Analysis of service contracts in Indian IT industry

Abstract

A Contract can be considered as a mechanism to provide incentives to both the parties involved. Apart from serving the legal purpose, contracting may in fact be a useful marketing tool. The way contracts are designed, enforced and amended may define the future relationships of the companies with clients and repeat business. While a lot of literature is available about the contracts in manufacturing or production sector, little study has been done about the same in service industry. It is especially true for the IT industry, partly due to relative novelty. Apparently, not all the objectives of a manufacturing contract could be relevant to an IT service contract, and due to the very nature of the industry, some new issues need to be addressed in the IT contracts. Indian IT companies being heavily dependent on outsourced work, contracting mechanisms are of very high concern for them. A study of how contracts are designed in the industry, what parameters drive them and how the problems arising out of and/or dueto contracts are sorted out would serve to help the companies draft the contracts/Service Level Agreements in a better fashion. In this direction, the CCS aims at studying some of the issues. The objectives could be broadly defined as: • To study how contracts work esp. with respect to the industry practices and monitory mechanisms • To identify the differences and similarities in the contracts and understand any patterns in the same related to, for example, organisational size, market conditions,duration and size of the contract, previous experience with the client/service provider etc. • To understand how uncertainties arising either out of contracts or due to environmental dynamics, for example, market construct and technological changes are managed In view of the fact that contracts themselves may help an organisation to attract prospective clients and they incentivise global companies to have long-term relationships, a study of what parameters constitute and influence a contract document is of utmost importance. The CCS plans to understand those parameters and propose a typology of the contracts, based on existing industry practices. It also aims at identifying the levers that a service provider may emphasise in the contracts so as to attract and retain clients. Further, it proposes to analyse the impact of contracts on managing the likely or unforeseen changes arising over the course of the contract.