Contract functions in service exchange governance: evidence from logistics outsourcing

Abstract

The logistics outsourcing literature emphasises relational governance mechanisms and has underplayed the role of formal contractual provisions. This paper empirically examines the multiple functions that contracts perform in the governance of service exchanges. Codification, safeguarding, coordination and adaptation functions are linked to contract specification schedules, payment mechanisms, (early) termination rights, performance review and communication provisions, service variations clauses and renegotiation provisions. Contracts may also embody exchange- or partner-specific learning, albeit to a limited extent. Overall, the empirical findings lend support to the functional view of contracting. The functionality of contracts extends beyond safeguarding against opportunism and financial losses. In addition to offering economic and legal safeguards, contracts are used to coordinate and adapt service exchanges in the face of complexity and uncertainty.

Keywords:

• Contracting
• exchange governance
• contract functions
• business services
• logistics outsourcing

Acknowledgements

I would like to thank the Editor and two anonymous reviewers for their constructive comments which helped to improve the manuscript. I am responsible for any remaining errors or omissions.

Notes

1. I am indebted to one of the anonymous reviewers for this insightful point.