Drawing on contract governance literature and institutional theory, this study investigates the differential effects of output- and behavior-based contract governance on buyer-supplier conflict in supply chains. The authors develop a contingent perspective to examine how institutional factors moderate the impact of contract governance. The findings, from an empirical study of buyer-supplier dyads in China, show that an output-based contract is negatively, whereas a behavior-based contract is positively, related to buyer-supplier conflict. The effects of a contract are moderated by two primary institutional factors: legal enforceability and unilateral government support. These findings have important implications for supply chain research, public policy, and managerial practice.