Agreement between investors or owners of a project, and a management company hired for coordinating and overseeing a contract”.
A business or an organization will hire a management company to perform specific tasks. Your organization might hire a management company to look after its marketing and under the contract, the management company would perform marketing on your company’s behalf and receive a fee for doing so.
The compensation for the management might be decided based on performance or it can be a set sum decided between you are the management company.
2. WHAT IS A MANAGEMENT CONTRACT
Agreement between investors or owners of a project, and a
management company hired for coordinating and overseeing a
contract”.
A business or an organization will hire a management company to
perform specific tasks. Your organization might hire a management
company to look after its marketing and under the contract, the
management company would perform marketing on your company’s
behalf and receive a fee for doing so.
The compensation for the management might be decided based on
performance or it can be a set sum decided between you are the
management company.
3. CONTROL UNDER MANAGEMENT CONTRACT
Under the management contract, the operational control of the
enterprise or the specific department would be in the hands of the
management company. Therefore, the management company you
would choose, would be able to make all the operational decisions
regarding the function you specified, i.e. marketing.
Your contract might limit the excess of the control, but in most instances,
the contract includes all operational functions of that specific enterprise
or department.
4. COMPONENTS OF MANAGEMENT CONTRACT
1.The conditions of the contract –
The lengthiest and most detailed part of the management contract is naturally the
conditions of it. The contract must clearly identify the parties involved and the
functions that are being transferred to the management company. This includes the
outline of the rules and responsibilities both parties have and the extent which either
party can influence the operational functions once the contract starts.
To avoid confusion and conflict later on, the conditions must be clarified and the
functions and operational responsibilities outlined in detail.
5. 2.The duration of the agreement –
The section specifies the duration for how long the management company will be in charge of the
enterprise or department. The duration could range from a few months to years, and you might have
set specific conditions for the duration.
For example, if certain performance metrics are not met, the contract can be terminated sooner and
on.
3. The method of computing the management fees –
The management contract should also discuss the compensation method. As mentioned above, the
method for computing the management fee can range from a set percentage, a set sum or a
sum related to performance. An example fee could be a % of total revenue and/or a % of gross profit.
6. FUNCTIONS OF MANAGEMENT CONTRACT
The range of functions is wide and varied. The typical functions entail the
following:
Technical operations such as production of products
Management of human resources, including training of personnel
Financial management of the organization such as accounting
Marketing services, including promotions
A company can essentially identify the functions it hands over to the
management company depending on its needs.
8. ADVANTAGES
Having to do your own bookkeeping might take too much of your time away from things
like marketing or product development. By hiring a management company to look after the
accounting part of the business, you are able to save time and your resources.
The organization receives expertise and experience. Consider the example of a start-up. You
might not be efficient in business finances, but instead know everything about marketing
and product development. When you are hiring a management company to take control of
your accounting, you are seeking out services from a professional.
Management contract can also provide more continuity to an organization. The contract
company might have individual managers change during the contract, but the standards set
at the start of the deal will continue to remain in place. What this means is that you don’t
need to worry about change in performance or style, as you have spelled out the conditions
in the agreement.
9. DISADVANTAGES
The organization is essentially surrendering information about its products, finances and
other such matters to another entity. While the contract naturally deals with these issues and
requires full confidentiality, the information is still not only confined to your organization.
you need to keep in mind overall issues regarding conflict of interest. If you are using a large
management company, you need to be aware of the possibility the company also deals with
your competitors. You want to ensure the management company resolves such possible
conflicts of interest with your business’ interests in mind.
While it should be obvious from the definition of a management contract, it is worth
reminding how the agreement transfers the operational control of your business to the
management company. Therefore, depending on the clauses in your contract, you won’t
have a say in many of the things the function will do.
10. CONCLUSION
The Management Contract system can help large-scale
organizations look after their businesses better or provide more
resources for smaller companies. The Management Contract is
definitely worth exploring if certain functions of your business
seem time-consuming or difficult to deal with.
