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An Empirical Analysis of Contract Structures in IT Outsourcing

By Yuanyuan Chen


Outsourcing of IT services has received much attention in the information systems literature. However, there has been considerably less attention paid to actual contract structures used in IT outsourcing. Examining contract structures yields important insights into how the contracting parties structure the governance provisions and the factors or transaction risks that influence them. Based on insights from prior literature, from practicing legal experts and through in-depth content analysis of actual contracts we develop a comprehensive coding scheme that captures contract provisions across four major dimensions: monitoring, dispute resolution, property rights protection, and contingency provisions. We then develop an empirical dataset describing the contract structures across these distinct dimensions using a sample of 112 ITO contracts from the SEC database in the period 1993-2003. Drawing on transaction cost, agency and relational exchange theories we hypothesize the effects of transaction and relational characteristics on the specific contractual provisions as well as on overall contract extensiveness. Further, we examine how these associations vary under conditions of fixed price and time and materials pricing structures. The results provide good support for the main hypotheses of the study and yield interesting insights about contractual governance of IT outsourcing arrangements

Topics: Outsourcing, IT Outsourcing contract, contract structure, fixed price contracts, time and material contracts 2 An Empirical Analysis of Contract Structures in IT Outsourcing
Year: 2011
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