Management service

contracts are

agreements used

between investors or

owners of a project or

business and a

management

company.

Business owners who do

not want to run their

business themselves often

turn to hiring a

management company to

run the business. When

this occurs, a

management service

contract is created to state

all of the details of the

arrangement.

A management service contract states many

details of the agreement:

the names of both parties

the duration of the contract

the payment amount, method and due date

What are their

functions?

Technicaloperation

of a production facility

Management of

personnel

Accounting

Marketing services

Training

*The owner hands over most of the

responsibilities of the organization to the

company, allowing the owner to be

considered a silent partner.

*The management company handles all

day-to-day tasks of operating the

business.

*Many management companies are paid a flat

fee plus bonuses based on performance. These

bonuses paid can be an advantage for the

business owner.

*Management companies may strive hard to

increase performance to earn the bonuses, thus

benefiting the business owner.

*A management company typically cannot

handle all aspects of running the business and

making business decisions.

*The decisions the management company

makes may not always be the decisions the

owner feels are the best.

*Hiring a management company also increases

the operating expenses of a business.

• In Asia, many hotels operate under

management contract

arrangements, as they can more

easily obtain economies of scale,

a global reservation systems,

brand recognition etc.

• Management contracts have been

used to a wide extent in the airline

industry, and when foreign

government action restricts other

entry methods.