Evaluation of a management contract of a machine tools manufacturing plant in the public sector

Abstract

Bangladesh Machine Tools Factory (BMTF),the only plant of its kind in the country, has been suffering from serious under utilization and huge loss over the years. On sOmerecommendations a decision was taken for a management contract agreement. Such a contract waS made with a reputed Belgian firm for two years for US $ 4.4 m.i.ll.ion. The present work evaluates how a foreign firm could help in the performance of a country's own plant. Achievement,s in the t>w years period of the contract was found to be highly disappointing. These achievement were measured and compared with targets in terms of the following three components, namely, (i) Production performance, (ii) Sales performance and (iii) Value additions. Actual production performance achieved ,,'ere 59.74 percent and 50.56 percent of the targets in the first and second year respectively; act.ual sales achievements were only 13.05 percent and 12.95 percent of the target; and the actual value additions achieved Were 79.12 percent and 45.45 percent respectively. Against the target of bringing the overall loss down by Tk. 7.59 Cr. in first year,actual loss incurred was Tk. 5.56 cOre. Thus the management contractor could not claim the US $ 1.32 m, which was risk related remuneration (30 percent of 4.4 millionl Th", contribution in respect of management 1n different func'lional areaS of business could not be measured. The expatriate management experts feel on the one hand that the failure was mainly due to non-cooperation and incapabilj,ty of local management staff and technicians and the inherent red tapism. The BMTFmanagement on the other hand feels that the expatr'iate management contractor lack"d in its intention to improve BMTF'Sposition; they failed to understand the BMTF's operation problems. In this cont,ext doubt was placed on the quality and capability of the experts as per agreement. There were Severe problems with the relationship between contractor and local managements and between contractor and workers and communication problems. BMTFhas its OWn inherent chronic problems such as lack of demand of its product, high overhead, high interest on borrowed capital and high duty cost, inability to meet delivery schedule et,c. Hence, a considerable effort has been directed in the study to crit,ically "nalyse the management contract with respect to various aspects in depth. It was found that the management contract between FN and BHTFwas a failure. The analysis "Iso consists of identifying the various factors as to the causes of failure of the contracL. From Lhe present stud,' and experience of the management contract iL lS recommended for any such future contract be made that enough control must be retai ned with the plant.