Software Development Outsourcing Contract: Structure and Business Value.

Author List: Richmond, William B.; Seidmann, Abraham;
Journal of Management Information Systems, 1993, Volume 10, Issue 1, Page 57-72.
We address the case where a user contracts for the delivery of a new information system from an independent vendor, both of whom are risk-neutral. The delivery task is partitioned into two consecutive stages: system design and software development. The parties can contract for each stage separately or specify an initial contract that covers both stages. We compare the impact of different contracting structures on prices, project value, project completion probability, and the value to the developer of obtaining the first stage of the contract. Specifically, we show that a two-stage contracting can lead to a higher business value than stage-by-stage contracting. When there is competition for the design stage, the vendors bear more of the software development risk, and the probability the system will be completed depends on the contract structure.
Keywords: contract development of software; outsourcing; software contracting; Software development risk
Algorithm:

List of Topics

#22 0.213 software vendors vendor saas patch cloud release model vulnerabilities time patching overall quality delivery software-as-a-service high need security vulnerability actually
#70 0.213 contract contracts incentives incentive outsourcing hazard moral contracting agency contractual asymmetry incomplete set cost client parties examine effort structures double
#90 0.201 development life cycle prototyping new stages routines stage design experiences traditional time sdlc suggested strategies rapid effort integrated needs techniques
#143 0.088 value business benefits technology based economic creation related intangible cocreation assessing financial improved key economics assess question created create understanding
#244 0.072 structure integration complex business enhancement effects access extent analyzing volatile capture requires occurs pattern enables independent integrative structured decision-making costs
#5 0.060 consumer consumers model optimal welfare price market pricing equilibrium surplus different higher results strategy quality cost lower competition firm paper