Managing the Contractor-Customer Relationship in Outsourcing

Introduction

Today, organizations of all sizes and types are outsourcing many of their project requirements to third-party vendors that possess the requisite resources and expertise to provide high-quality goods and services pursuant to contractual requirements. While many — if not most — of these contractor-customer relationships are mutually beneficial and achieve their intended outcomes, there are important issues that must be taken into account prior to and during any such contractual arrangement. To determine these issues and their implications for the contractor-customer relationship, this paper reviews the relevant literature concerning the ethical issues that can arise in contracting and provides analysis of the benefits that contracting can generate. A description of the importance of the communication process in the contractor-customer relationship and the risks and responsibilities each party bears is followed by a summary of the research findings in the conclusion.

Ethical Issues in Contracting

The increase in outsourcing in recent years has introduced a number of ethical concerns, most especially the need to ensure that the third-party provider is capable of supplying the requested goods or services at the agreed-upon price in a timely fashion — without violating national and international labor standards or otherwise engaging in illegal conduct in the performance of the contract (Tuft 2010). In this regard, DeVelliers (2022) emphasizes that "stories are common of exploitation of workers in developing countries and are a key reason there is still a stigma surrounding outsourcing. Companies must partner with firms that pay their employees fairly and ensure safe working conditions" (para. 4). Although these types of ethical issues are fairly obvious and even intuitive, the high-profile projects that are the focus of outsourcing initiatives are often sensitive and proprietary. It is therefore essential that organizations perform the required due diligence in this area thoroughly prior to entering into any outsourcing contracts.

Beyond the foregoing considerations, some of the other ethical issues that can arise in contracting include ensuring the security of the information shared with contracting partners. While this factor may not be especially relevant for some types of organizations and projects where the goods or services involved are not technologically intensive, it may present real concerns for organizations outsourcing critically sensitive information that could threaten corporate or even national security if compromised. As DeVelliers (2022) points out, "IP theft is rampant in China and other countries with low law enforcement and patent protection. Companies should work with outsourcing companies with similar regulations and laws as the US to minimize the risk" (para. 8).

Certainly, these are not the only ethical issues that might arise prior to and throughout the course of a contractor-customer relationship, but they are among the most common. Business practitioners must remain vigilant to ensure that any novel ethical issues are resolved immediately in order to avoid suboptimal outcomes in the contracting relationship. While this level of oversight and due diligence is frequently time-consuming and complex, it is also vitally important in ensuring that organizations realize the full range of benefits that can accrue from these types of relationships.

Works Cited

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Choma, A. A. "How to Reduce Risks in Contractors' Management." 2008. Paper presented at PMI® Global Congress 2008 — North America, Denver, CO. Newtown Square, PA: Project Management Institute.

DeVelliers, Marius. "Ethical Considerations in Global Outsourcing." LinkedIn, April 1, 2022. https://www.linkedin.com/pulse/ethical-considerations-global-outsourcing-marius-devilliers-mba.

Dhar, Subhankar, and Bindu Balakrishnan. "Risks, Benefits, and Challenges in Global IT Outsourcing: Perspectives and Practices." Journal of Global Information Management, vol. 14, no. 3, July 2006, pp. 39–69.

Letica, Maja. "The Effect of Outsourcing Activities Selection on the Benefits of Outsourcing." Management: Journal of Contemporary Management Issues, vol. 21, no. 2, Dec. 2016, pp. 77–97.

Project Management Institute. "The Essential Role of Communications." May 2013.

Santos, Juliana Bonomi, and Sandro Cabral. "Public Procurement Capabilities as Engines for Collaboration and Enhanced Performance in Complex Projects." International Journal of Operations & Production Management, vol. 42, no. 1, Jan. 2022, pp. 32–58.

Tuft, Mark L. "Supervising Offshore Outsourcing of Legal Services in a Global Environment: Re-Examining Current Ethical Standards." Akron Law Review, vol. 43, no. 3, July 2010, pp. 825–45.