Management contract

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A management contract is an arrangement under which operational control of an enterprise is vested by contract in a separate enterprise that performs the necessary managerial functions in return for a fee. Management contracts involve not just selling a method of doing things (as with franchising or licensing) but actually doing them. A management contract can involve a wide range of functions such as technical operation of a production facility, management of personnel, accounting, marketing services, and training.

Taking advantage of economies of scale, international reservation systems, and brand awareness, a large number of hotels in Asia run under management contract arrangements. It's common for contracts to span 30 years, with fees as high as 3.5% of total revenues and 6–10% of gross operating profit. Management contracts are also prevalent in the airline industry, particularly when foreign government actions restrict other entry methods. They're often employed in regions lacking local skills to manage projects. As an alternative to foreign direct investment, management contracts entail lower risk and can yield higher returns for the company. The first recorded management contract was initiated by Qantas and Duncan Upton in 1978.^{[1][failed verification]}