Privatization is an often stressed statement when it comes to large scale developments or stimulation programs to attract foreign investment in country development programs. They all have one in common: Not everything is ready from day one i.e. governance systems and regulatory frameworks, etc.
On the other hand, pressure is high and implementation can’t wait. A transformation plan is always key and if the transformation plan shows activities where skillful and experienced partners can contribute from day one, the application of an often used method called “Management contracts” may help.
The Business Dictionary defines a management contract as an
“agreement between investors or owners of a project, and a management company hired for coordinating and overseeing a contract”.
Management contracts can range from single functions, such as marketing, commercial development, training, finance, facility management to even complex and large-scale businesses, such as entire administration buildings, hotels, hospitals, airports or terminals, railway stations etc.. Depending on the scale of content and services Management contracts definitely boost performance, customer experience, professional and financial efficiency and develop know-how, skills and abilities within the organization.
Consequently, Management contracts are an intelligent start into a much wider strategic change that aims for private public partnerships later on, i.e. outsourcing or privatization. Duration and scope can be developed to best fit the strategic goals. The flexibility of such contracts allows employers to award Management contracts while governance systems, frameworks or baselining elements are under development. Important is that employers retain in charge and keep control.
Employers can select and assign specific responsibilities to the management company. Paramount success factor is a Management company that verifies its experience in the considered fields.
Management contracts require skillful resources with intuition at the employers site!
Management contracts are been paid along a fee scheme with basic and performance components ensuring performance on highest standards. However, performance measurement methods and standards are often used but rarely similarly understood between contractual partners.
And here it needs intelligence when it comes to contract developments and strategies. Wording matters! Intelligence in both ways, professional and legal. A concrete example: The negotiation of a Management contract took long time. Content went from “specific” to a kind of a “carte blanche” wording. The Management company matched the wording and seconded leaders to manage and oversee the Management contract and its implementation. The wording unintentionally caused legal impacts for its “Managers” in charge. The wording suggested the “Manager” is in managerial position hence “Managers” became in charge to comply with legal systems in the country of business!
In the concrete example, the company law in the country of business enforced the application of “sound administrative management” principles.
“Administrative management is a framework in which (…) group moves towards specific target. (…). It also means an organized constellation of connected and similar parts to establish a common entity, in which works, duties and authorities carried out to achieve the desired goal.
Administrative management aims at identifying the required aspects of an activity to achieve specific goal or a plan. Therefore, specific factors should be available, such as: one target and teamwork, a group of people who share a real relationship and participate in achieving their goal. Consequently, it should be realistic, dynamic and active in achieving goals with the best methods and lowest costs, creating cooperation among a group of individuals who share coordination of efforts and business.
Source: Assist. Professor of General Management, College of Administrative Sciences, Najran University, KSA
A Management contract needs clarity!
Lessons learned: Management contracts are an adequate method to get things going fast. Best investment made is the time it takes to agree on a wording that clearly represents the goal, responsibilities and interfaces between employer and Management company. It is a kind of trust building aspect if employer and Management company do find a mutual and unmistakable wording and role play from the very beginning.