Tom is a project manager for a software company. He is contracting a long-term software project with an external company?

Tom is doing time and material T & M contract in which a contractor is paid on the basis of labor, hourly rates, materials and equipment usage.

Option-D T&M (Time & Material Contract)

Being a project manager with multirole of TQM ( total quality management), Contract with labour outsourse is benificial while providing software for recording of labour ID , per hour rates,  recording of site store material and fixed materials usage with assurace of maintainance in case disturbance and payment terms on time.

This is not uncommon. IT software companies will specialise in specific elements in writing program. If there is an area where they are not so good, they will outsource. This will save time and labour costs.