CONTRACT SERVICES

CONTRACT:- is an agreement enforceable by law made between two or more persons by which rights are acquired by one or more to act for bearness on the part of the others. (Indian Contract Act 1872).
 

A CONTRACT CAN BE DEFINED AS “AN AGREEMENT BETWEEN TWO PARTIES NEGOTIATING A BUSINESS DEAL”.

OUTSOURCING:- is a conscious business decision to move internal work to an external provider.

Essential elements of contract:

1.Offer and acceptance

2.Legal relation

3.Legality of object

4.Capability

5.Free consent

6.Certainty

7.Promise of performance

8.Writing and registration

Services usually given on contract:

1. Cleaning: This can be on consultancy basis or specialist work (e.g. deep cleaning). Contract cleaners provide both general and specialized services which can include general cleaning of public rooms, toilets, kitchens, provision of bedroom cleaning services, periodic cleaning of walls, ceiling, carpets, upholstery, windows, and different surfaces.
2. Linen hire: full linen hires service or specialized items e.g. uniforms, towels, banqueting items, etc.
3. Laundry and flower arrangement: completely or partly.
4. Personal services/products: shoe cleaning machine, dispensers for towels, soap, dust control, pest control, refuse collection, horticulture and landscaping.

Method of costing: The methods used to access the cost of the contract depends on its

• Type
• Size of the job being carried out
• Skills required
• Policy of company
• Budget

1. Management fee, consultancy basis: The customer provides his own labour, equipments, materials etc. and the contractor provides the management with the expertise and possible supervisory staff.

2. Fixed periodic cost: may be made either as a total cost or cost per unit of work. This is a very commonly used method and is available in two forms.

• Uncontrolled input: The contractor agrees to provide a service of a given nature for a specific cost. There is no indication of the number of workers, hours worked or the type of equipment and materials used. Therefore it is essential that the specification is detailed indeed.

• Controlled input: This type of contract also specifies the minimum number of workers, hours worked and other equipments.

3. Cost plus profit % basis: This has an advantage of providing a perfectly viable, flexible programme, as the customer is free to determine his own needs as things change (e.g. low occupancy due to weather conditions). This also provides incentives for the contractor to increase his basic cost in order to earn more profits.
4. Cost plus fixed fee basis: The contractor is reimbursed for all costs like that of equipment, material, labour etc. and is paid a fixed fee for the management of the programme. This provides a flexible programme along with elimination of any incentive to spend more money.

Unit Rate Agreements

Most contracts are agreed on unit rate basis. The details of the area to be covered and the job frequency is given by the EHK. The service provider is asked to give the cost as per the area.

The cost is calculated on the basis of area measured by the contractor.

The cost is calculated in this way:-

Man hours = areas x time x frequency

eg:- If a contracted firm has to clean five different areas. Taking two hours each, twice a week, then man hours will be calculated as:

Areas = 5, Time = 2 hours, Frequency = 2 times

then, Man hours = 5 x 2 x 2 hours

                             = 20 hours.

To the cost of wages ( for workers & supervisors), the firm adds costs of equipments, agents, and supplies, plus overheads and profits, and then quotes a price.

Guidelines for hiring contract services

1. Prepare a detailed specification indicating exact number of working hours, areas, process, frequency, time factor etc.
2. Put out tenders to at least three contractors and compare their rates, not necessarily choose the cheapest one because the work standard may be poor. Strike out a balance.
3. Consider the length of contract. It should not be more than two years. Also, the condition of termination should be penned down clearly.
4. Careful study should be made regarding payment methods.
5. Try to select a local contractor.
6. Check the type and amount of supervision.
7. Check on all other arrangement after the contract is awarded like that of security passes, meal coupons, locker facility etc.
8. Spot checking the work after the contract has been awarded.

Advantages of contract services

1. A budget can be worked out accurately because the price is known for a given period and may be economical than direct labour and services.
2. The contractor is responsible for recruiting, training, paying and dismissing.
3. Contract services eliminate many of the problems between management and unions.
4. The contract company may offer bigger pay than the direct labour and therefore attract more qualified and competent staff.
5. Eliminates the need to buy specialized equipments and permit extra work without the need of increasing the staff.
6. Specialized contractors may be able to cope more easily in case of an emergency.

Disadvantages of contract services

1. Cost may be too high for the acceptor.
2. Weakens management authority over the quality and loyalty of staff working in the premises.
3. Control is loosened over operations.
4. Poor supervision.
5. There is a natural tendency of the contractor to use poor quality product which can cause damage to the building, furniture, etc.
6. Security may be weakened because of labour turnover.
7. There is often no solution if a contractor does not carry out his work properly except to terminate the contract.