The Art Of The Deal: Knowing What To Do At The Beginning Of The Process Can Prevent Problems LaterMay 18, 2020

May 18, 2020

The Art Of The Deal: Knowing What To Do At The Beginning Of The Process Can Prevent Problems Later

Attendees enjoy themselves at GameStop’s recent annual GME Conference. Just like any event, planners had to negotiate contracts well beforehand. Photo Courtsey EPNAC

Attendees enjoy themselves at GameStop’s recent annual GME Conference. Just like any event, planners had to negotiate contracts well beforehand. Photo Courtsey EPNAC

The ideal contract both minimizes financial risks for one’s organization and secures the most favorable concessions from the other party. As new risks and concession opportunities continue to be identified, contracts with hotels and other meeting venues have grown lengthier and more complex. Thus, it is always worthwhile to revisit the ever-evolving topic of contract negotiation.

As Judy Payne, CMP, director, meetings and travel with Grapevine, Texas-based GameStop aptly puts it: “A contract is a living thing, and you have to maintain it and grow with it as the times change.” Toward that goal, Payne says she and her planner colleagues at GameStop “attend as many contracting sessions as we can, and share with other planners and get their ideas.” In these discussions, instructive cases often emerge where planner X had a bad experience with hotel Y that could have been avoided with certain contractual terms, and, as a result, the planner has included those terms ever since.

“Contracts are based on bad experiences,” says Jonathan T. Howe, founding partner and president of Howe & Hutton, Ltd. “If you have a bad experience, you don’t ever want it to happen to you again, so you’re going to try and protect yourself by putting something in the contract that will alleviate or at least reduce the potential for risk that you might encounter.” Over the years, this process has led to many contracts addressing contingencies with a very low probability of occurring, thus expanding the document and giving hoteliers, planners and legal experts more to review.

On the planner side, it’s not only a matter of inserting and negotiating for one’s boilerplate clauses. It’s also crucial to pay close attention to the language of the hotel’s form contract, under the assumption that it will tend to benefit the supplier on all counts. “You don’t think that the landlord’s form lease is favoring the tenant, and it’s the same thing with the form hotel contract,” Howe says. He gives an example of a clause he thinks favors the supplier in case a dispute goes to court: “The first clause I look for is a prevailing party clause, which says whoever wins the case gets their attorney fees and everything else paid by the other side. I do not like prevailing party clauses unless I’m sure my client is always going to win, which is not something I can always bank on.”

Another example is contract language that specifies the meeting space usage in terms of square footage while leaving out the specific meeting venue, which allows the hotel to relocate the group to a comparable space if it is convenient to the hotel. “They’ve been doing that a few years now,” Payne observes. “So, we make sure that they put the room name in our boilerplate and as part of the language. It stipulates that they cannot change our meeting room without prior written authorization from us.”

A hotel form contact may well have certain surcharges and fees left out, which later come as an unwelcome surprise to the group. It is especially important to get clear on these costs beforehand in an age when hotels seem to be following the airline industry’s example and constantly adding on fees, some of which may be questionable. “We have the so-called resort fee. Now, we have what’s called a destination fee, a booking fee — it’s all over the lot,” Howe says. “What I put in the contract is this is the amount of money my attendees are going to spend, not a nickel more. So, I have the absolute cap as to what it’s going to cost.”

Handling A/V Issues

For groups that prefer to use their own A/V vendor, the disclosure of any fee for not using in-house A/V is a key part of contract negotiation. If the hotel refuses to waive this fee, it may not be a deal-breaker, however. “A lot of times, we’ll try to have a happy medium and throw them a bone: If you can be competitive on your pricing, I’d be happy to consider using the in house” service, explains Karen Zunkowski, director of global event marketing for South Jordan, Utah-based Ivanti. If the hotel simply requires the use of in-house A/V, Zunkowski’s team will sometimes try to negotiate spending a certain amount with the in-house A/V company for part of the service, along with permission to use Ivanti’s A/V company for all other A/V needs.

Prior to negotiating for such concessions, they must be evaluated by the planner seeking them. For example, is a waived fee for utilizing outside A/V something needed, desired or merely a “perfect world” concession? Those are the three categories Howe uses to organize the concessions list before the contract negotiation begins, and how concessions are divided into those groups will, of course, be determined by the particular meeting’s requirements. Under the “needs” column go concessions that “I absolutely positively have to have. If you can’t give those to me, let’s not even waste each other’s time,” Howe explains. “My middle column is my ‘wants’ column. I’d like to get these, but I’m flexible. Third is my ‘interests’ column: These would be terrific but, if I don’t get them, the world will not come to an end.”

The justification for pursuing these mere interests on top of needs and wants is simple: “If you don’t ask, you don’t get,” Howe notes. More strategically, “interest” concession requests can sometimes be deployed to get “want” concessions, because a hotel may deny the first and compensate by granting the second. “Let’s say I go to the sales manager and say, ‘Look, I need to have free valet parking for my board of directors.’ He comes to me and says, ‘I can’t do that; we outsource our valet parking and we have a contract with the company.’ ‘Well, maybe if you give me 15 room upgrades on a space-available basis for my board.’ ‘Hey, we can do that.’ Now, what I know, that he doesn’t know, is that I only have five people driving to the meeting, so I couldn’t care less about valet parking, but now I’ve made 15 members of my board happy, which makes me happy.” Thus, negotiating for a mere interest — free valet parking — ultimately resulted in acquiring a desired concession.

It will also be observed that a room upgrade is a “soft money” concession, as opposed to an F&B discount, for instance. These are typically easier to negotiate, and may provide significant value to the program. Another example of a “soft money” concession is the opportunity to display sponsor promotions in the meeting venue. “We try for complimentary sponsorships, so maybe visibility opportunities in the common areas where we can hang banners,” Payne says. “As long as they’re not charging us a fee for the visibility opportunity, we’re able to capture additional sponsorship money to kind of offset additional costs that we’re seeing from the hotels.” She notes that hotels in general have been agreeable to this concession.

Apart from considering any desirable “soft money” concessions, it’s also important to consider which concessions are high on the wants list and deserve the focus in negotiation. For a meeting like Ivanti’s user conference, internet service is a big cost center, so a discount on that service is a priority. “We try to make sure that we can negotiate a discount or flat rate for our Wi-Fi or internet service,” Zunkowski says. “Being a tech company, our IT team that supports us onsite knows the costs involved with internet access, so it’s a little bit of a hot button. That’s an area where we feel we can save a lot of money if we negotiate that upfront.”


Pay Extra Attention to Attrition

Conversely, it’s also helpful to consider which concessions are low on the want list, as these can sometimes be dispensed with as leverage in the negotiation. For example, Payne notes that her group has very good performance on the room block so, while 20% to 30% attrition is desirable, she can agree to 15% in exchange for, say, a complimentary TV channel for sponsorship opportunities that can be sold to GameStop’s partners.

Attrition is a complex component of any hotel contract, one that can include numerous terms that would benefit the group, such as resell and audit clauses; the cumulative vs. per night method of calculating attrition and the lost profit vs. lost revenue method of calculating attrition damages.

While Payne has not found the resell clause the easiest one to negotiate for, she says, “We’re sticklers that our room nights are cumulative when it comes to attrition. We don’t want to be held to room nights for every particular day; we want it to be cumulative over that four to five days that we’re there,” she explains. “That way, if something does change or maybe the agenda closes early, we have the flexibility to then maybe enhance occupancy a little bit on the front or back end. So, as long as it’s cumulative, we have a bigger safety net when it comes to our attrition clause.”

The audit clause is also important to both Payne and Howe. “Ronald Reagan was right, ‘Trust, but verify,’” Howe says. “So, I always want to have the opportunity to run my list against your list. I might be registered for the meeting as Jon Howe, but on my credit card it’s Jonathan Howe. The hotel says to you, ‘We didn’t have a Jon Howe.’ Every time we’ve done a verification, we have always found people who were in attendance at the meeting but the group didn’t get credit for.”

Interestingly, resistance to some of these attrition clauses and calculation methods has come from hotels in “up and coming” cities, those that are just becoming first tier or newly popular second-tier cities, Payne observes. “They may not be used to all the new language and the flexibility that the larger events might need. So, if they push back against three, we will determine which is most important to us” toward reaching an agreement.

Similar to negotiating an attrition percentage, coming to agreement on cancellation terms is facilitated by the hotelier’s knowledge of the group’s history of performance. “When going back to the same cities that know our show, they know we’re reliable, and they’ll let us have even more flexibility” on cancellation terms, Payne relates. Examples of flexibility on the venue’s part include agreeing to a re-booking clause and a sliding scale for cancellation fees.


Force Majeure

Of course, such fees cannot be applied when an “act of God” prevents the group from meeting, per the force majeure clause. And a very topical issue today is whether COVID-19 can fall within that clause. “Right now, I’d say unless you’re planning on having people coming from China or from some other place in which travel has been banned, the fear of COVID-19 is not going to be a force majeure,” Howe advises. “It’s got to be a reality that prevents people from being able to get to the meeting and for the meeting to be conducted.” In most cases, then, penalty-free cancellation under the threat posed by the pandemic could not be achieved under force majeure. A different sort of clause would have to be negotiated, with language to the effect that “if we know that our attendance is going to be below such a percentage point, we reserve the right to cancel without liability,” Howe says. “But, if I’m a hotel, I’m not going to sign a clause like that.”

However, Payne has had some success negotiating for a clause under which a group is entitled to a discount in the event that a natural disaster compromises, though does not physically prevent, attendance. “Our event takes place not only during hurricane season but peak hurricane season, which is the three weeks around Labor Day. So, we have a clause for a one-time reduction of up to 15% off of the peak nights. It’s for an impending or documented hurricane or natural disasters making it impractical though not impossible for individuals to travel,” she explains. “Because while we might have our meeting in, let’s say Indianapolis, if the hurricane hits in the front end of our event in Orlando, we know that all of our attendees in the Florida area might have a problem attending.”


Hotel Responsibilities

Contracts should also protect the group if the hotel fails to perform as required for the meeting, such as by conducting disruptive renovations or not providing the agreed-upon meeting space. But the situation becomes more complicated with a meeting involving a convention center and multiple hotels. If the convention center fails to perform, not only should the group be entitled to penalty-free cancellation with the center, but also, arguably, with the hotels. After all, the group only booked the hotels insofar as it could have a satisfactory meeting at the center. Payne describes the one case where GameStop had to invoke this clause: “The escalators in the center were failing and there had been multiple injuries at prior events. Once we found out, we sent a specialist down to do some investigating and found out that the safety of the escalators was not adequate. We gave the convention center three months to update the escalators and become on par with where they should be and, when they didn’t, we went with documented proof from the specialist.” Ultimately, her group was able to walk away with no fees.

When dealing with multiple venue contracts, it is ideal to finalize them all simultaneously, as opposed to committing to the hotels prior to the convention center, or vice versa. These scenarios can reduce one’s leverage in negotiating the unsigned contracts. “When I do have to contract for a citywide, I make sure that I do it as a package. I won’t submit one or two at a time,” Payne explains. “I do the center and every single hotel at once. Everybody has to be on the same page, and I will hold them until the language looks right on every single one and we’ve all agreed. It takes longer to do it as a package, but you have a lot more negotiating power when they know you’re holding until everything’s done the right way.”

Part of doing contracts the right way is to negotiate fairly and prioritize maintaining a solid working relationship with the other party. Unfortunately, COVID-19 may well create friction between planners and their contracted venues over whether the threat counts as a force majeure, the damages owed if the meeting is held with significantly reduced attendance or the severity of the penalty in cases where the meeting must be cancelled. In such cases, it is important to bear in mind that the pandemic situation is temporary — unlike a good planner/supplier relationship. Thus, both parties should do their best to endure that any such friction does not escalate into a disruption of a long-term partnership. C&IT

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