Event ContractsMay 6, 2024

Ensuring What’s Promised By
May 6, 2024

Event Contracts

Ensuring What’s Promised
Before coming to the table, planners should know what they are willing to negotiate on and what they will fight for. Courtesy of Mary Clare Darland / Maritz

Before coming to the table, planners should know what they are willing to negotiate on and what they will fight for. Courtesy of Mary Clare Darland / Maritz

Given the meeting industry’s frequently uttered mantra, “It’s a relationship business,” there needs to be trust between meeting or incentive planners and hoteliers, and vice versa. However, during the request for proposal process, the site visit and initial negotiations, a hotel might, possibly, exaggerate on what it can promise, just as a planner might do when asked what a group will deliver.

Hence the need for event contracts. Drafting one that’s fair to both sides is daunting but it’s necessary, and as several planners and an industry lawyer contend, it’s possible to draw up contracts that can fulfill a meeting or incentive group’s desires and expectations — if not exceed them.

“Come to the table with what you want to see, be wiling to give up some things and fight for the things you need,” industry attorney Barbara Dunn, partner, Barnes & Thornburg, advises planners.

Force Majeure

If nothing else, having a force majeure clause in a meeting contract is vital. Meaning “superior force,” and sometimes called “acts of God,” force majeure refers to situations that interfere with a meeting — such as extreme weather, labor disputes or war, for which neither the planner or the supplier is responsible. Technically, if a meeting was canceled and a lawsuit was filed, if the contract didn’t have such a clause, the courts would “apply the impossibility standard,” according to Dunn, setting the table for a group hampered by a hurricane to be excused from paying cancellation damages. But those cases are decided by state case law, she noted, and putting the words in writing is recommended.

“A force majeure clause should be included in every contract,” Dunn emphasizes. “There are many circumstances in which the hotel is operating but a group can’t get there. Force majeure gives both sides the opportunity to negotiate over a circumstance that would excuse performance.”

For example, during the pandemic, Dunn represented a large corporate meeting that had approximately 14 hotel contracts and one with a convention center. But the meeting venue was being used to treat COVID patients and dispense vaccines. Fortunately, although Dunn came to the group after the contracts were written, “about 12 of the hotel contracts had force majeure clauses and cross-contingency language regarding the convention center’s availability. The other two hotel contracts cost the group over $500,000.”

Those cross-contingencies are vital when a planner is working with multiple hotels or venues, adds veteran planner Joan Eisenstodt, principal, Eisenstodt Associates, LLC.

“Any contract in which multiple facilities or vendors are involved should have protections in case a supplier can’t perform,” she says. “Planners must determine the impact if one or more of those entities can’t perform their obligations, and how they want to be compensated.”

For example, groups could ask for help finding guest rooms or meeting space, and they must consider the impact on rates and accommodation types, says Eisenstodt, who often testifies in contract disputes as an expert witness, “Write what you want them to do to help you.”

Having a force majeure clause enables a group to have a conversation with its hotel when a challenge arises, says Mary Clare Darland, director, sourcing, Maritz. “If there’s a natural disaster, a war, a pandemic or a strike, and the hotel is fine but the group can’t get there, we have to think about how the group will be impacted. Force majeure creates room for those conversations.”

Cancellation and Attrition

Cancellations happen. Sometimes it is because a CEO is sick, flights are canceled, a meeting just can’t happen or it does take place but with fewer than expected attendees. And sometimes, it’s the hotel that calls the whole thing off.

But planners don’t need to have fear; they can protect themselves and their organizations in their contracts.

For starters, consider how much money is due, and when it’s owed, if a meeting needs to be canceled, Dunn advises. “Cancellation fee schedules often are on a sliding scale at, say, 12 months, six months and three months, but they don’t have to be; you can negotiate,” Dunn advises. “If you know that your development team says the meeting is ‘go/no-go’ at five months, then make five months the lower tier of a cancellation. Those are easy terms to negotiate.”

In circumstances when a meeting can’t happen, planners can structure repayment in a manner that causes minimal harm to the meeting sponsor, adds Darland.

Maritz did that during the height of the pandemic with a construction client that pushed a Europe-bound gathering back a year. “When the time came to operate the program, the number of people attending was much smaller than originally contracted and the group did not need its second hotel,” Darland explains. “That hotel’s block was cancelled and we worked with the property to have the group pay 50% of the cancellation charges and use the other 50% for a group function while in Europe. This helped everyone involved.”

It’s also worth considering how easily a hotel will be able to sell rooms, or how difficult that endeavor will be, Darland notes. Advance notice helps but properties in major downtown areas also have an easier time securing last minute guests, versus hotels that are on a secluded island, for example.

That makes a difference in terms of deciding the amount of damages that are appropriate to put in the contract.

For situations when it’s the hotel that has to cancel the group, planners need to make certain that contract terms work for them, Dunn cautions. “Sometimes, you will see language that says, ‘hotel will provide an alternate substitute’ and the group has to take it. I don’t like that, because the group knows where its meeting fits best. So, pay attention to that.” Groups do have leverage in these situations as they are a breach of contract. On attrition, which is the difference between the number of room nights a meeting planner committed to and what actually was sold, Sarah Shewey, CEO and founder at Happily, an event production firm, often finds her team renegotiating hoteliers’ proposed language.

“Some hotels are asking for 75% upfront, and then 25% later, so waterfalling that more is critical because it’s probably what affects the budget the most,” she says. “That’s especially the case for ticketed events because people always buy their tickets at the last minute.

So, we reverse the clause and we pay 25% upfront and then disburse what we owe in quarterly payments.”

Happily uses a “tiered” approach to attrition, where fewer and fewer rooms are released as the meeting date approaches. It’s a strategy that benefits all parties to the contract, Shewey asserts.

“Hotels have partnered with us on our tiered attrition model and it has led to happy conversations and outcomes for clients every single time,” she says. “Otherwise, it’s just a big point of stress because the client is worried about selling rooms throughout the planning cycle and they start making changes to the meeting and second guessing themselves,” effectively driving hoteliers crazy. “When there’s a flexible attrition model, the hotel staff winds up being friendlier and happier through the planning process.”

Meeting’s Purposes

While it would be understandable for planners to think, after speaking with hotel executives, that suppliers fully understand what their meeting is about, that’s not always the case. Eisenstodt suggests planners include every meeting’s purpose in contracts. “Each meeting has a different purpose and stating it in the contract ensures optimal conditions for various meeting elements, such as room set-up, food and beverage and guest services.”

“Planners need to specify which meeting or event space is needed and room set-up,” she notes, “because otherwise, the hotel might, at any time, move the meeting, or alter the set-up, which may compromise the event.”

Nuts and Bolts

Even for arranging the basic necessities of meetings, like food and beverage or audiovisual services, using the right contract language is critical.

“We always have to ask hotels for the total amount of money that we spend on food, including service fees, to be included as part of the minimums,” Shewey says. “Otherwise, hotels say ‘you have to hit a minimum of $50 plus, meaning service fees, taxes, gratuity, and that can raise the F&B spend by as much as 40 to 60%.”

Additionally, when agreeing on F&B terms, planners need to set realistic expectations, says Darland. “Make sure the F&B terms are in keeping with what you’re holding at the hotel versus off-site. You can say things like, ‘We’re going off property for three nights so we really aren’t going to spend that much money inside the hotel. Have those conversations before the hotel contract is signed.”

When it comes to audiovisual installation, Shewey says, “We are constantly looking for places that allow us to bring in external audiovisual equipment without charging us additional fees. For some tasks, hotels’ preferred suppliers are fine, and maybe even better because they know the properties well. But for other video or audio presentations, it’s better to work with a team who understands the group’s brand.”

As for whether hoteliers agree to these terms, Shewey admits, “It’s inconsistent results, but generally if they want the business, they’ll figure it out.”

Planners also can protect their groups by having construction clauses, says Darland. “If a hotel is redoing the spa and that’s an important aspect of a program, the meeting planner will want to address that before walking in the door.”

Since meetings are planned in advance, she notes, and hotels are renovated every few years, it’s important to ask about plans. “A hotel may look beautiful during a site inspection but maybe the program isn’t happening for another two years. Planners should make sure that conversation takes place. And we’re not saying that if there’s construction, the group won’t come, but let’s have a good discussion about it. In all aspects of a contract, the clauses need to open the door for conversation.”

Maritz put this idea into practice last year when a technology company visited a European property hosting its meeting just two months out and discovered that construction was behind schedule and wouldn’t be completed by the meeting date.

“It was too late to relocate the program,” Darland says, “so we called on our construction clause in the contract and had the hotel move the entire group to a higher room category, away from the construction. We also had them put up temporary walls to hide the construction site and had the construction completely halted during the program. This way the participants were not affected by the sights and sounds of the construction.”

Paying Up

When the meeting bill is finally issued, hoteliers may have unrealistic expectations about how quickly a company will issue a check when the expenses are sizable and need to be reviewed, says Dunn. As a result, “planners should know upfront what their payment process is going to be. Some companies might have a 60-day payment schedule so, in that case, maybe the group is willing to make a deposit? And when are they willing to pay it?”

That said, she advises planners to add terms to the meeting contract that “no charges are due until the full invoice, with all of the backup, is sent to them.”

If the hotel is getting antsy or just won’t accept a group’s terms, Dunn has a suggestion for planners to ease suppliers’ concerns. “My recommendation for the groups is to maybe see if you can pay a little bit more in a deposit. It doesn’t have to be a lot; do what makes sense for you. It shows a bit of a give and take.”

Despite all of the expert advice, and no matter how much contracting knowledge planners accumulate, the best tip is probably to work on contracts with an attorney, and ideally one who specializes in meetings, Eisenstodt says. “With terms and conditions such as dollars and dates versus percentages, or days out in cancellation clauses, our industry uses language differently.”

The cost of attorney fees may give planners hesitation, but that’s much cheaper, and less painful, than paying hotel’s damages. As with any other contract, communication is key. Planners should discuss the contract details with the venues or vendors to ensure everyone understands and agrees to all the terms before signing. And always, be prepared to review and revise as needed. A successful event is not just about the event content, the quality of F&B or where it takes place. Preparation is paramount. And the contract is a critical component of this process, ensuring everyone is on the same page. C&IT


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