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Chapter 15 Contract Management

Chapter 15 Contract Management - Contract Services...

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Contract Services Management Chapter 15
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The organization that manages lodging or foodservice operations for owners are called operators. Usually a company buys the real estate and then hires a different company (operator) to come run the real estate the correct way. The agreement between owners and operators is a contract; thus this segment of the industry is called Contract Services Management. Operators
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There are two types of operators: 1. Chain operators 2. Independent contractors
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Chain operators are affiliated with major hotel chains. There have been many mergers between chain brands which create mega-brands. Therefore this group of major chains is becoming smaller each year. Operators- Chain
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Operators- Independent Independent contractors are not affiliated with any specific brand. They purchase brands and locations based on their assessment for compatibility with their objectives.
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The concept of separating the ownership and operation of a lodging property came with the expansive growth of the hotel industry in the 1970s and 1980s. Investors could buy land all over the country and not be worried about the challenges of running a lodging company. Also, successful management companies were able to grow their brand names and expand into new markets, without huge capital expenditures.
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There are three parties involved in hotel management contracts: 1. Operators 2. Lenders 3. Owners Operators desire an increase in both market presence and market share, maintaining control over the day-to-day management decisions, and long-term stability. The Contract Parties
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The most significant change in contract process over the past few years: More active involvement of lenders Increase in power of the owners Lenders are interested in: Generating a rate of return Protecting the investment Lenders have recently become more involved in the negotiation of these contracts Contract Parties
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The owners are interested in: Generating cash flow Ensuring their investment grows in value Owners have developed more knowledge about hotel operations as they acquire more properties and more experience.
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