtown Square, Pennsylvania: Project

Management Institute, Inc..

University of Phoenix. (2004). Legal Environment of Business. Contract Creation and

Management, , . Retrieved May 9, 2004 from legalcontract.exe.