Renegotiation of software outsourcing contracts

He Huang, Minhui Hu, Robert J. Kauffman, Hongyan Xu

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Abstract

Fixed-price and time-and-materials contracts are commonly-used contract forms by clients in software outsourcing. The two parties, client and provider, usually renegotiate the testing time after system development occurs. This research investigates the impacts of such renegotiation on the client's contract choice. Our analysis shows that under both contract forms, renegotiation can incentivize the provider's effort, and this effect becomes more influential when the provider has higher bargaining power. Compared with a fixed-price contract, a time-and-materials contract can stimulate the provider's effort based on the terms for monitoring and reimbursement. The results suggest that when the provider has high bargaining power, the client will prefer a fixed-price contract. But when the provider has low bargaining power and the cost of monitoring is low, the client will prefer a time-and-materials contract. When the provider has low bargaining power and the cost of monitoring is high though, the client will prefer a fixed-price contract.
Original languageEnglish
Title of host publicationProceedings of the 52nd Hawaii International Conference on System Sciences
EditorsTung X. Bui
Number of pages7
Place of PublicationHonolulu
PublisherHawaii International Conference on System Sciences (HICSS)
Publication date2019
Pages6612-6618
ISBN (Electronic)9780998133126
DOIs
Publication statusPublished - 2019
Externally publishedYes
EventThe 52nd Hawaii International Conference on System Sciences. HISS 2019: HISS 2019 - Wailea, United States
Duration: 8 Jan 201911 Jan 2019
Conference number: 52
https://scholarspace.manoa.hawaii.edu/handle/10125/59440

Conference

ConferenceThe 52nd Hawaii International Conference on System Sciences. HISS 2019
Number52
Country/TerritoryUnited States
CityWailea
Period08/01/201911/01/2019
Internet address
SeriesProceedings of the Annual Hawaii International Conference on System Sciences
ISSN1530-1605

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