What is a management contract?
Several different types of contracts are used to formalize relationships between parties, and one of these is the management contract.
These are often used in various industries and sectors, such as construction, entertainment, and hospitality.
We’re going to explore the basics of a management contract, covering everything you need to know about it, the advantages and disadvantages, and some examples.
What is a management contract and what’s it for?
A management contract establishes a relationship between a manager or management company and a client.
The main purpose of a management contract is to lay out the terms and conditions of the relationship.
This includes the duties and responsibilities of the manager, as well as the compensation they would receive for their services.
Under a management contract, the manager or management company offers their knowledge and expertise to help the client to achieve a particular goal or set of goals.
This can include managing projects, overseeing operations, providing financial advice, or managing talent — anything a manager would be skilled at.
The management contract should outline the scope of the work expected, the timeline for its completion, the compensation the manager will receive for their services, and when they expect to be paid.
What are the advantages of using a management contract?
There are several advantages to using a management contract, but let’s focus on the three biggest ones:
Firstly, it offers a clear framework that can help prevent misunderstandings and avoid disputes between parties.
Having both parties on the same page about everything related to the project will prevent any confusion.
Secondly, both parties can change a contract before signing to ensure they are completely happy with it before any work begins.
This prevents any deviations potentially months down the line. Contracts can also be customized to suit the specific requirements of the project at hand.
Thirdly, a management contract can help to improve accountability since it should clearly outline the duties and responsibilities of the manager, as well as the expected outcomes.
With everything put down in writing, you can see whether the promised objectives have been met, and you know exactly what will happen if they aren’t.
In short, the advantages of using a management contract amount to protection for both parties, clarity about expectations, and the freedom to tweak the project in writing to suit both parties.
What are the disadvantages of using a management contract?
There are also a few disadvantages to be aware of when considering a management contract.
First of all, they can be expensive to produce, depending on what service you use.
For example, it’s much costlier to have experts draw up the contract from the beginning than it is to use a customizable template, fill it out yourself, and then have an expert check it over later.
Secondly, management contracts can be overly complicated.
The terms and conditions might be hard to understand, especially if they’re written in legal jargon, and this could potentially lead to misunderstandings and disputes.
You can avoid this pitfall by writing the contract in the simplest possible language so anyone can understand it.
A good lawyer can help with this process.
Thirdly, management contracts can end up becoming restrictive, which might have a knock-on effect on creativity and flexible work practices.
The contract might limit the client’s ability to make decisions or take action without the manager’s approval, and vice-versa, which could lead to a less dynamic project.
What are some management contract examples?
The following are some examples of management contracts:
Construction management contract
A construction management contract formalizes the relationship between the client and the construction manager.
It outlines the manager’s duties and responsibilities, such as overseeing the project’s budget, schedule, and quality control.
The manager is typically compensated through a fee — usually a percentage of the project’s total cost.
Artist management contract
An artist management contract is used in the entertainment industry to formalize the relationship between an artist and their manager.
It will include the likes of the commission rate for the manager, intellectual property rights, and confidentiality, among other things.
Business management agreement
A business management agreement formalizes the working relationship between a business and its manager.
The contract will include information such as budgeting, the percentage of business revenue owed to the manager, and confidentiality requirements.
Social media management contract
Running numerous social media accounts across different platforms is no small task.
Many companies will create a social media management contract to outsource the work to a third party.
This type of contract will include the types of social media services provided and what the management company can and cannot say when representing the client.
Property management contract
Property management companies are used for rent collection, finding new tenants, and property maintenance.
A property management contract will set out the manager’s responsibilities and when the owner will need to pay for things like repairs and hiring collection agencies.
How to write a management contract
When writing a management contract, it’s vital to include several things:
- Duration. Decide how long the contract should be in place. The average duration of a management contract is a year, with options for extension and/or renegotiation after that.
- Expectations. Both parties must understand what is expected of them and how their performance will be measured.
- Payment. Include payment details; how much is the management company being paid, and how regularly?
- Dealing with a breach. Ideally, this won’t happen, but it’s crucial to establish the consequences of a breach of contract by either party.
- Sign. Last but not least, all parties must sign the document and ensure they have a copy.
Check out PandaDoc’s management services agreement template
If you want to avoid spending a small fortune on a management contract and would prefer to use a simple contract template that you can customize to fit your project, PandaDoc’s management services agreement template might be right for you.