Legal and Practical Contract Strategies Every Meeting Professional Must Know
I attended the January luncheon for the Ohio Chapter of Meeting Professionals International (OHMPI), and had the pleasure of hearing John S. Foster Esq., CHME speak on contract strategies. The presentation was loaded with valuable information that I would like to share with you.
- Sending out RPF’s to several hotels will help you ensure you are getting the best rates and terms. Be sure to include all requirements and requests in your RFP. It is best to negotiate everything up front before the contract is signed than after when you have no leverage. Remember, requesting before the contract is signed is negotiating; requesting something after the contract is signed is begging.
- Multi-year contracts at the same hotel may get you a lower rate. How do you ensure good customer service year after year? Most companies survey their attendees after the convention to gauge the success of their event. You can include a clause in your contract that if the survey scores don’t reach an agreed upon level then you have the option to terminate the contract. It is also a good idea to do separate contracts for each year even though it is a multi-year agreement. That way if you should breech a contract for one year it does not affect your other years.
- Breach of Contract: Understand the difference between “penalties” versus “damages” and what’s enforceable. Penalties in a contract are not enforceable, but damages are enforceable. If performance damages (attrition), are part of the contract include a clause that all late reservations (those made after the cut-off date), are given the group rate and included in your quota. Also request that the group rate be extended pre and post conference and that those rooms are also included in you quota. Extending the group rate ensures that your last minute attendees are not discouraged from booking your hotel because the group rate no longer applies.
- Associations: Association member companies may reserve blocks of rooms for their employees. These rooms should be set up as sub-blocks, usually for ten rooms or more, under the member companies name and with their credit card as a guarantee. This will sift the risk from your association to their company. Both associations and corporations should be able to assign unused space to other organizations or departments using the same dates to avoid attrition damages.
- Negotiate up front how attrition damages will be assessed. Be sure they are “liquidated damages.” These can be calculated by taking gross departmental revenue minus variable expenses. In other words, how much profit is the hotel making on overnight rooms, meeting room space or food and beverage? The lost profit is what you should be responsible for not the gross revenue. After all they have incurred no expenses if you haven’t had an event there. Each component of your event may have a different profit margin, but here are some guidelines.
Guest rooms- 65-75% Catered food- 20-30% Alcohol- 80-85% Meeting rooms- 90-95%
The injured party must also agree to mitigate damages (resell the space), and you should get credit for any resold space against your attrition quotas.
- Include a “No Additional Charges/ Authorized Signatures” clause: This will protect you from getting more of a bill than you anticipated. You need to make sure that an authorized signature is obtained for any charges not specified in your contract and that agreeing to an additional charge will not be a condition of check-in. Your hotel or meeting facility can’t charge you any additional fees, gratuities, service fees etc. if it’s not in the contract unless you agree to it.
- Provide a strategic formula in the contract for setting future rates: In some cases you need to reserve space years in advance and group rates haven’t been published yet. You can put a clause in your contract that stipulates how that group rate will be calculated. It can be the lesser of the following formulas.
- The current group rate plus X% a year
- X% off the lowest rack rate for the dates of the meeting
- The current group rate quoted plus/minus the change in the Consumer Price Index
- Include a formula in your contract on how attrition damages will be calculated. Here is an example:
Total number of hotel rooms in the hotel
Minus off market rooms (rooms that are down for service or other reasons)
Minus last sell rooms (rooms that are held for elite status members)
Minus “sold” rooms (including rooms billed to other groups for attrition, cancellation or no-shows)
Equals unsold rooms
Final room block per night
Minus allowable attrition per night
Minus rooms occupied (paid for per night by group’s attendees)
Equals group’s shortfall or overage per night
- Catering Food and Beverage minimums should be based on minimum revenue guaranteed by the group, less allowable attrition, not on the number of people expected. It should also reflect revenue multiplied by the agreed upon profit margin of 20%-40% not gross revenue.
- Include a clause that allows you to cancel if performance is impossible, impractical, or unreasonable due to an unexpected event, or frustrates the purpose of the party affected.
- Include an audit clause that allows you to independently audit the Hotel’s records to verify accuracy.
- Date change vs. cancellation and rebooking clause: Include a clause that allows you to change your dates without liability rather than treating it as a cancellation and rebooking. If the hotel or the hotel ownership remains the same, the projected revenue is equivalent and it is within a specified time period you would be allowed to change your dates without being charged additional fees.
This is just a brief summary of all of the information that was presented. The most important point that was made was to read and understand ever word in the contract before signing it. Neither the presentation nor this article is legal advice. It was recommended that when you draft your contracts that they be reviewed by an attorney or your company’s legal department. Every organization is different, with different needs, and your contracts should be customized to reflect those requirements.