Major Company subcontracted the development of part of a large technology system to Start-up Company, a small corporation specializing in custom computer systems. The contract, which was a major breakthrough for Start-up Company and crucial to its future, provided for an initial development fee and subsequent progress payments, as well as a final date for completion.

Start-up Company provided Major Company with periodic reports indicating that everything was on schedule. After several months, however, the status reports stopped coming, and the company missed delivery of the schematics, the second major milestone. As an in-house technical consultant for Major Company, you visited Start-up Company and found not only that it was far behind schedule but also that it lied about its previous progress. Moreover, you determined that this slippage put the schedule for the entire project in severe jeopardy.

The cause of Start-up’s slippage was the removal of personnel from your project to work on short-term contracts to obtain money to meet the weekly payroll.

Your company decided that you should stay at Start-up Company to monitor its work and to assist in the design of the project. After six weeks and some progress, Start-up is still way behind its delivery dates. Nonetheless, you are now familiar enough with the project to complete it in-house with Major’s personnel.

Start-up is still experiencing severe cash flow problems and repeatedly requests payment from Major. But your CEO, furious with Start-up’s lies and deceptions, wishes to “bury”
Start-up and finish the project using Major Company’s internal resources. She knows that withholding payment to Start-up will put it out of business. What do you do? Explain.