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The Contracting OrganizationA Strategic Guide to Outsourcing$
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Simon Domberger

Print publication date: 1998

Print ISBN-13: 9780198774570

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198774575.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 25 July 2021

The Costs of Contracting

The Costs of Contracting

(p.53) 4 The Costs of Contracting
The Contracting Organization

Simon Domberger

Oxford University Press

This chapter and the previous one outline the costs and benefits of contracting out. While there is merit in separating costs from benefits, and that is how managers intuitively think of the issue, the separation is not always easily achieved, and many of the concepts raised under the heading of benefits also appear under the guise of costs. Hence, costs and benefits become two sides of the same coin, which may not be particularly helpful as a framework for decision‐making. Aspects of the costs of contracting out are addressed in this chapter by looking at the coordination of production activity, cooperation and trust, the costs of transacting and monitoring, loss of control, and miscellaneous other costs. It is concluded that the crucial question is not whether the costs are significantly higher when contacting out than operating in‐house, but whether contracts can be designed in such a way that benefits do exceed the costs; the answer appears to be increasingly in the affirmative.

Keywords:   contract design, contracting out, coordination, cost–benefit analysis, costs, loss of control, monitoring, outsourcing, transactions

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