With scandals and sequestration leading to reduced meeting attendance by federal employees, associations need to keep an eye on their contracts and insurance coverage. [Titled "The Fed Effect" in the print edition.]
Under sequestration and the current austere federal spending environment, government agencies are significantly curtailing federal employee attendance at conferences. What are the legal implications? Associations should focus on three areas in particular.
Existing contracts. Association executives and their counsel should review existing meeting contracts to determine potential attrition and cancellation fees. Contracts often provide for termination without liability or with only minimal costs if the event is cancelled within a certain period before the event. If government budget cuts will drastically reduce attendance, it may be less expensive for the association to cancel the event and pay the cancellation fee than to hold the meeting with significantly fewer attendees. Also, the contract's force majeure provision may give an association the option to cancel without liability, but hotels will likely dispute a claim that the clause applies.
Insurance coverage. Event cancellation insurance generally reimburses a policyholder for losses incurred from cancellation due to an event beyond the policyholder's control; however, financial failure is generally excluded from coverage. Insurers may determine that cancellation due to low attendance resulting from budget cuts constitutes a financial failure. In that case, reimbursement will not be available.
Future contracts. Associations should anticipate ongoing budget cuts when negotiating future meeting contracts. The RFP should identify certain terms as mandatory contract language and require responding venues to agree to them, including a reasonable attrition clause, a requirement that the property will mitigate by selling unused rooms and crediting the association for those rooms, and a well-defined force majeure provision.
Force majeure provisions are interpreted narrowly by courts, and so circumstances that could prevent the event from occurring should be delineated specifically in the clause. Identifying government action and orders that could adversely affect attendance would strengthen the association's ability to invoke the force majeure provision if government personnel are unable to attend.
Also, for greater flexibility, associations should be excused from their obligations under the contract when it would be inadvisable, commercially impractical, illegal, or impossible to perform. This provision should excuse liability for both non-performance and under-performance.
Audra J. Heagney is an attorney at Venable LLP in Washington, DC. Email: [email protected]