Integrated Contract Governance for Sustainable Supplier Performance: A Literature Review and Future Research Agenda

Abstract

Effective contract governance mechanisms are crucial for developing and sustaining meaningful partnerships between customers and suppliers. While the literature has extensively studied supplier partnerships, it has not provided enough coverage regarding contract governance and agency theory. However, understanding agency theory in detail could shed light on why certain partnerships fail and others succeed, and provide a better understanding of contract governance. The economic costs associated with transactions have a significant impact on contract governance, and a thorough understanding of this theory will help identify opportunities to make more informed decisions about the type of contract governance required for asset-specific or non-contractible investment. The theoretical framework for institutional and organizational analysis of contractual governance suggests studying institutional and organizational structures in detail that impact contract governance. This framework emphasizes transaction costs, which are influenced by factors such as legal systems, cultural norms, trust monitoring mechanisms, asymmetries in power, opportunism, uncertainty, and its impact on contractual relationships. To build the best contractual governance and relationships, suggested research includes market-based governance, hybrid governance, and network governance. In the context of supply chain contracts, research recommends considering context-specific factors when selecting between output-based and behaviour-based contracts. For example, output-based contracts are effective when the supplier has more control over the production process and there is less uncertainty in the market, whereas behaviour-based contracts are best when the supplier has less control over the production process and there is greater uncertainty in the market. All these observations identify gaps that call for a detailed study of the identification of contract governance mechanisms for the ITES industry and the design of a governance mechanism that is effective and yet sustainable.