But the modern meetings industry is too complex to run on a simple handshake.
Hotel contracts, nowadays, are legal documents written to ensure that the product is delivered, as promised, to the end user. They are somewhat formulaic. Contained therein, however, are some important little clauses that warrant dissection and interpretation of the legal speak.
Finding the right hotel, in the right location, with the right amenities, at the right price with the right dates is the easy part. Ensuring the contractual promises are fulfilled ... there begins the real work.
Before searching for hotels, analyze the meeting request and question the details. What's the objective of the meeting? What's the budget? Is attendance mandatory? Is the company paying for attendance? Are the meal functions reasonable? Are vendors or customers invited? Are the attendees free to make their own reservations or will a rooming list be supplied? Is the meeting regional, national or global? What time of year or season is the meeting taking place? Have we held this meeting before? Who's signing the contract?
Expected attendance needs to agree with fact and all of these questions provide vital information that will assist in selecting the appropriate place and negotiating the details. Otherwise, some negative consequences could be built right into the contract.
Room Block 101
Hotel profit is based primarily on room sales so negotiating the correct number of rooms to accommodate a meeting is of paramount importance. Aside from cancellation provisions, the centerpiece of the hotel contract is the attrition or performance clause. An attrition clause outlines the room-night commitment made by the buyer with a 10 percent to 15 percent built-in "wash" or attrition factor. If the buyer's actual room-night consumption falls short of the "washed" number, a dollar amount is due to the hotel as a means of recouping losses.
Whether defined as liquidated damages or penalty, the translation is the same: the company is obligated to write a check for goods not realized — and that's never a good thing.
Ask the questions, analyze the answers and make adjustments to the room block prior to booking. If the event is done on a yearly basis or if it's similar to another function, block the rooms to mirror the historical data.
In the absence of history, use a little finesse. If the meeting specifications call for 100 rooms, ask the hotel for 90 and the attrition will kick in at 75-80, giving a little wiggle room to cover the contingencies. Internally, hotel revenue managers adjust room block commitments and create selling strategies around group room business, using much of the same information as the planner might to determine the actual room block consumption. So the wiggling goes both ways.
There is a risk, however, in arbitrarily under-blocking room commitments, so caution is prudent. Since group rates are traditionally lower than transient or retail rates, the hotel is only obligated to provide the contractual commitment. If actual pick-up is higher than the commitment, the hotel is not obligated to extend the group rate. Determine the greater liability, a few attendees paying a higher rate or the company cutting a check for unused hotel rooms.
There are some other ways to limit liability, says Jeffrey Tenenbaum, an attorney with the firm of Veneable LLP, located in Washington, DC. "Ask that the dollar amount used to determine damages be the hotel's profit margin for guestrooms, not the confirmed guestroom rate. If the performance clause is worded in this way, financial liability is significantly reduced. In addition, there should be no attrition charged for nights when the hotel is sold out; this should be clearly spelled out in the attrition clause prior to signature. Furthermore, the customer should ask the hotel for credit on any cancellation, no-show or early departure fees charged to their attendees."
As a corporate meeting planner, Lianne Pereira, associate director of events and meeting services for KPMG, relies on her company's reputation and long-term relationships to help offset unexpected attrition fees. "Most of the hotels I work with will agree to waive the attrition fees if I agree to book additional business into the hotel within the next year." Pereira acknowledges these are typically "gentlemen's agreements," without the teeth of a hotel contract. However, she was recently presented with an addendum for signature from a hotel asking for a solid commitment of future rooms. "The scope of our meeting changed six weeks prior to arrival so the hotel knew well in advance that we could not fill the original block. I would prefer not to agree to this contractually but we have enough business for that particular hotel that it did not present that much of a problem."
For non-mandatory or association types of events, Tenenbaum offers another strategy to avoid signing attrition or performance clause: ask for a "best effort" provision instead. In this scenario, the client is offered a special group rate in return for the promise that the client will put forth its best effort to market the hotel to potential attendees. There are no contractual consequences if the rooms don't pick up but this can be a risky proposition if another buyer is willing to contract for the same space.
From the hotel perspective, this may be a tempting proposition if the meeting falls over historically slow days of the week or out-of-season dates. During peak times in high volume destinations, the best practice is to do the homework, block reasonable space, contract on a definite basis and keep the hotel in the loop on any looming changes.
They Have To Eat
A natural offshoot of the guestroom attrition clause is the food and beverage minimum. For the same 100 rooms, there are naturally 100 guests who need to be fed.
But again, caution is key.
Hotels generally calculate the number of attendees by their average check price for each meal period. Using the same principle as guestroom attrition, the food and beverage minimum is defined in the contract and the charges due even if the attendees choose to hit the local nightclub instead of the banquet room. If overall meeting attendance slips, the food and beverage minimum presents a double whammy in the attrition department.
Hotels prepare a percentage over the actual meal guarantee but the percentage varies depending on the location and meal type. This percentage should be stated in the contract and used as a tool when considering how many covers to contract for each meal function.
A major budget-buster in food and beverage is the service charge applied to the prices. "Inexperienced meeting planners or association volunteers don't always know what they are signing," says MaryAnne Bobrow, owner of Bobrow & Associates. "A $35,000 food budget doesn't mean you have $35,000 to spend. It's a shock to find out that there are upwards of 30 percent in service charges and taxes applied to the meal prices and unless you are aware of these charges up front and back them out of the total budget, you're in the hole before you even sit down to dinner." Service charges, taxes, additional fees or rental items should be clearly spelled out and factored in before signing a hotel contract to avoid ugly post-event surprises.
Legal Words
Force majeure is legal-speak for a situation in which the meeting contract can be nullified if some unforeseen event prevents either party from performing its contractual obligations. This clause includes "Acts of God," a legal principal which means that the meeting cannot occur for reasons outside the hotel's control. Although fairly straight-forward in the case of Hurricane Katrina or the terrorist attacks of 9-11, the scope can get a little gray depending on the interpretation. "A taxi strike in New York City or a weather related airport closure on arrival day — do those situations make the meeting impossible or just inconvenient?," asks Tenenbaum.
At a minimum, Tenenbaum suggests that the force majeure clause cover the following: "government regulation, terrorism or threats of terrorism, outbreak of disease or illness, curtailment of transportation facilities preventing or unreasonably delaying at least 25 percent of meeting attendees and guests from appearing, or other similar causes beyond the control of the parties making it inadvisable, illegal, or impossible to hold the meeting or provide the facility."
Indemnification, like force majeure, is a standard part of the hotel contract. It also is open for interpretation and is worth the time and effort of the company's or organization's legal council to review and revise. Strictly speaking, indemnification is a contractual promise to protect a party from financial loss and a way to shift risk to the party that can best control it.
The hotel contract covers the hotel; Tenenbaum urges the signing party to ensure that the clause cover both parties, not just the hotel, as the interpretation is broad and financial ramifications can be staggering. Many companies have created their own clauses that the hotel must countersign to ensure all parties are covered legally. Tenenbaum also recommends that any company or organization should ask for proof of the meeting facility's insurance.
Cancellation is a dirty word for both hoteliers and corporate planners but is a necessary component of any contract. Upon signature, the hotel has effectively taken the contracted space off the market. If the meeting cancels, the hotel asks for compensation for lost revenue.
As with attrition charges, there are some ways to soften the financial blow.
For meetings booked more than a few months out, the cancellation clause should be tiered so that the amount due goes up as the meeting date draws closer. The closer to that date the meeting is canceled, the greater the payment to the hotel.
Cancellation Penalty
If the meeting is not really canceled, just pushed back, hotels will generally waive the cancellation fee, with the commitment of the booking on the new dates, provided they have availability. "In cancellation and attrition, I have a choice between paying a penalty or rebooking business at the hotel. I would rather rebook the business and so would the hotel. My hotel partners are generally very forgiving based on our solid business relationship," confirms KPMG's Pereira.
Meeting planners should pay particular attention to the wording of the cancellation provision and make changes if necessary prior to signing.
Tenenbaum suggests that cancellation not be paid until after the dates the meeting would have been held so actual damages can be assessed. "This makes good business sense but I have never used this type of strategy. If the hotel collects cancellation fees and ends up selling out over the dates in question, that's like double-dipping," adds Pereira.
The gentlemen's agreement may be a thing of the past for hotels and meeting planners but the basic principle of the industry remains hospitality. Pereira sums up the contract issue by saying, "This business is 100 percent about relationships ... I believe in building strong partnerships with my hotels and I rely on these relationships to make KPMG's meeting program a success. If a hotel makes me look bad or is unwilling to work together on these types of issues, I am reluctant to use that hotel again."
Tenenbaum agrees, "Before you sign the contract, you have to weigh all the factors, including the relationship with the hotel company and all of the other factors going in ... If you have to make changes to protect your business, do so, it's all part of the negotiation."