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The paper seeks to investigate the effects of psychological contract on control mechanisms in outsourced ISD projects, based on control theories and psychological contract theories.

The paper is a multiple case study involving five outsourced projects completed by one of the largest and most successful telecommunication vendors in China. The company was the client in three of the projects and the vendor in the other two.

Based on first‐hand observations by the first author over a two‐year period and follow‐up interviews, four scenarios of match and mismatch of psychological contract between the client and vendor are identified, labeled as mutual transaction, client vulnerable, vendor vulnerable, and mutual loyalty. Moreover, the effect of psychological contract in shaping organizational control and outsourcing outcomes in the four different scenarios is revealed. For example, mutual transaction was associated with an emphasis on outcome control by the client. In contrast, mutual loyalty was associated with more informal control (self‐control and clan control). Furthermore, in the cases of mismatch between the client's and vendor's psychological relationship, the client implemented more behavior control and encouraged self‐control by its partner.

This research is, to the best of the author's knowledge, one of the first attempts to bring together psychological contract theory and organizational control theory in the domain of IT offshore outsourcing research. It reveals the effect of psychological contract in shaping organizational control in the four different scenarios labeled as mutual transaction, client vulnerable, vendor vulnerable, and mutual loyalty.