What is Management Contracts? Advantages, Disadvantages

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What is Management Contracts?

Management contract is an agreement between investors or owners of a project, and a management company hired for coordinating and overseeing a contract. The company assists its client for a specified period for a fee. A company usually enters into a management contract when it believes a foreign company can manage its existing or new operation more efficiently.

For example, the British Airport Authority (BAA) has contracts to manage airports in Indianapolis (US), Naples (Italy) and Melbourne (Australia) because it has developed successful airport management skills.

Advantages of Management Contracts

  • It enables a firm to exploit an international business opportunity without having to place a great deal of its own physical assets at risk

  • Government can award companies management contracts to operate and upgrade public utilities

  • Government uses management contract to develop skills o local workers and managers

Disadvantages of Management Contracts

  • International management in countries that are undergoing political or social unrest can place a threat before the managers of the company to manage its operations

  • Suppliers of expertise may put a threat of new competitor in the local market

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