Abstract: A sub-game stage link, namely, contract termination is added to the principal-agent model, and then a four-stage dynamic game model which is suitable for the software outsourcing is set up. The decision-making conditions for outsourcer and supplier involved are analyzed respectively under each stage. At the end, some suggestions are made for both sides based on the "win-win" principle.

Key words: software outsourcing, principal-agent model, dynamic game, contract termination