The rise of the global economy and the growth of litigious actions within the meetings and events industry have had sweeping implications for proper contract development and negotiation. And in the age of instant global communication, understanding the trends facing contracts, how to understand, negotiate and enhance their value are prerequisites in developing solid contracts that protect all parties involved.
Contract negotiation is a term much bandied about in these days of our knowledge economy. Proper contract development and negotiation are things that every successful meeting and event planner must understand. According to Kris O’Brien, CMP and owner of KOB Event Solutions, the biggest issues that meeting planners need to consider when reviewing and establishing a contract really depends on the client’s need and budget.
“The most important thing with contracts is contingency and back-up planning.”
Amberlee Huggins, CSI DMC
“Some of the primary areas include room rental fees, food and beverage minimums and reviewing all the taxes and service charges as each property and city have varying percentages, room rates and A/V charges,” O’Brien says. “It also may involve waiving fees when bringing in your own vendor or the discounting involved when using an internal vendor.”
Amberlee Huggins, president at CSI DMC, says there are key issues that meeting and event planners need to consider when establishing and reviewing a contract. First is suitability and viability. “As an adviser to our clients, we begin with a query about their experience managing programs and stakeholders of the same size and scope,” Huggins says.
“Truth in opportunity” is another top-of-mind issue to which Huggins and her team pay close attention. They look at their resources and ask, “Is it a peak period or time? Can the venue or vendor handle it and provide quality care? What do service levels look like? What is their approach?”
And in many event planning situations people simply don’t prepare for the worst-case scenario. Many professionals find themselves in situations that are going smoothly, so they think, “Why waste time planning for something as complicated as a cancellation?”
But it’s when things are falling apart that individuals frantically examine a contract looking for what remedy to which they’re entitled. So prior to any contracts being signed, make sure a cancellation clause has been crafted.
At CSI DMC they work in the “what if?” space. As Huggins explains, clients hire their meeting planning company to think about different outcomes because they deal with a variety of scenarios regularly and can help save money, time and challenges.
“The most important thing with contracts is contingency and back-up planning,” Huggins says. “It is common to plan for the ideal scenario, however you need to contract with the back-up plan as equally weighted.”
For example, if a venue’s alternate space — and the concessions that come with it — are needed as a result of a contingency plan, do the space and concessions change the event experience or ‘feel’? What does the flow look like? Define the alternate plan and put that in the contract. And with vendors — who is the team with which you’re working? The back-up plan should include any changes to the team if they occur unexpectedly.
“We work with clients to ensure these plans are outlined from the beginning and are part of the contract,” Huggins says.
One key challenge that O’Brien has faced when developing contracts is the “conflict of interest” clause. “Depending on the company and industry, having competitors in the hotel would be a big concern,” O’Brien says. “It’s important to discuss the issue with the hotel or vendor to clarify the meaning of the clause. If the clause is non applicable, ask to strike it. If the clause is different from a company policy or general beliefs, then you need to discuss for a mutual agreed clause.” In this situation, O’Brien strongly recommends to include hot buttons like this in the RFP before negotiations begin.
It’s also important for meeting planners to always keep in consideration other factors that may have an impact on a meeting or event such as parking charges, valet, labor charges, set up fees, etc.
“I have seen planners discuss these items on a high level in proposals, but possibly not factor the overall costs if their event has many set up needs or has all local attendees,” O’Brien says.
It should go without saying that meeting planners and vendors need to review the contract in full — going through it with a proverbial “fine-toothed comb.”
“Ask questions when a clause isn’t clear,” O’Brien says. “I request that all attrition and cancellation dates and amounts are listed in the contract.” O’Brien also prefers not to leave contracts listing only percentages or a date range.
“If there is ever an issue, it’s easier to discuss when the exact date and exact amount are not in question,” O’Brien says.
And when it comes to negotiating contracts, planners should look at their past history with room blocks, room rental and F&B expenses and specifics. Make your needs clear.
What’s more, people often think that they should keep all their “cards close to their chest” at all points of a negotiation. This can be problematic because without clearly explaining a planner’s needs and expectations from the ‘get go,’ how is a vendor or supplier supposed to give the planner what they want? It’s vital to be clear on non-negotiable items. This will ensure that those aspects won’t be compromised or forgotten.
As hotels, event spaces and catering companies most often are the issuers of contracts, the contracts are also skewed to their advantage. As such, make sure to become educated on the key issues in the contract and note any issues that are problematic. Remember, most contracts are negotiable.
Jonathan Howe, founding partner and president of Howe & Hutton, Ltd. says that when it comes to negotiating contracts, the fundamental rule when maintaining the integrity of an event is to put it in the contract.
“If its not in the contract there is no basic obligation to provide that service or facility overall,” Howe says. “So before you even go into the negotiations, you need to determine what it is that you absolutely have to have for that event to be successful. You start with that premise and sit down and talk with the supplier, clearly explaining what you need to have. If the answer is ‘no’ on the part of the vendor, you can establish right away if the business relationship is worthwhile to pursue.”
Howe suggests meeting planners establish a three-column protocol from which to work. The first column is “needs”; the second column is “wants” and the third column is “interests.”
“If you have to have a ballroom available 24 hours a day, that’s a need you have to have,” Howe says. “If they can’t give you the ballroom for 24 hours a day, then why waste everyone’s time?”
The “wants” column encompasses items that are a bit more fluid. Perhaps you don’t need a ballroom for 24 hours a day — just for a lunch and program. If the items within your “wants” column don’t work out or are not feasible, the world will not come to a grinding halt but having a series of “wants” does provide an avenue for negotiation.
For example, let’s say you ‘want’ free valet parking for attendees, but the hotel says they are unable to fill that request because their valet parking is contracted out to an outside company.
“That gives the meeting planning the opportunity to negotiate by saying, ‘Well if you can’t provide free valet parking perhaps you can upgrade my board of directors to a suite,’” Howe says. “That’s a soft money deal on the part of the hotel. And perhaps you had only five attendees actually driving to the event. Of course valet parking would have been nice for those five individuals, but it is not as nice of an offering for your 22 association board members to the ability to have nicer amenities found in a suite.”
One of the common questions Howe receives from meeting planners and others about contracts is why contracts have gotten so lengthy — many times today’s contracts are dozens of pages long. Quite simply, it’s because contracts today are based on bad experiences.
“If you have a bad experience, you don’t necessarily want to have it happen to you again, so you put something in the contract to ease the burden of that bad experience,” Howe says. “Sometimes that bad experience may be a once-in-a-lifetime kind of thing so you don’t necessarily have to have it in future contracts. You probably should have had it in the contract where you got burned, but it doesn’t have to be in every other contract that you negotiate.”
Experts agree that cancellation and partial cancellation clauses are perhaps the biggest points of contention as it relates to contracts. That’s why it is important for meeting and event planners to get specific monetary outlines on what the costs will be. Negotiate down from there based on occupancy levels at the time of your cancellation or partial cancellation.
“Dispute resolution also is often only addressed if there is a problem on the contract,” Huggins says. “Be proactive and ask for steps to be outlined in the contract in ‘day to day’ disputes resolution: Who will be engaged? What will the process be? Ask for specific actions that will be followed if you have concerns pre-, during or post program. Don’t wait for the pre-con meeting to define onsite.”
Finally, review the contract line by line on “experience” changes. The CSI DMC team regularly does this for clients, making sure all contractual terms are in their best interests.
For example, should the property or vendor make changes that impact or potentially impact the outcome of your event — e.g., meeting space changes not related to weather/force majeure or anything that can impact the ‘experience’ attendees will have.
“We have the contingency outlined and agreed to with the venue and vendor so there are no surprises,” Huggins says.
Hospitality lawyer Jasmine Moy, Esq., founding partner at Jasmine Moy Law P.C., says the most important parts to make clear in an agreement is the scope of work and time for delivery and then exactly how and when the vendor will get paid.
“My role comes in when making sure that their liability is limited if things don’t go right, making sure they’re indemnified for any damages that may occur — unless my client is negligent, and making sure that the scope is clear,” Moy says. “Ambiguities are the doors that lead to arguments and litigation.”
Moy says that anyone running a business that requires the signing of contracts on a daily or weekly basis should have an attorney look at these documents.
“An event planner should invest in a good client service contract and use that from event to event, and then they only need their attorney to review sections or clauses that are added by the client, if any,” Moy says.
One of the common problems Howe sees with contracts is that the parties involved in the contract may agree what a “word” is in the contract but they don’t necessarily agree to what the word means.
“For example, let’s say a planner asks a hotel if they have a freight elevator and the hotel says, ‘Yes, we have a freight elevator.’ Well, it doesn’t come around until the time of the event that the freight elevator is needed to get 3,000 pounds of equipment to the ballroom on the second floor,” Howe says. “The problem is, what they thought was a freight elevator is actually a ‘service elevator,’ which is simply a passenger elevator with padding.” So what the initial question should have been, and what should have been in the contract, is ‘Do you have an elevator that can handle 3,000 pounds of equipment?’ Planners need to ask the right questions, in the right ways. Be specific and don’t talk in generalities.”
Huggins stresses that contracts should never be more complicated than what is reasonable for the meeting or event planner to understand. “They are not an ego position, or should not be,” Huggins says. “If it is not clear to you, ask for plain language contracting and examples that are relevant to your circumstances. Be sure to have them included in the contract.”
Also cross out what you do not agree with and ask for alternative language that is more mutually agreeable. Always ask what is relevant on the contract specifically with your event in mind. Or partner with an experienced organization that works in the landscape regularly, with the experience to negotiate, share and help.
“Remember hotels and venues want your business,” Huggins says. “With that in mind, they consistently play a chess game on space and/or guest room availability. Ask what challenges they experience regularly. Be open and listen.”
In the meeting and event industry common challenges often develop after signing a contract. To avoid these issues, before contracting, walk through your event from start to finish.
Not addressing clauses around program execution, moving around other groups, and internal staffing levels are common. That’s why Huggins says it’s important to define parameters around maintenance inconveniences and construction and define its impact even if “minimized” during contract negotiations.
“And define ‘walk’ clauses including where rehoused attendees will stay, and what concessions the hotel will provide,” Huggins says.
Remember that cancellation policies should match the attrition policy. If a group is allowed 15% attrition with no penalties, then the cancellation policy should be based on 85% of the anticipated revenue, not 100%.
Also, you can save thousands of dollars in potential attrition fees by dropping rooms before the deadline. That said, remember that if you release too many rooms, but later find that you need rooms again, you may not get them back — or they will be at much higher rate. So consider holding onto some “dummy rooms” for meeting or event attendees who register later.
“Don’t just read the contract. Set a time aside to walk through clauses and be open about what you don’t understand,” Huggins says. “Ask for plain truth examples. And put examples in the contract that are particularly relevant to you.”
Howe agrees. “There are so many times I’ve had a client come into my office about a contract issue and say, ‘Well, I guess I didn’t read it as closely as I should have,” Howe says. “The best thing for everyone involved is to read the contract carefully and thoughtfully. It can save a lot of problems.” | AC&F |