Contracts: Strive for Mutual SuccessOctober 1, 2016

Arrange for ‘Dummy Rooms’ but Don’t Be a Dummy When It Comes to Negotiating By
October 1, 2016

Contracts: Strive for Mutual Success

Arrange for ‘Dummy Rooms’ but Don’t Be a Dummy When It Comes to Negotiating

NegotiatingHotel contracts and contentious clauses. They are the classic sticky wicket. If you manage them right, your event can thrive. If not, there’s a price to pay. And for many meeting planners, negotiating hotel contracts can be one of their biggest headaches. The good news? Using the right mix of your own creative negotiating power and understanding the nuances of specific contract clauses can help you manage hotel contracts well and improve your event’s success ratio.

Key Issues

The hotel industry is in a constant state of flux. The pendulum swings back and forth from a buyer’s market to a strong seller’s market, which is where we are today. When it comes to negotiating hotel contracts, the strategic planner must be aware of trends and take advantage of education and data offered by industry associations, hotel partners and trusted advisors.

According to Sue Heley, CMP, CMM, national account manager with Experient, a Maritz Global Events Company, the most important sections of a hotel contract are those that mitigate the organization’s financial risk — the cancellation, indemnification and attrition clauses.

“A clause should also be included to protect the group in the event that the host hotel or facility cancels on them and they are forced to find a new location.”
— Caytie Pohlen-LaClare

“Watch out for liquidated damages charges that do not take into account the actual occupancy of the hotel and the actual number of rooms available for sale on the dates of the program,” Heley says. “Be sure there is a detailed force majeure clause.”

Force majeure allows either/both parties to cancel due to acts of God, war, terrorism, health risks, strikes, etc. that make it impractical or impossible to hold the event. This is especially important now with current world events and weather-related super storms.

As Caytie Pohlen-LaClare, owner and president of Minnetonka, Minnesota-based The LaClare Group, a third-party professional meeting planning company, explains, many event planners are focused on the cost savings including reduced room rates, lower food and beverage costs, concessions, etc.

“Those are important, but the often overlooked issues of attrition, cancellation, and force majeure are just as important and can have a greater impact on the finances of the group,” she says.

As Pohlen-LaClare explains, attrition is important for event planners who are using sleeping rooms in addition to meeting space. Attrition is meant to protect the hotel if a group does not use as many hotel rooms as they initially anticipated.

“I suggest including verbiage that takes into account the hotel’s actual occupancy rate on the nights in question. For example, if the hotel was 80 percent full, then the group should only be paying for the amount of rooms that are equal to the remaining 20 percent of unsold rooms,” Pohlen-LaClare says. “Or, if the hotel is 100 percent full on any given night, then the group should not be liable for any attrition penalty on those nights because there were no empty rooms.

“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 a much higher rate. So consider holding onto some ‘dummy rooms’ for attendees who register later,” she says.

According to Pohlen-LaClare, cancellation policies should match the attrition policy. If a group is allowed 15 percent attrition with no penalties, then the cancellation policy should be based on 85 percent of the anticipated revenue, not 100 percent.

“A clause should also be included to protect the group in the event that the host hotel or facility cancels on them and they are forced to find a new location for their event,” Pohlen-LaClare says. “We have a client that is based in Europe and travels to the U.S. for meetings.  Back in 2010, the Icelandic volcano ash cloud disrupted travel between Europe and the United States for several days, and our client’s employees were unable to travel.  This was a great example of how incidents that happen in other parts of the world can affect our meetings and events here — thousands of miles away.”

Beware of Hidden Costs

Janeen Zook, chief executive officer and president of Las Vegas-based Trattativa Meeting & Event Solutions International, believes it’s always the hidden costs that are a concern.

“The pricing that is contained within a contract does not always spell out the additional costs that may apply,” Zook says. “Meeting and event planners must ask very detailed, specific and intentional questions during the sales and contract phase in order to identify and uncover costs that are not provided prior to contracting.”

Zook advises planners to obtain full information on the offer, contractual terms and conditions, and the property. And it also is important to anticipate the customer’s needs and to provide solutions even if the customer does not know it is yet a need or a concern.

“If a meeting and event planner does not have a relationship established equally with their customer and the property, there will be aspects of the program that are not identified early enough in the process to make sure the contract is comprehensive,” Zook says. “Attrition, minimums and cancellations are all areas that must be understood and in alignment with the customer’s ability to sign. Additionally, questioning any clause or terminology that is either ambiguous, one-sided or unclear is essential.”

Negotiating Know-How

Most contracts are issued by the venue (hotel, event space) and therefore are skewed to their advantage. Experts agree that the best thing planners can do is get educated on the key issues and be willing to stand up for their group or company and negotiate what is in their best interest. Almost everything in a contract is negotiable.

“It is imperative for meeting and event planners to have experience in contracts, and, if they do not, to seek and take courses accordingly,” Zook says. “Otherwise, it can be very detrimental to their customer in the long run.”

So how can meeting planners best negotiate hotel contracts while protecting their interests? The most successful negotiations begin with the understanding that both parties are working toward each other’s mutual success and shared financial risk.

“Meeting planners can protect their interests by providing open and transparent communication as they detail the ‘must-haves’ and the ‘would-be-nice-to-haves’ for the event,” Heley says. “Hotel sales managers appreciate the prioritization, can work through the list, and often spend quite a bit of time selling the program to the hotel’s revenue management team.”

Pohlen-LaClare stresses that planners should make sure that a hotel lists the proposed meeting space in the contract.

“It is important to verify the correct dates, times and amount of space being held based on the meeting/event agenda,” Pohlen-LaClare says. “We include a clause that says meeting space cannot be moved or changed without our written approval.”

Pohlen-LaClare says the best advice she ever heard was to approach contract negotiation from a place of, “how can we work together to create a contract that is mutually beneficial?” There are ways for both the venue and the event planner to win, and it means both parties will have to compromise on some items.

“Before starting the negotiating process, take time to think about what the biggest issues are for you or your company, and which issues are less important,” Pohlen-LaClare says. “I encourage my team to share with the hotel our list of the key issues and clauses before the first draft of the contract is written. We also keep a ‘contract checklist’ that each of our planners refers to when they begin the contract negotiating process.”

Heley says it’s also vital to remain open-minded and flexible.  “Once, while in the final stages of negotiating a contract, the hotel asked if there was any chance we would consider adjusting the arrival pattern by one day,” Heley says. “If we could, they would be able to accept another large piece of business immediately following our program. After examining the hotel’s offer of a reduced room rate and other important concessions, it was decided that we could reap the benefits without any challenge to our conference or organization.”

Bryan Eaves, CMP, CPSM, a partner at the Knoxville, Tennessee-based consulting firm Sourcing Business Solutions, helps companies negotiate contracts.  According to Eaves, when it comes to hotel contracts for large events, it is important to balance the risks, minimize your costs and ensure a productive meeting for your client. To allocate risks fairly between the parties, the following three items should be negotiated, says Eaves.

Cancellation penalties. These clauses can create unnecessary high risks for your company. Penalty clauses should be fair to both parties by including verbiage that if the hotel rebooks the property during the time frame previously held for your company, no penalties should exist. “A tiered approach that increases the penalty amount for cancellation the closer that you get to the planned event date is fair to both the hotel and the buying company,” Eaves says.

Headcount estimates for food and beverage. Contract language should allow the planner to lower headcount estimates for food and lower your financial risk. “For example, if you estimate your headcount for dinner at 500 people but notify the hotel at least 48 hours in advance that your headcount will actually be 350, contract language should allow you to modify headcount for F&B with only small fees, if any,” Eaves says. “Language allowing the hotel to charge you for 500 people in this example without flexibility to modify the headcount estimate should be avoided.”

Estimating the headcount for paid room nights. Many hotel contracts will specify how many paid hotel nights will be needed per day, which is needed so that the hotel can block rooms for the event. Because the contract is created so many months in advance of the actual event, trying to estimate the precise number of hotel nights needed for each night is often difficult.

Eaves says a better way to minimize risk is by estimating total spending for the event. “Your contract language could have the rate per night and number of rooms to block per night, but instead of penalties being based upon these numbers, your contract language could be based upon total spending,” Eaves says. For example, language could indicate the number of rooms estimated that are needed each night and the room rate but no hotel penalties would be incurred as long as your company spends at least $500,000 in F&B and room rate combined over the entire event time period (not per day).  If you spend slightly less than the $500,000 estimate, the hotel will generally not charge the difference if you agree to plan your next big event there.

In the End

Often, the most challenging contract negotiations result in the most successful programs, and the human relationships that develop during the process continue long after the last attendee departs for home.

“Do your homework,” Pohlen-LaClare says. “Learn as much as you can about contracts and negotiating through articles, webinars, seminars, etc. You make yourself valuable when you bring your knowledge and skills to your company, your clients and your vendor partners.”

And always seek to understand and ask as many questions as is required to fully grasp what is being offered and contracted.  When in doubt, double fact check.

“Haste makes waste and not anticipating the outcome of any given decision or offer can cause unraveling of a deal or put your customers at risk,” Zook says. “Meeting and event planners need to be detailed, experienced and willing to learn every day.” C&IT

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