Strong contracts: the relationship between power and action

Purpose - There is a view that strong preventative contracts are essential to control supplier opportunism and delivery during an outsourcing implementation. This paper tests the proposition that contractual environments, typical of outsourcing engagements, are essentially conflictual and that context and circumstance can act to overwhelm formal contractual and project control and lead to poor outcomes.

Design/methodology/approach – The paper reports on a supply case study focused on the outsourced delivery of an application development in the defence sector. Data was gathered by a participant observation in situ for a period of three years. A grounded analysis from observations, diaries, semi-structured interviews, focus groups, documentary analysis, and emails was carried out with six case organisations within the extended supply chain.

Findings – Collaboration between suppliers and buyers can be blocked by preventative fixed price contracts and as a result when requirements are incomplete or vague this adversely impacts success.

Practical implications: Strong contractual control focused on compliance may actually impede the potential success of outsourcing contracts especially when collaborative approaches are needed to cope with variability in demand.

Originality/value: The research raises the important practical and conceptual notion that an outsourcing can be a conflictual inter-firm phenomenon, especially where multiple actors are involved and business uncertainty is present.