Study and evaluation of contracts: for software product and services

Abstract

Software industry is fast evolving. It has come through various stages and business models have evolved gradually. These business models have given rise to the need of different type of contracts for different type of applications and for different customer requirements. The nature of the service impacts contract design. A wide variety of contract types are available to provide flexibility to execute various types of transactions in the software products and services industry. Price provisions are provided in the contracts to meet two economic goals:_ To ensure efficient use of resources._ To eliminate opportunistic behaviors. The choice of pricing model depends upon a number of internal and external factors. Internal factors are the ones that are controllable directly by the client and the vendor. Some of these factors are billing rate, client profile, scope, duration, number of resources employed, geography, etc. External factors are the ones that affect the pricing and it cannot be controlled. External factors include market condition, market rate, government regulations, minimum wage requirement, skill set availability, etc. This study is aimed at studying and evaluating some of the measurable factors that influence selection of type of contract and pricing issues. The survey validates the hypothesis that billing rates, client profile, and skill set availability, scope and assignment duration are certain factors that affect the type of contract chosen. However, this effect is not same on fixed price and Time and material contracts. Also, it depends upon the size of the company and maturity of its processes.