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Dimitry K., Esq.
Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 37492
Experience:  Run my own successful business/contract law practice.
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The Situation: I am working as a consultant implementing large

Customer Question

The Situation:
I am working as a consultant implementing large treasury and risk management solutions for America's largest and (some times) finest corporations. We always work time and material, i.e. we charge by hour worked, the client manages our time, the project, and the scope of the project.
Towards the end of one of these implementations, the client budget exhausted, and a small piece of the scope (I will refer to it as the “SOLUTION”, in the remainder of this text) was taken out, in order to still guarantee the go-live according to plan.

We are currently in phase 1 of a project that has started in March 2012. Phase 2, which is estimated to last another 18 months, is planned to start immediately after the current phase 1. Phase 2 has still not been confirmed, nor has the CONSULTANT partner been selected.

Amidst the discussions around re-planning of phase 1, we offered to deliver the SOLUTION, a US$250k value, free of charge, in return for our participation in phase 2 (exact wording and e-mail correspondence below).

As it turns out, the probability of phase 2 taking place is diminishing, yet the client now insist that we deliver the “SOLUTION” for free.

Our Firm: CONSULTANT
Our names: HF and DN
Client: CLIENT
Client names: LM, NS, AG, CM


My questions:
As the relationship with our client is going through a certain degree of tension, I would like to better understand, to what degree our "good faith commitment" in our e-mail below created a legally binding contract obliging us to deliver for free the “SOLUTION”, even if there will be no phase 2 of the project, or we are not going to be selected for such a second phase.

I will post additional details, and mainly the exchange of e-mails, leading to the current difference in expectations.

Regards.
DN
Submitted: 1 year ago.
Category: Business Law
Expert:  Dimitry K., Esq. replied 1 year ago.
Thank you for your post. Please permit me to assist you this afternoon.

My apologies but I do not see the email. Also, was this "SOLUTION" reqired to be provided to the CONSULTANT at the time the phase was concluded, or was it created and contractually understood to be transferred only for additional costs?
Customer: replied 1 year ago.

I am posting the e-mails as additional details.


Please, simply reply, so I can then answer your additional questions.


Thanks.


DN


 


 


The Details:


I will post in the following the sequence of correspondence that has taken place. All names and references have been replaced:


 


<<<<<<<<<<<<<<<<<<<<<<<


1.) This is an e-mail in which the client outlines the discussions we had regarding the “SOLUTION”:


 


From: LM@CLIENT 
Sent: Friday, March 22, 2013 7:40 PM
To: HF@CONSULTANT
Subject: SOLUTION Estimate


 


HF,


 


I documented the key points from our discussion earlier today regarding the delivery of “SOLUTION” for your review and agreement/clarification as applicable. I also spoke with AG and NS this afternoon and they reminded me that the SOLUTION and SOLUTION functionality are inexorably linked. In their perception of discussions with DN they believed this estimate and agreement relates to both pieces, so that is reflected below as well. If you’re not agreement with this please let me know.


 


The steps noted below for CONSULTANT will be completed at the expense of CONSULTANT as a good faith gesture of their commitment to CLIENT, and encouragement toward continuing to work with CLIENT on subsequent phases of the IHC/TRM implementations. The scope of SOLUTION will be consistent with the In-Scope and Out-of-Scope items outlined in the original CONSULTANT Statement of Work executed between CONSULTANT and CLIENT on May 5, 2012. Additional details related to the steps below will be included in the new Statement of Work for CONSULTANT to be provided by the end of March 2013.


 


BUILD/UNIT TEST


· CONSULTANT will finalize the build of the SOLUTION in the CONSULTANT system.


· CONSULTANT will complete thorough testing of the SOLUTION in the CONSULTANT system.


· CONSULTANT will complete development and unit testing by the IHC go-live date in July (scheduled for 7/8) and delivery of the SOLUTION will be provided for CLIENT to install in CHL at that time.


SYSTEM TEST/BUG FIXES


· ASG will install the provided solution in CHL and moved to SHL to begin system testing.


· CONSULTANT will provide test scenarios and execution steps for all tests conducted in the CONSULTANT system during unit testing.


· ASG will conduct additional discussions with the business to determine if additional testing scenarios are required. CONSULTANT assistance may be required.


· CONSULTANT will provide a limited number of hours (see attached estimates) toward resolution of issues that arise during testing.


UAT


· CLIENT will conduct user acceptance with the business as necessary


GO-LIVE


· Go-live date is scheduled for August 26th (transports 8/24)


 


The task list and final estimate based on review by AG and NS is attached for your review. We included a 25% contingency on this effort due to the risk of completing the initial build in a non-CLIENT system. Please review this and let me know if you have any questions/concerns or provide your approval as applicable. If there are any items I left out please feel free to provide clarification or call me with any questions. I need to provide a final number for the SOLUTION estimate to CM on Monday so please let me know as soon as possible if we need to discuss further.


 


I appreciate your efforts on working with us to find a solution that’s best for the business. Your efforts are greatly appreciated!


 


Regards,


-LM


>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>


 


<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<


 


2.) Our response to the e-mail above:


 


 


From: "HF@CONSULTANT


Date: Tuesday, March 26, 2013 8:22 PM


To: XXXXX@XXXXXX.XXX>, LM@CLIENT>


Subject: RE: SOLUTION Estimate


 


Hello LM,


 


I agree with the provided estimate in the e-mail below and your outline of our communication regarding CONSULTANT’s general commitment regarding the SOLUTION.


More details regarding the SOLUTION delivery will be provided in the extension SOW.


 


Regards,


HF


 


>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>


 


<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<


3.) The client’s response to the updated statement of work, where we clearly state, that we will deliver the SOLUTION free of charge, only if there is a phase 2, and if we are selected to participate full time as prime partner in such a phase 2 of the project:


 


From: LM@CLIENTSent: Tuesday, June 04, 2013 7:54 AM
To: HF@CONSULTANT
Cc: (IT)
Subject: RE: SOW for project extension


 


HF,


[…]


b. Per the email attached [see point 1. Above] we agreed that the SOLUTION would be done as a “good faith gesture of [CONSULTANT’s] commitment to CLIENT, and encouragement toward continuing to work with CLIENT on subsequent phases of the IHC/TRM implementations”. In the SOW you indicated that delivery of this solution without charge is now contingent upon commitment to CONSULTANT for future phases, and this was not our agreement.


[…]


 


 


Regards,


-LM


 


>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>


 


 

Customer: replied 1 year ago.

The SOLUTION was originally planned as part of the project phase 1. The CONSULTANT involvement in phase 1 of the project is on a time-and-material basis.


The CONSULTANT's task in the SOLUTION originally was only the functional design, which has been completed. The technical design and development was responsibility of the CLIENT.

Expert:  Dimitry K., Esq. replied 1 year ago.

Thank you for your follow-up, Dirk.

If the language clearly indicated that the additional SOLUTION was solely provided to ensure participation in the second phase, then the party no longer has to provide it unless the other party can provide written assurances that the second phase will take place and with the other party utilized in that phase. Otherwise, as that work is contingent on subsequent projects, the work is still not deemed to be attached to existing projects but is instead permitted to be charged out directly. My concern is that the other party can claim that this SOLUTION and subsequent work are interlinked and cannot be formally split out, meaning that the work that was already done includes the SOLUTION as part of the project goals. But even so, then it would go back to the initial contractual terms which would govern the transaction. And as that was not waived but modified solely to be contingent on future work, the party cannot demand it for free.

Hope that helps.

Customer: replied 1 year ago.

Thank you for your reply.


 


Just to be sure, this is how I understand your reply.


 


"If the language clearly indicated that the additional SOLUTION was solely provided to ensure participation in the second phase, then the party no longer has to provide it unless the other party can provide written assurances that the second phase will take place and with the other party utilized in that phase."


 


The only written language exchanged are the e-mails. Verbally the conditionality of the SOLUTION and the PHASE 2 has always been made clear, and therefore, was included in the updated SOW.


 


"Otherwise, as that work is contingent on subsequent projects, the work is still not deemed to be attached to existing projects but is instead permitted to be charged out directly."


 


This our understanding, too. We would be charging out the work under the terms of the original agreement, which is hourly charges for our work performed.


 


"My concern is that the other party can claim that this SOLUTION and subsequent work are interlinked and cannot be formally split out, meaning that the work that was already done includes the SOLUTION as part of the project goals. But even so, then it would go back to the initial contractual terms which would govern the transaction. And as that was not waived but modified solely to be contingent on future work, the party cannot demand it for free."


 


In the end it is not so much down to the exchange of e-mails and promises made with regard to the SOLUTION and whether it is going to be free or not.


Rather, it will come down to whether under the original agreement we are contractually obliged to deliver the SOLUTION.


The answer to this would be clearly, there is no obligation from our side, as all work under the original agreement is time and material, i.e. charged by the hour. If we deliver under that agreement, we would be charging by the hour.


 


Now, our concern is as to whether the wording of initial e-mail can be construed as our commitment to deliver the SOLUTION free of charge, without any conditions attached.


 


Where we confirmed "[...] CONSULTANT will be completed at the expense of CONSULTANT as a good faith gesture of their commitment to CLIENT, and encouragement toward continuing to work with CLIENT on subsequent phases of the IHC/TRM implementations.[...]" - does this represent an unconditional commitment to deliver for free? In our view, the good-faith gesture is related to our up front investment in the SOLUTION, without knowing whether there will be a phase 2. But, the conditionality of such delivery was going to be be detailed in the SOW. The CLIENT now sees this differently, and construes the e-mail as our commitment, without conditionality to phase 2.


 


Can such an e-mail be used to force us to deliver the SOLUTION free of charge? Or, would the only claim by the CLIENT have to be based on the argument of supposedly incomplete fulfillment of our original agreement?


 


 


 

Expert:  Dimitry K., Esq. replied 1 year ago.

Dirk,

That clause appears to have been poorly written. A 'good faith gesture' is generally unilateral, meaning that it is not done in exchange for anything other than encouragement. In other words nowhere does it state that this was done solely as a means of ensuring new projects, but was instead written to assure encouragement with subsequent participation. That is NOT an exchange, it is an offer that if phase two takes place, the other party would be involved. But it does not state that this solution would be given ONLY if phase two is awarded, simply as a means of ensuring that the other party would essentially not be forgotten should the project go forth. This offer appears to me to be not as an exchange but essentially as a gift, and the other party is correct to demand it for free. This is not conditional based on the language, it is simply a promise to provide it without anything directly stating that it was an exchange for future projects. I am sorry but I have to side with the other company's evaluation of this agreement.

Good luck.

Dimitry K., Esq., Attorney
Category: Business Law
Satisfied Customers: 37492
Experience: Run my own successful business/contract law practice.
Dimitry K., Esq. and 2 other Business Law Specialists are ready to help you
Customer: replied 1 year ago.

I might come back later, but for now, thank you very much for your support and time....Rgds. DN.

Expert:  Dimitry K., Esq. replied 1 year ago.
Dirk,

You are most welcome, truly. If you are seeking me again, simply start your new questions "For Dimitry..." and I will be notified that you are seeking me out. Please take care!

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