Negotiating Hotel Contracts
By: Jeff Waddle
No one likes to read fine print—the ubiquitous, seemingly endless string of legalese that accompanies almost everything we purchase and every agreement we enter into. But if you're an association meeting planner contracting for an event with a hotel, ignoring the fine print can prove costly.
Contracts between associations and hotels, often signed several years in advance for major conferences, can encompass dozens of pages of details and involve huge sums of money. At their best, these documents are mutually beneficial agreements that protect both parties against an array of potentially problematic developments, including cancellation, significant changes to the event or facility, and rising costs. At their worst, they can leave one or both parties vulnerable and without financial remedy if something goes awry.
What steps can you take in contract negotiations to protect your organization and ensure you get a fair deal? As you might suspect, the answers are largely in the fine print.
When a proposed contract is on the table, there's no getting around the need to carefully review it from beginning to end. And that takes time and effort. "It's the job of the meeting planner to really know what they are getting into before signing a contract," says Kris Finger, director of global accounts for site-selection consulting firm HelmsBriscoe. "Read the contract."
"The less time we take to review, negotiate, and perfect contracts, the greater the likelihood that there will be problems later," says Joan Eisenstodt, founder of Eisenstodt & Associates. A meeting planner for 40 years, Eisenstodt has found that reading contracts aloud is a good way to identify language that may need to be clarified and revised. "I like words to be interpreted, and I think it's important that the supplier party define what they mean and that the planner or buyer ask questions if they're not sure. It should be in plain English and not a lot of legalese, because that's where people get hung up."
Eisenstodt says successful contract negotiations begin with a comprehensive request for proposal (RFP), where the association outlines everything it requires to meet its needs. Then, the meeting planner needs to work closely with the hotel to answer every question. "I learned the hard way early on that if you don't cover everything, something is left to the imagination," she says. "The real basic thing [to understand] is that when hotels send out what they call a contract, it's really a proposal."
Kimberly Miles, CMP, CMHS, says the RFP should provide key information like the group's history of consuming guest rooms, food and beverage, and meeting space. "The more detail you can provide in your RFP, it certainly gives the hotel a better perspective of what your needs are so your contract can be as tight as possible," says Miles, senior vice president of the American Hotel and Lodging Association (AHLA). "If you're as detailed as possible, including a very detailed history, you're assuming little risk because your goals and objectives have been set, you have set your expectations with the hotel, and everyone is in agreement." The Convention Industry Council is a good source of sample RFPs and contracts that association planners can use, she says.
"My opinion is that everything is negotiable," says Finger. In negotiations with a hotel, she likes to share what competing hotels are offering, especially if a competitor made a particularly attractive offer that may be a deciding factor. "Contracts are an agreement that go both ways, and letting the hotel be the driver can leave the organization booking the hotel vulnerable. You won't get additional concessions after the contract is signed, so don't shy away from the work involved upfront."
Create Your Own Contracts
For Deidre Ross, CMP, CAE, an important part of the upfront work is creating her own contracts for events she books at hotels for the American Osteopathic Association, where she is director of meetings and administration. "Work with an attorney and put together a pre-approved template, because hotel contracts, obviously, are more favorable to the hotel," she says. "It makes the contracting process simpler, and you can get one geared to your organization's wants and needs."
Dale Silverman, CAE, agrees that it's important to have your own contract template as negotiations begin. "Be sure to have it reviewed by a lawyer intimately familiar with the hotel industry," says Silverman, executive vice president emeritus of the Association of Woodworking and Furnishings Suppliers and president of Mystic Mountain Ranch Consulting. "I have had some hotels that will accept ours, others will accept entire sections as substitutions for their own wording, and others at least are willing to delete or modify parts of clauses and use our wording instead."
Eisenstodt blends her own contracts and checklists with those she receives from hotels to create a workable agreement for both sides. "It's just as bad to say, 'We have our own contract and we won't even look at yours,' because that doesn't make it better," she says.
Negotiate Equitable Clauses
Whatever contract you're working with, you'll need to pay close attention to the clauses and addendums to make sure you know how they may affect your group, says Jeffrey Tenenbaum, a partner with Venable, LLP, a law firm that advises associations on hotel contracts.
For example, he counsels associations to avoid attrition provisions, which require the association to commit to occupying a certain number of hotel rooms or consuming a minimum amount of food and beverage (or both) in exchange for a discounted rate. "Instead, attempt to negotiate a 'best efforts' provision, where your association gets a special group rate in return for using its best efforts to promote the hotel to its meeting attendees," Tenenbaum says. He adds that a "first right of refusal" should always accompany a best-efforts clause so the association is protected if the hotel receives a competing offer over the same dates.
If an attrition clause is unavoidable, specify a date before which the association can adjust the size of the room block without liability, Tenenbaum advises. Also, make sure the contract clearly states how the attrition fee will be calculated. The calculation should be based on a formula representing the percentage of the hotel's profit margin on the room rate (typically 75 percent), not the confirmed room rate itself. "The association also should get credit for all rooms used by association attendees, even for rooms booked outside the block," he says.
Even a change in hotel management can be costly if the contract language about how attrition is calculated isn't worded precisely, says Alyssa Pfennig, CAE, chief operating officer for the Real Estate Investment Securities Association (REISA).
"We recently received our hotel bill from a venue in Las Vegas and were shocked at being charged attrition by vertical calculation," says Pfennig. Some hotels calculate attrition based on each night of the event (vertical) versus the cumulative number of room nights over the entire meeting (horizontal). Pfennig's hotel sales contact explained that the vertical calculation, which cost REISA $4,000 in attrition fees, was a new policy instituted by new management.
"I reviewed the contract again, and the language was vague enough that one could interpret it either way. Now, we're making sure that specific language is in each contract specifying how attrition is calculated and that it must be horizontal, not vertical," she says.
For cancellation fees, Tenenbaum says the basis should again be the hotel's lost profits, not revenue, and there should be a reciprocal fee to protect the association if the hotel cancels. Also, "any fee should be calculated on a sliding scale, so that the farther out from the meeting the cancellation notice is received, the smaller the fee," he says. He also urges associations to negotiate a date-change provision into the cancellation clause stating that no fees will be assessed if the association agrees to hold an event of similar size within a certain period (typically, one year).
Lisa DeGolyer, chief executive, conferences and education, for the Construction Owners Association of America, says she's had the unfortunate experience of having her meeting space cancelled by a hotel. Now, she makes sure her organization is protected.
"I have been bumped from my space in the past due to the hotel undergoing room renovations," says DeGolyer, who was able to negotiate concessions from the hotel as a result of the cancellation. Now, "when we book space with a hotel, we make sure the contract reflects the rooms that we are using and state that they cannot be changed without written approval [because] the floor plan and space layout have a huge impact on the success of my conference. I suggest you stand firm on your contract, and if they want your contracted space then you should be prepared to negotiate with them for it."
And what about "acts of God"? That boilerplate phrase typically shows up in a "force majeure" clause, which excuses a party from liability for unforeseen events beyond its control, such as labor strikes, war, civil disobedience, and natural disaster. Tenenbaum says this clause should be expanded to include outbreak of disease or illness in the host city, government regulation, and terrorism (including threats)—"anything beyond the control of the parties making it inadvisable, illegal, or impossible to hold the meeting or provide the facility. And the contract should permit either party to terminate the agreement without penalty for such reasons," he says.
In indemnification clauses, another potential trouble spot, both parties should be protected against loss, expense, or damage arising out of the negligence or willful misconduct of the offending party. "Also, the association should not agree to indemnify the hotel for acts or omissions of your event attendees, as you do not ultimately control your attendees and should not be held accountable for their actions," Tenenbaum says.
Revisit Contracts for Every Event
Once you've got a signed contract, it's no time to rest on your laurels, says Finger, especially for large contracts signed years in advance.
"Be proactive; put review dates on your calendar and don't ignore them," she says. "Avoiding a review can cost the organization thousands if the contract should have been modified in some way to protect the association" if there are significant changes to room block counts, banquet orders, or meeting space requirements.
"Even if you're a state association and you're using the same hotel every year, that doesn't mean there haven't been changes to your meeting or they haven't reconfigured the space in a renovation," says Eisenstodt. "You need to revisit the contract not only for every meeting but at least once a year because conditions change."
Whether you're a hotel salesperson or an association event planner, honest and ethical negotiations are the best way to meet your organization's needs. "Contracts are written to protect both parties," says Miles. "It's being very transparent and laying everything out there, and it's not a one-sided agreement. It's meeting both parties' needs."
"We have to remember that everybody is in business for a purpose," says Eisenstodt. "Obviously, associations need to make money on their meetings, and hotels have to make money or they'll lay off staff or they can't clean the carpets or do renovations. No one is the bad guy, and if we were all transparent in our business dealings and disclosed all the information people need to have and asked all the right questions, we'd all be in better shape."
"The last thing a hotel wants is to have a meeting planner and their attendees walk out disappointed about what they received at the hotel," says AHLA President and CEO Joe McInerney, of the industry his association represents. "The important thing is for the meeting planner to make sure the hotel knows what their expectations are."
Jeff Waddle is a Cincinnati-based freelance writer. Email: firstname.lastname@example.org
Anne Marie Kjelland , August 01, 2012
Excellent review of this process.