Vendor’s Conduct and Contract Mechanism in IT Outsourcing Based on Information Inferiority
In IT outsourcing, contract defects often cause outsourcing failure. Many client firms do not know well how to design the contract because they have no way to access private information of vendors, so vendors are likely to conduct out of constraint. This work combined relational contract with conventional one to establish an integral management mechanism. It at first gave the cost-increment analysis method to improve relational contract design so that it would facilitate outsourcing contract to work efficiently. Then analyzed the relation between vendor profit-gaining and its varied conducts, and built up the method of contract design to allow vendor gaining profit only when it conducts following its true types. In the method, the private information was sorted into a variety of conduct types and universal decision was found out aiming all the types. The mechanism effectively incents and constrains vendors without relying on private information.
S. H. Zhang and W. J. Huang, "Vendor’s Conduct and Contract Mechanism in IT Outsourcing Based on Information Inferiority", Key Engineering Materials, Vols. 467-469, pp. 918-922, 2011