When it comes to contract negotiations, Genny Castleberry, CMP and director of sourcing at Brightspot Incentives & Events, understands what it takes to establish a contract that is beneficial for all parties involved.
“Being a good negotiator includes ensuring that every hotel contract term is understandable,” Castleberry says. “The best advice I heard from an industry expert is have the contract written clearly enough that it can stand alone and be implemented by people not directly involved in the contracting process.” Indeed, as contracts continue to get more and more comprehensive and, quite frankly, more and more confusing, understanding the art of contract negotiation for events large and small is paramount within the financial and insurance meetings industry.
When establishing a contract, meeting planners should look for anything in the contract that might cause cost-creep or create unnecessary liability for their organization. As Grant Walsh, an attorney with Culhane Meadows, PLLC in Dallas, TX explains, hotel and event venue contracts are notoriously one-sided and they usually include plenty of subtle clauses that allow hotels and event venues wriggle room to assess additional charges and fees for almost everything. They also typically contain strict indemnity provisions whereby the group assumes liability for both its own damages as well as many types of damages that may occur to the venue.
“Have the contract written clearly enough that it can stand alone and be implemented by people not directly involved in the contracting process.”
Genny Castleberry, CMP
That’s why contract language should be extremely specific and list dates, calculations and amounts so that both parties clearly understand any liability. “Hotels tend to include language that protects only them and puts all the liability on the client,” Castleberry says. “Be sure to thoroughly review all clauses and ensure both hotel and client share the same risk.”
Danielle Miles, director of conferences and meetings for metroConnections, says the various clauses referencing items that are legally binding often need more discussion. “I find that many times the clauses and concessions part of contracts are most heavily ‘red-lined’ by procurement,” Miles says. “Cancellation, performance and associated damages need to be spelled out and agreed up by all parties.”
So what are the biggest areas of negotiating that planners should be aware of and what are the best tactics for negotiating contracts? Miles says anything having to do with penalties and damages. Attrition also needs to be spelled out to clients and addressed well in advance if a client is in jeopardy of not meeting attrition.
Antonella Colella, Esq., co-founder and CEO of the Apolline Group, LLC, an event and meeting planning company, says negotiating the deposit also is key, including how much money needs to be put down in order to reserve an organization’s spot?
“You should try to negotiate this down as low as you can,” Colella says. “Also, how are the payments due? Some contracts will ask you for escalated payments with a final payment due at the time of your event. Other contracts will require two payments, one at contract signing and the other lump sum at the time of your event. Negotiate the one that works best for you and your client.”
A meeting planner should know what happens to the deposit if the event has to be cancelled. While cancelling an event is never something a meeting or event planner wants to think about, things unfortunately do happen that can force an event to be cancelled.
“We have clients whose events are dependent on funding,” Colella says. “When funding does not come through as expected, cancellation of the event has been the only option. If this happens, you want to know where you stand. There may be liquidated damages tied to terminating the contract, so pay attention to this section.”
Attrition also is a very important aspect of contract negotiation. If a meeting planner has a contract with a hotel, the attrition clause will set forth how many no-shows the group will be responsible to pay for.
“The attrition clause and termination clauses are always the most challenging ones to negotiate because venues and hotels do not want to lose money on reserving rooms that don’t get used and prepping food and beverage for attendees that do not attend,” Colella says. Also, the indemnification clause may require more discussion. This clause determines which party should compensate the other in the case of a loss or damages incurred in connection with the contract and should be reciprocal in nature.
“For example, if your contract calls for 100 guests with a 10% attrition rate, it means that you won’t be responsible if 10 people fail to attend,” Colella says. “However, if 20 people fail to show up, then you are responsible for paying for the additional 10 no-shows. While it is difficult to negotiate away this clause, you should push for favorable numbers so that you are not left with a huge payment that you weren’t expecting.”
The scope of work is an aspect of the contract negotiations that is critical for vendor contracts. It needs to be clear exactly what services an event planner is receiving for the money being paid. “A well-defined scope of work will save you time and headaches on the day of your event,” Colella says.
The contract should include an impossibility clause or force majeure clause that says either the hotel or the client can cancel with no penalties for events beyond your control — such as acts of God, labor strikes and other things outside your control. Make sure what is and is not included in this provision is fully understood.
Other important clauses to succinctly clarify include:
Mutually acceptable dates for holding the same or another meeting at the property within a certain time frame.
A sliding scale that allows room costs to be lower the further the new meeting is from the cancellation date.
A reduced cancellation fee to be paid along with a substitute meeting.
Alternatively, ask the hotel to help find a comparable property and pay the difference in cost.
Reserve the option to choose audiovisual vendors. Don’t get locked into a clause that requires you to use an A/V supplier associated with the hotel because costs may be higher.
Miles suggests that these clauses should be addressed early on and if not appropriate for the client or situation, should be red-lined and accompanied with a hotel contract addendum. “In my company, we work with our legal team to prepare our company addendum that holds the clauses and concessions most important for us to ask for on behalf of our clients,” Miles says. “This goes with each and every contract we negotiate. Many times, planners wanting to get the ‘deal done’ will unknowingly miss including clauses that protect their client and/or the agency for which they are employed. Make a checklist to refer to when reviewing each and every contract to be sure all details are covered.”
Matthew Fornaro, an attorney in Coral Springs, FL who frequently works in contract law, says the use of other third-party vendors is another concern. “Make sure the contract says who is responsible for bringing in third-party vendors,” Fornaro says. “If it is you, use the same stringency in reviewing contracts and going over things. One of the biggest mistakes meeting planners and others make is not actually reviewing the contract and just signing it as written. You have the opportunity to ask questions and negotiate terms in the contract. It is not a take-it-or-leave-it proposition.”
Castleberry also recommends seeking as many concessions as possible. If the property won’t budge on rates, request perks such as room upgrades, complimentary receptions, free conference rooms, suites, lower resort fees and free gym admission.
And remember that most venues are flexible because they understand that no two planners or events may be alike, and each one has special needs. Colella suggests that when reviewing a contract, its best to request changes on three to five clauses. Sending back a contract full of mark-ups is not the best way to start a negotiation. If a meeting planner asks for three to five, they have a better chance of getting most of the changes accepted.
“Take the contract and mark up all terms that you do not understand or agree with and bring it to the venue’s attention,” Fornaro says. “Most of the time, they will be willing to explain the contract to you and negotiate with you. Do not feel bad about suggesting changes, that is the nature of the business.”
A major challenge in planning and negotiating an event contract is understanding the food and beverage element. “Most venues offer ‘free’ event space as long as the group commits to spending a certain minimum on in-house catering,” Walsh says. The key is to make sure that the minimum spend commitment is reasonable and likely to be satisfied by the group’s anticipated needs. It’s never fun to get a bill at the end of an event where you’re paying extra money just to meet your minimum F&B obligation for something you didn’t actually receive.
Mauricio Giordano, CTO at InEvent, says when you’re talking contracts, you need to be clear and straight to the point. “Clarity is a key driver of repeated, successful deals,” Giordano says. “Make sure that, after reading the whole contract, you’re able to calculate the full amount you’ll have to pay for that vendor.”
The level of support is also another very important matter. “Event planners need to be great risk managers, which means being hypothesis driven at all times. If anything goes wrong, are you going to have that service provider there with you to fix the problem?” Giordano asks.
As Giordano explains, for many event planners it feels comfortable to think that everything will work out perfectly and you won’t have any issues. “But that’s just a common trick your brain plays with you when you’re absorbed in the endless tasks you have to manage as an event planner,” Giordano says.
One key mistake surrounding contract negotiations that event planners make is not paying enough attention to eventual fines on contracts — not only the fines provoked by the service level agreement, but also those ones concerning your supplier history of legal conduct.
“Are you always going for the cheapest vendor? There’s a reason why they’re cheaper than competitors,” Giordano says. “Do a thorough background check and make sure you’re willing to work with this supplier. The last thing you want is being held responsible for legal charges incurred by partnering with a provider that has problems with the law.”
If you have access to an attorney, either in-house or on retainer, make sure to have them take a look at the contract. An attorney experienced with these types of contracts will be able to spot problematic clauses quickly and can provide tips on negotiation strategy. If an attorney is not as easily accessible, an experienced meeting planner will be able to spot pitfalls.
“Saying you didn’t understand what something means is never a valid legal defense, so it’s essential to understand what your organization is agreeing to in the contract,” Walsh says. “Asking questions to the venue’s sales rep is not a smart way to protect your group because many of the salespeople are merely using standard contract templates and they often don’t understand much of the legal jargon themselves. Given how much money can be at stake, event planners should always ask questions to a seasoned hospitality lawyer before signing an event contract. It’s always better to spend a little of the event budget on legal review up front rather than getting sucked into a very expensive contract dispute.”
Planners also often make the mistake of overlooking the impact of taxes and fees to the bottom line, which can easily add 35% or more to the total costs. As Walsh explains, hotels and event centers are notorious for quoting their base prices as low as possible to appear more competitive, but then they pad their profit margin by adding various mandatory service/convenience fees, or surcharges of 22% to 28% for everything from catered meals to A/V services. Plus, of course, sales tax can add another 8% to 12% and hotel taxes can be 15% to 25% depending on the location.
“Nothing sours the taste of a successful event like getting a bill at the end that’s 25% to 35% higher than budgeted,” Walsh says. The taxes and fees are rarely negotiable — except so-called ‘resort fees’ that can often be waived by the salesperson — but they need to be taken into account as part of the overall event budget.
“An event planner has no shortage of tasks to accomplish. One of the main ones, as a project leader, is to be surrounded by a competent team,” Giordano says. “Consult with a lawyer and an accountant. They’re bureaucracy specialists. And that doesn’t mean you can solely rely on their views. Don’t be afraid of contracts. Read them and discuss that in detail with reliable professionals. Also, run long-term partnerships as much as you can. When you’re looking to hire a service, you’ve a problem to be solved. There’s nothing better than knowing you can count on someone that’s proven to be reliable.”
Remember, as an event planner, you’re the product owner and manager of the meetings and events that you organize. So, before going after any supplier, you have to make sure what are your expectations regarding quantity, quality and how the performance is going to be measured.
“You need to review possible weaknesses on your event goals, because that could cause disorientation to your vendor when putting the clauses down on a contract,” Giordano says. “Have you goals clear in your mind, so it’ll be easier and quicker to detect confusion not only with vendor, but with all of the stakeholders.”
Finally, Walsh recommends meeting planners always research the desired travel market and be familiar with the seasonal ups and downs so that they can target a more cost-efficient time of year when venues in that area are more willing to make pricing concessions.
“Getting at least three competing bids from other comparable venues in the same or similar markets is essential because knowledge is power during contract negotiations,” Walsh says. “Finally, always ask the venue to make additional and specific concessions, such as a certain number of room upgrades or a complimentary welcome reception for your group with hors d’oeuvres, beer, and wine. You just might be surprised when the sales rep says ‘Yes!’” I&FMM.