Contracts During COVID-19July 5, 2021

Negotiation Tactics in Flux As the Pandemic Wanes By
July 5, 2021

Contracts During COVID-19

Negotiation Tactics in Flux As the Pandemic Wanes

The pandemic impacted much in the meetings industry, but does that include negotiating hotel and venue contracts? Some industry experts say no, but those who believe negotiations have shifted point to three areas: Attrition, cancellation and force majeure clauses, along with COVID 19-related guidelines and protocols.

Tyra Warner, Ph.D., J.D., CMP, chair, Department of Hospitality, Tourism & Culinary Arts at the College of Coastal Georgia, puts shifts into broader categories. “In the short run, the whole market has shifted. The supply side was hit very hard when COVID all but shut down meetings, so right now it is a buyer’s market, and negotiations in most locations have buyers in the catbird seat, and suppliers willing to sign contract terms and offer flexibility that’s highly atypical. I think we were due for a buyer’s market,” Warner says. “Every once in a while, it’s good for both sides to remember that this is a partnership, and we all need each other. Also, it’s been great to see the innovation and creativity that has come out, especially in a technological sense, in moving so much online.”

Virtually every meeting today has some hybrid or digital component, she says. “Figuring out that ratio of live to digital is part of the tension of today’s negotiations, as well as part of the deal — how many live participants there will be influences the room block, food and beverage covers, and other practical considerations that go into contract pricing for the supplier.” Finally, there are ever-changing safety guidelines and protocols. “With issues like masks, social distancing and travel restrictions still in flux, there’s a great deal of uncertainty around meetings,” she says. “This makes contracting very challenging, which brings attrition, cancellation and force majeure language into the forefront in a way they typically aren’t.”

Warner also says that what was true in 2020 may not be applicable today or tomorrow. “The force majeure clause, for example, generally applies to an unforeseeable, unexpected intervening circumstance beyond the control of the parties,” she says. “COVID-19 is now very much foreseeable and expected, so what tangential aspects of it may count toward a force majeure clause are likely very different than they were a year and a half ago.” Trying to figure out what will or won’t be pertinent is challenging. “Associations tend to book further out and sometimes book multi-year agreements, so they’re trying to see further into the future and make decisions based on that uncertainty,” Warner says. “I expect to see more language along the lines of an annual review and revision of certain terms of contracts based on each year’s reality in a long-term [3 to 10 year] contract, for example.”

Negotiation experts think planners should be able to get good deals in second-tier cities such as Tampa, pictured, as meetings are trending in smaller destinations in the early stages of coming out of the pandemic.

Negotiation experts think planners should be able to get good deals in second-tier cities such as Tampa, pictured, as meetings are trending in smaller destinations in the early stages of coming out of the pandemic.

Respect Relationships

While it may be a buyer’s market now, Warner advises keeping relationships top of mind. “Not everyone [including my own clients] agrees with me, but my advice is ‘Don’t kick them when they’re down.’ This industry is cyclical. It may be a buyer’s market now, but the market will turn and become a seller’s market again,” she says. “With the recession in 2008-2009, I saw planners hold tough and get dirt-cheap negotiated deals with hotels. Then when the market turned, some hotels found it worthwhile to cancel those deals to take other pieces of business that were more lucrative even after paying a cancellation fee to the original planner. My advice is to get great contract terms but be reasonable on pricing. We’re all in business to stay in business.” So where should planners negotiate harder? “In the short-term, suppliers are being more flexible about cancellation deadlines, attrition and other terms,” Warner says. “These are terms that don’t cost them hard money, so these are the terms worth negotiating hard on right now.”

Room rates are more complex. They may be lower in some cases right now, but if the revenue to operate a hotel in the black isn’t coming in, the impact is far-reaching. “That has a trickle-down effect that hurts not just owners and investors, but everyone on the payroll,” she says. “It also prevents needed renovations from being made, it prevents equipment from being replaced, etc. I think rates will go back to pre-pandemic rates as quickly as the market will bear it.”

One trend Warner hopes will continue is increased popularity of second-tier cities. “Second-tier cities have always had a lot to offer, in my opinion. I think the fear of flying was temporary and people will quickly get over that, but this is a great opportunity for second- and even third-tier cities to promote their advantages, and I hope their DMOs are mobilizing major campaigns around this so that the trend continues.” When it comes to negotiating contracts, Warner advises planners to think ahead “Be fair, be kind and remember the situation will change. Get the best deal you can for your organization, be a great advocate for your client, but remember that what goes around comes around. If suppliers negotiate with you in the future in the way that you’re negotiating with them today, will you be happy with that?”

Cheryl Payne, CMP, CMM, strategic partner with INNOV8 Meetings, also points to changes in cancellation terms and room rates as concerns for planners today. “Hotels are asking for more money to be paid in the event of cancellation and groups don’t want to pay higher cancel fees. I’ve also seen higher rates. It could be that hotels are trying to recoup lost money from 2020/2021,” she says, noting labor and food costs have gone up. What she hopes to see from hotels is more flexibility, especially in allowing for extra attrition in agreements. “Groups need flexibility from their hotel partners in order to sign and move forward with hotel contracts,” she says. “We’re living in uncertain times; we need more than ever for hotels to be flexible. This is temporary until things get back to normal and groups gain more confidence.” Meanwhile, uncertainty makes the process of planning challenging. “Negotiating the unknown has been difficult and it continues to be an issue,” Payne says. “Planners don’t know if or when attendees will come back to on-site meetings.”

Terri Woodin, CMP, V.P. of marketing and global meeting services with Meeting Sites Resource, isn’t seeing much change. “A good contract negotiation includes a fair and balanced contract document, open communication and flexibility. This hasn’t changed with the pandemic,” she says. But the situation hotels face makes things harder for planners. “Hotels haven’t been able to staff their sales departments as we come out of the pandemic. Until their level of business increases to the point that it makes financial sense for them to do so, it’s difficult to get RFP responses and contracts negotiated.”

Experts say it’s necessary to remember while negotiating during the pandemic that it’s important to maintain relationships and to keep a sense of fairness.

Experts say it’s necessary to remember while negotiating during the pandemic that it’s important to maintain relationships and to keep a sense of fairness.

Practice Patience

Like Warner, Woodin encourages planners to support hotel partners. “Be understanding and support hotel sales teams. They’re doing their best. Having patience while they’re short staffed and understanding what they’re experiencing goes a long way. I had a salesperson the other day email back that she couldn’t provide a space-flow diagram as she had six contracts and 20+ RFPs to respond to that day,” Woodin says. “We have to be understanding and set the expectation for our clients that everything is taking longer with the surge of RFP requests, and hotels don’t have the staff yet.”

As for what hotels can do, Woodin says, “The same as always. Be fair, balanced and not one sided. Write clauses to follow hospitality law. Both sides working together in a partnership is always the goal.” Woodin points out that the industry has faced downturns before, though this one has lasted more than a year, “making it much more painful with the entire industry being decimated. Thank goodness for leisure travel,” she adds, “as it’s driving recovery.” For business travel, she notes,”2021 is still very much a year of transition” as vaccination levels increase.

Woodin says planners should expect room-rate increases as hotels make up for operating in the red for a year just to stay open. And like some others, she says cancellation dates and payments haven’t changed much, and remain something to negotiate. “Hotels ask for what they have always asked for, and a good planner will negotiate to what dates and percentages they’ll owe that best meet their needs.” With the pandemic having forced groups to cancel and pay or postpone meetings, Woodin says it comes down to relationships and specific situations. “Having the conversations that we’re all in the same boat and how we can work together to a solution that works for both sides is the best strategy.”

While smaller cities have been more in demand during the pandemic, Woodin thinks all destinations will soon be back in play. But she also thinks organizations will be looking at who really needs to meet face-to-face and how much money was saved by fewer meetings and less travel. Still, she says, face-to-face has been proven critical to business and that won’t change. In terms of other lessons learned, she adds, “Meetings will always incorporate the cleanliness and safety protocols we learned during the pandemic and, honestly, many of them should have been implemented before. There will be future events we learn from,” she says, “and each experience makes the next one better.”

Every Destination is Different

Nancy Nachman, CMP, CMM, owner, chief connecting officer at The Meeting Concierge, says contract negotiations change in every city and every hotel depending on the needs of a meeting, so every negotiation is an individual process. But differences related specifically to the pandemic include the fact that, “Some hotels are offering no attrition and no cancellation penalties, as well as clearer force majeure terms.”

Currently, Nachman says, negotiations include asking a lot of questions about safety measures, especially related to meeting-room seating capacity and food-service options. “The crazy thing is, by the time meetings take place, many of these measures will be lifted by hotels to accommodate large group gatherings again.” That goes back to the issue of uncertainty. “It’s very difficult to prepare for the unknown,” she says. “A year ago, none of us would have dreamed this global pandemic could be a reality. Organizations and hotels alike will not forget this time for a very long time, yet, before you know it, we’ll all be back to gathering without masks and seating without elbow room. That’s why I like to make sure any meeting room a hotel offers is plenty big enough for the size group we’re booking, and that the meeting room cannot be changed after contracting.”

As for room rates, little is predictable. “Want to save money? Go to San Francisco right now,” Nachman says. “Hotel rates are very attractive. Why? We don’t know. Go to Nashville and prepare to pay more than you would have last year. Why? We don’t know. We’ve had some customers say, ‘Hotels need our business, so the rates will probably be lower,’ but that’s not what we’re finding. Hotels need to make up for a lot of loss so expect prices to be higher for everything from guest rooms to meeting rooms and F&B. And don’t forget that budget killer — A/V.”

Nancy Nachman, CMP, CMM, owner, chief connecting officer at The Meeting Concierge, left, says contract negotiations change in every city and every hotel depending  on the needs of a meeting. Courtesy of Nancy Nachman

Nancy Nachman, CMP, CMM, owner, chief connecting officer at The Meeting Concierge, left, says contract negotiations change in every city and every hotel depending on the needs of a meeting. Courtesy of Nancy Nachman

Nachman says hotels are currently “being tough” and wanting to get contracts signed quickly. “Supposedly, there are other organizations waiting in line to take the guest rooms and meeting space our client is holding. To be honest, I’m happy about this. Everyone wants to get back to business and meeting again. Hotels need the business to keep their employees employed and organizations need to meet to pick up where they left off when the pandemic arrived.” She says some hotels are offering flexible cancellation terms while others are not, but she expects cancellation deadlines to get stricter quickly. “Watch for that one sentence in contracts: ‘DEPOSITS ARE NON-REFUNDABLE.’” She’s also seeing smaller groups booking more buyouts and increased interest in drive-to destinations and second- or third-tier cities.

Nachman doesn’t see much flexibility going forward. “Many of our long-term hotel global sales representatives lost their jobs and won’t be hired back. This makes me sad, yet it’s not surprising as hotels can hire younger people who will work four times harder for a quarter of the salary,” she says. “Management always puts pressure on sales managers to get that signed contract, so expect limited flexibility on contract terms and meeting-deposit deadlines — and be prepared for the unexpected. “I remember sitting in a contract-negotiation class at an MPI meeting. We talked about what one would do if Martians landed in the hotel lobby where your meeting was taking place. We all laughed. Now, I think it’s a good idea to have plans in place for the craziest ‘what ifs’ that can happen.”

Phelps R. Hope, CMP, senior vice president, meetings & expositions, with association management group Kellen, sees hotels currently pushing harder for deposits and thinks, “Cancellation terms for groups are tougher, more stringent, with a higher initial percent fee required.” He says both parties are taking a closer look at force majeure language related to COVID, with awareness of and option to cancel without penalty based on increase in cases or a new outbreak. He says hotel revenue managers want money upfront, and are pushing tougher cancellation terms until they feel more comfortable about extending credit. “However,” he adds, “force majeure clause issues will settle down by mid-2022, and COVID language will disappear as discussions around it fade away.”

Short term, Hope says the pandemic has increased need for flexibility and for groups to be vigilant that they’re contracting the right venue for their needs with the right amount of spacing and staffing to allow for social distancing. He also says hotels and venues need to understand that associations can’t be responsible for their lost revenue, and that paying deposits a year or more in advance simply isn’t realistic for many groups. As for destinations, he says planners can’t help but look at them differently now. “We look at how the state and city handled communications regarding the pandemic and what restrictions were imposed, how quickly they adjusted those restrictions, what the COVID metrics were for the city or state, how any newsworthy incidents of violence were addressed,” he says. “Drive-to destinations have become more popular, and that probably will not change in 2022, based on the group’s demographics. There’s hesitancy, he adds, to book international destinations very far out due to unpredictable travel restrictions.

Current situation notwithstanding, Hope says his group isn’t negotiating any differently than before. “We don’t feel we’re taking advantage of the situation or hotel, nor do we want to. We always negotiate as best we can in favor of our group events, making sure to be fair and honest so we continue to have a great relationship with the hotels and venues, and are welcomed back at a future date. We always have terms we will negotiate on and some we won’t, some harder than others.”

Caesars Entertainment Inc. kept its sales team in place to be available for customers during the pandemic. The plan paid off as customers had questions about everything from CDC guidelines to rescheduling, to cancellations.

Caesars Entertainment Inc. kept its sales team in place to be available for customers during the pandemic. The plan paid off as customers had questions about everything from CDC guidelines to rescheduling, to cancellations.

The Hotelier Perspective

Of course, the hotelier perspective is important, too. Kelly Gleeson Smith, Caesars Entertainment Inc. director of sales, Eastern division, points to the same issues as planners. “Over the last year, Caesars Entertainment kept the sales team in place to be available for customers. Customers reached out as they needed to reschedule their conferences and had lots of questions about the future and Caesars Entertainment’s protocols. There were many discussions about force majeure, attrition and cancellation.” And there were lots of requests to include references to CDC guidelines. “As CDC guidelines have been changing” Smith says, “we felt it was best to not include these in our contracts. The same applies to safety and cleaning protocols, as these are also continually changing.” There were also discussions about reductions in attrition and cancellation, Smith says. “Short-term programs have had a lot of flexibility; however, as restrictions are lifted and confidence in travel increases, traditional attrition and cancellation tiers are in place for 2022 and beyond.”

Smith encourages planners to partner with their sales manager to discuss concerns and to be transparent. “Ask many questions so there’s alignment and collaboration. At Caesars Entertainment, our goal has always been to understand what a planner’s objectives are and to build long-term relationships.” She does see positives coming out of the pandemic. “Since the Caesars Entertainment sales team continued to work throughout the pandemic, there was lots of time to spend with customers discussing their concerns, both for their programs and for their situations. This has brought us closer together. Everyone is more familiar with contract terms and there’s much more open dialogue.” Regardless of changing circumstances, Smith is clear on this point. The focus, she says, is always to be a good partner and for meetings to take place.

Hope, too, sees positives in many aspects of meetings. “We all were forced to experience virtual events; we’re no longer scared or hesitant about the technology. We have metrics to help us determine if there’s a viable need and opportunity for engaging a virtual audience or offering a hybrid event. We also better understand the terms of force majeure and the importance of rebookings, and how seriously we need to consider the location and venue for future events,” he says. “And we have a better understanding of how cancellations are viewed by both parties and what it means to cancel an event, both from the contracting perspective, as well as communicating with the association’s membership and the financial implications. We were allowed to see how our boards respond in crisis and what factors most strongly influenced their decision-making. We learned to become more efficient and not to rely on habits and routine. We better understand attendee engagement.”

In the final analysis, Hope says, “We’re all stronger negotiators and planners from the experience.”   | AC&F |

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