When disputes arise over even the best-laid meeting or event plans, lawyers get summoned to pull people out of the litigation pit.
Several of the industry’s best-known legal eagles, however, say some common traps are often avoidable if planners and their organizations follow a few simple guidelines.
Meetings Media consulted Lisa Sommer Devlin (Devlin Law Firm); Joshua Grimes (Grimes Law Office); James M. Goldberg (Goldberg & Associates); Tyra Hilliard (hospitality industry lawyer and associate professor, University of Nevada–Las Vegas); and Barbara F. Dunn (Howe & Hutton) to summon their advice on ways to avoid the falls that lead to litigation, losses and lots of pain and suffering.
Attrition Fees
The Pit:
Groups miss their commitment marks for blocked rooms, F&B, transportation, and other numbers they sign off on with suppliers. There may be temptation to “pad” or over-commit in order to get the best deals on rates and function space. Those who do so can get bit in the pocketbook, however. Sometimes an absence of meetings histories make accurate estimates difficult. Also, attendees might find better rates outside the room block.
“Hotels are less generous now with attrition,” Goldberg says. “In less prosperous times, they were more willing to trade future business for no fees. That has now gone away. I have one client who has used a hotel several times. They got into an attrition situation, and the hotel agreed to work with them because of the prior relationship, but they are requiring another booking within a year, not two or three years.”
Goldberg also cautions against multiple attrition clauses in contracts.
“One paragraph requires payment of fees if the group doesn’t fill 85 percent of the block,” he says. “Later in the contract, they say concessions they are agreeing to are predicated on the room pickup.”
Solutions:
Be realistic with your commitments. Ask yourself how comfortable you are with your numbers. How do you justify them? Is your rationale supported by a history? Always err on the side of caution with room blocks, and be a little conservative. (Dunn)
Provide for revenue from resold rooms to offset attrition charges, and allow the option to rebook a future meeting as an alternative to paying attrition fees. (Goldberg)
In the case of resort meetings, some guests come before the event or stay after it. The hotel doesn’t have an obligation to count those room nights in the room block, unless it’s in the contract. It’s advisable to include a clause that says attendee nights outside the core event dates get counted in the room block. (Grimes)
Track room pickup for several weeks prior to the meeting dates, and stay in touch with the facility to determine whether they might need additional rooms for another group. Release the rooms if your pickup isn’t where it should be, or where it historically has been (i.e., two months out, six weeks out, one month out). (Hilliard)
Contrary to popular belief, hotels do not want to collect attrition damages, as the amounts paid under the contract usually don’t come close to fully compensating the hotel. Better for both sides to work together to fill the block. (Devlin)
Emphasize to attendees the limited number of group-rate rooms and encourage them to book them early. (Hilliard)
Pay only on unused sleep rooms after the negotiated allowance (10 percent-20 percent), and then only at 80 percent of the room rate. (Goldberg)
One-Sided Agreements
The Pit:
One party to an agreement demands “one-sided” terms weighted to their interests.
“A contract must have mutual obligations to be legally enforceable,” Devlin says. “Groups may want a firm commitment from the hotel, but are unwilling to give a commitment in return. The group may think such a contract is desirable, but it’s not legally enforceable and the hotel could cancel it without owing any damages to the group.”
Solution:
Don’t expect the hotel to hold a room block without provision for payment of attrition damages if the block is not filled. (Devlin)
Unprofessional/Sloppy Agreements
The Pit:
Booking terms fall through the cracks because of dishonest communications or lack of documentation. People hold back to gain advantage—or forget what they agreed to in a voice or e-mail message. Personnel turnovers contribute to communication breakdowns.
“Planners and suppliers who do not communicate honestly spawn lots of litigation these days,” Dunn says. “If the planner is not forthright and filters out little bits to gain advantage, this affects their credibility with suppliers. Planners say the same thing about the other side. Because we use a lot of communication channels these days—phone, e-mail, paper, and handshakes—there is a big need to get everything in writing. Otherwise, people forget they agreed to one thing or another—like that welcome reception you were expecting. Problems arise, too, because of big turnover in the industry. The person whom you dealt with three years ago may not be there.”
Solutions:
Create a paper trail of your terms and agreements. Take those handshakes and build them into a document. (Dunn)
Get it in writing. It’s very hard to fix something after the fact. (Goldberg)
Cancellation Fees
The Pit:
For various reasons, one party to an agreement cancels the booking. Like many in today’s market, your hotel of choice is enjoying record revenues. When your contract got signed five years ago, things weren’t so good, and the rate was in your favor. Now, the hotel salesperson informs you they are canceling you because they can get a higher rate in the current market.
Or maybe a national sports or political event is on the calendar for your meetings destination city. Every piece of business in the city on the appointed dates gets cancelled because hoteliers know demand will be high for guest rooms. They tell you they won’t honor your contract.
In another scenario, your CEO or other sponsor/organizer decides he or she doesn’t want to go through with a contracted meeting. They are indignant when they are told there is a fee associated with their decision to cancel.
Grimes says he has represented several Fortune 500 companies that don’t understand the industry.
“Some corporate legal people are shocked when they get charged cancellation fees,” he says. “They don’t understand the implications of a meetings contract and take the attitude they aren’t going to pay damages because they don’t want to pay them. They figure the hotel should just go away. Once they get burned, they call me—or get referred by a hotel. That’s when they ask me to prepare a form contract to use in the future.”
Solutions:
Most contracts don’t deal with this issue up front, because hotels often draft the contract. If the planner doesn’t ask for a clause about cancellation, there won’t be one.
The absence of a clause doesn’t mean the hotel can walk away without paying, especially if the planner can’t find suitable space. But the best language would have the hotel paying damages for specific things, like a difference in room rates; cost for a site inspection in an alternate city or hotels; long distance calls; additional staff administrative time; difference in F&B costs; and so on. (Hilliard)
Don’t use “penalties” when you mean “damages” in the contract. When one party to a contract does not fulfill its commitment, it owes the other party damages. Penalty is not only the wrong term to use legally, it also has a negative connotation that implies unfairness, and that’s not accurate. (Devlin)
Your hotel may say you will pay us 90 percent of the anticipated gross revenue. How much is that? What you and the hotel anticipate may differ, because the hotel might include receipts from things such as the minibar, Internet use, golf, and so on. It’s best to take the sleep room rate and multiply it by not more than 80 percent, because 75 percent to 80 percent is the industry average profit margin on sleep rooms. For F&B, use 25 percent to 30 percent —the profit is lower because they have to buy the food. If you have an F&B function for $100,000 and you cancel it one month out, why should the hotel get 100 percent? Of course, if you cancel only 24 hours out, that’s a different issue. (Goldberg)
Don’t include the word “profit” in a damage clause. Damages may well include lost profit, but they may also include other losses. Hotels know their overall profit, yet it is impossible to determine profit earned on a specific event. The group renting rooms at $150 does not generate the same profit as another group in the hotel who are paying $175 at the same time. So if you simply add the word “profit” to a damage clause, it will lead to a dispute. Any inclusion of the word profit, while not legally required, must include what profit amount will be used or how it will be calculated in order to avoid disputes. (Devlin)
Include an option to rebook a future meeting as an alternative to paying cancellation fees. (Goldberg)
Buy event cancellation insurance when it makes sense to do so. (Hilliard)
Missed Liabilities
The Pit:
Liability suits can result from a lack of contingency planning for a huge range of circumstances, ranging from natural disasters to problematic actions by a subcontractor.
Example: An audiovisual company gets a great price for you, but you don’t include an indemnification clause in their contract. They do something wrong on-site and somebody gets hurt. Everyone can get sued.
“I always caution planners not to forget to address non-economic issues in contracts,” Dunn says. “So often, liabilities and risk management issues are forgotten because people are so focused on the logistics. I am always concerned about the planner who doesn’t do contingency planning. She thinks ‘it won’t happen to us’ and then one day, she doesn’t carry an umbrella. Since the events of 9/11, we’ve added terrorism, hurricanes and SARS to things like food poisoning and personal injury to the liability list.”
Solutions:
Expect the unexpected. Have a crisis plan, and train staff (everyone from the executive director to the receptionist) to respond. (Dunn)
Spell out clearly in the contract what constitutes a force majeure vs. a cancellation. (Hilliard)
Incorporate safety matters into the site inspection, RFP and contract, and include a strong indemnification clause in the contract. Choose venders carefully and ask for references and proof of insurance. (Hilliard)
Independents should cover themselves while they are protecting their clients. Extend indemnification and insurance to protect your own company. (Dunn)
Independent planners should not sign contracts on behalf of clients. (Hilliard)
Misunderstood Contracts
The Pit:
People sign contracts they haven’t read or don’t understand. Others sign contracts with handwritten changes that may be illegible, legally inappropriate, or not even a complete sentence. Including addendums, or “riders,” to a standard contract can precipitate disputes.
Solutions:
Read the contract! If you don’t understand it, don’t sign it. (Grimes)
In this modern age of fax machines and computers, there is no excuse for signing a contract with handwritten changes. Take the time needed to retype the contract to ensure that the term is appropriately drafted and agreed upon by both sides. (Devlin)
Remember the Sarbanes-Oxley Act (SOX)? Big Brother wants to know. Publicly held corporations are subject to it, and it requires a healthy amount of disclosure and transparency in transactions. (Dunn)
Both parties should review terms of addenda and put any specific provisions they agree upon into the hotel contract, either adding them to the hotel’s terms or removing them as appropriate. This results in an appropriately negotiated contract, rather than two contracts that have been stuck together. (Devlin)
Middling Independents
The Pit:
Independent planners are the project bridges between clients and vendors. A vendor does something the client doesn’t like, so the client looks to the planner for a fix.
Solution:
Have a contract that protects you and your client. Depending on how the independent planner does business—turnkey to pass-through services—this may include indemnification for your own company. Those who operate on a turnkey basis have more liability. (Dunn)
Lost Compensation
The Pit:
An independent planner begins work on a project when a client gives them a verbal order to go ahead. They proceed without a contract because they are afraid someone else might get the work. Later, after the planner incurs expenses for time and materials, the client says they aren’t doing the event and they aren’t paying for services.
“I get involved when a planner tells me he or she was told to start work,” Grimes says. “But months later after they’ve incurred time and expenses, the client tells them they aren’t going forward with the event. Independents need to have at least a short letter of agreement so a client can’t claim later they didn’t authorize the work.”
Solutions:
Have a detailed contract for every client and every meeting. Be sure the contract protects payment and requires it to be paid even if the relationship between the independent planner and the client is severed. (Hilliard)
Don’t incur expenses until you have a contract. Otherwise, you run the risk that the client might change their mind. Then you are left to chase them for payment, and the client merely says you don’t have a contract. Know that under SOX, public companies can’t do anything without contracts, and expenses have to go through all kinds of hands. (Grimes)
Stolen Intellectual Property
The Pit:
Creative ideas, brand names and logos, proposals, presentations, or publications get stolen or used without permission. Like when an association comes up with a creative name for its convention and/or exhibition, and then other organizations use it too.
“I regularly see exhibitors steal ideas from each other,” Hilliard says. “Exhibitor A likes Exhibitor B’s stuff and shows the same in his booth the next year. Also, I once had an association client who had created a training program for the annual meeting. It included a PowerPoint presentation and handouts. The association found out a chapter of the association had given the training on a state level—they saw an easy way to make money. It was the property of the national office.”
Solution:
Understand intellectual property rights, and include a statement that speaks to the protection of same. (Hilliard)
Going It Alone
The Pit:
Not consulting an attorney, or not consulting with an attorney with knowledge of the meetings industry.
“You wouldn’t ask a podiatrist to deliver your baby, so you shouldn’t ask your corporate lawyer to review an event contract,” Devlin says. “The corporate lawyer understands mergers, acquisitions and many other areas of the law, but the meetings industry has its own language and method of doing business. The industry’s legal issues are unfamiliar to most lawyers.”
Solution:
Get good legal advice during the contracting stage from a lawyer who is knowledgeable in your industry. It’s far more cost-efficient than going at it once a dispute arises. (Devlin)
