Examining Outsourcing Agreements: The Role of Contractual and Accounting Controls

19 Pages Posted: 12 Jul 2006

See all articles by Suresh Cuganesan

Suresh Cuganesan

Swinburne University of Technology

Riccardo Silvi

University of Bologna - Department of Management

Date Written: 2006

Abstract

Despite the continued importance of outsourcing agreements as one form of inter-organisational relationship, there is growing evidence of failure amongst these arrangements. In turn, this has initiated a renewed concern about the mechanisms that govern and control inter-organisational networks and alliances. This paper investigates one of these gaps; specifically the use of contractual and accounting mechanisms in the governance of inter-organisational relationships. Despite both accounting and contracts forming part of the formal control mechanisms that parties can employ to govern inter-organisational relationships, there has been little research that has simultaneously examined both. This is especially problematic given the convergence of these mechanisms in practice, a prime example being the growing practice of developing key performance indicators and service level agreements, and incorporating these either in the contract document proper, or in schedules to contractual documentation. Thus, the objectives of the paper are two-fold. The first objective of the paper is to re-examine the role of formal controls and specifically, contractual and accounting mechanisms. The second objective is to examine the utilisation of these mechanisms in practice. This is achieved through a content analysis of contracts governing outsourcing relationships in the Australian financial services industry. Thus the paper is exploratory in explicating the mix of formal controls comprising both contractual and accounting control mechanisms that is explicitly stipulated in contractual and supporting documentation.

Keywords: accounting, contracts, outsourcing

JEL Classification: M41, G34, L14, L22

Suggested Citation

Cuganesan, Suresh and Silvi, Riccardo, Examining Outsourcing Agreements: The Role of Contractual and Accounting Controls (2006). Available at SSRN: https://ssrn.com/abstract=913281 or http://dx.doi.org/10.2139/ssrn.913281

Suresh Cuganesan (Contact Author)

Swinburne University of Technology ( email )

Cnr Wakefield and William Streets, Hawthorn Victor
3122 Victoria, Victoria 3122
Australia
+61 3 9214 8388 (Phone)
+61 3 9819 2117 (Fax)

Riccardo Silvi

University of Bologna - Department of Management ( email )

P.le della Vittoria, 15
Forli', Bologna 47100
Italy

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