University Name - IT Outsourcing Contract Structure Analysis

This report provides an empirical analysis of contract structures in Information Technology Outsourcing (ITO). It examines various dimensions of contract structures, including monitoring, property rights protection, dispute resolution, and contingency planning. The report explores two prevalent pricing models: fixed price and time-and-material, discussing their implications and suitability for different contract provisions. Furthermore, it identifies key determinants of contract structure, such as asset specificity, process interdependence, and prior interactions between the client and vendor. The study highlights the importance of carefully selecting pricing models and considering these factors to ensure effective contract design and successful outsourcing relationships. The report references several academic sources to support its findings, providing a comprehensive overview of the topic.

Running Head: GLOBAL OUTSOURCING 1
An Empirical Analysis of Contract Structures in IT Outsourcing
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GLOBAL OUTSOURCING 2
The reflection paper focuses on Information Technology Outsourcing (ITO) and
highlights the methods adopted to structure contracts and determine provisions. An
examination of the transaction characteristics including kind of function outsourced, nature of
the outsourced relationship, etc helps to understand their impact on the contract choice design
in ITO (Handley & Benton, 2013).
Different contract structure dimensions have been determined based on work of
previous theorists. They include monitoring, property rights protection, dispute resolution,
and contingency planning. The monitoring function allows activities such as disaster
recovery, periodical review, audit, technology enhancement, etc. As per Chen & Bharadwaj,
the property rights protection allows maintaining confidentiality within the system (Chen &
Bharadwaj, 2009). Dispute resolution enhances the escalation mechanism. The contingency
planning helps to make changes in the contract, etc.
The two pricing models that are prevalent in ITO provisions include fixed price and
time-and-material price. In the former model, the price of the commodity or service is fixed.
A prior contract might already exist due to which limited modifications can be made in the
contract (Manning, Larsen & Bharati, 2015). The major risk is borne by the vendor due to the
preordained feature of the contract. The second pricing model is based on the amount of time
and material that is spent to deliver the product or service to the client. It is more flexible in
nature and can be modified as per requirements.
The fixed price model can be effectively implemented in case of monitoring functions
like periodic review and auditing, property rights protection like the right to use, ownership,
etc. The time-and-material price can be effectively implemented in case of monitoring
functions, property rights protection and dispute resolution function (Oshri Kotlarsky &
Willcocks, 2015). The various determinants of the contract structure in case of ITO include
specific features of the asset, process interdependency and previous interactions.
The contract structure is influenced by asset specificity of the client since if the
requirements of the client are very unique, the developed software by the vendor cannot be
used elsewhere to solve business problems. The process interdependence of the client affects
the overall contract structure. According to Chen & Bharadwaj, in case of high
interdependency, the client could integrate the vendor’s model into his system so that the
process can take place in a smooth way, example – restaurants (Chen & Bharadwaj, 2009).
The prior interaction between the client business and the vendor could have a significant

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impact on their contractual performance. The previous interaction between both the parties
could lead to a less extensive contract.
The existing studies on the contract structures in Information Technology Outsourcing
help to understand the different scenarios that lead to the outsourcing of certain business
functions. Special considerations need to be taken into account while selecting the pricing
model so that all the dimensions and provisions of the contract structure can be effectively
covered (Chen & Bharadwaj, 2009). Similarly, the key factors that have an impact on the
contract structure between the vendor and the client must be thoroughly analyzed so that
neither party would be at the receiving end. The fixed price allows limited flexibility but has
a lower risk associated with while the time-and-material price allows better flexibility but has
greater risk since it depends on time and material.
References
Chen, Y., & Bharadwaj, A. (2009). An empirical analysis of contract structures in IT
outsourcing. Information Systems Research, 20(4), 484-506.
Handley, S. M., & Benton, W. C. (2013). The influence of task-and location-specific
complexity on the control and coordination costs in global outsourcing
relationships. Journal of Operations Management, 31(3), 109-128.
Liu, Z., & Nagurney, A. (2013). Supply chain networks with global outsourcing and quick-
response production under demand and cost uncertainty. Annals of Operations
Research, 208(1), 251-289.
Manning, S., Larsen, M. M., & Bharati, P. (2015). Global delivery models: The role of talent,
speed and time zones in the global outsourcing industry. Journal of International
Business Studies, 46(7), 850-877.
Oshri, I., Kotlarsky, J., & Willcocks, L. P. (2015). The Handbook of Global Outsourcing and
Offshoring 3rd Edition. Springer.