With many hotels more flexible at the bargaining table these days, are convention centers also taking a softer stance on negotiated contract terms? Don’t count on it.
Meetings industry lawyers and others long familiar with convention center contracts, also known as facility licenses, say that centers, unlike hotels, are largely unmoved by shifts between a buyer’s and seller’s market. However, the experts also say that good negotiating skills and a whole lot of persistence can pay off when dealing with centers.
Hard Bargain
“Convention centers don’t change a whole lot with the economy,” says meetings attorney John Foster of Atlanta-based Foster, Jensen & Gulley. “They are usually owned and managed by municipalities, so they think like government entities. Negotiating with them is like dancing with an 800-pound gorilla—it moves slowly and is uncoordinated. Approval for changes has to go through a lot of people and no one wants to be the one who says ‘yes.’”
At the same time, he advises planners to begin the negotiation process with conventions as far ahead of the meeting as possible—and then to hang tough.
“There are more things that you can negotiate for than people realize, especially if the center sees that, unlike almost everyone else, you won’t take ‘no’ for an answer,” he says. “It’s also important to start negotiating several years in advance—I’ve seen negotiations take up to two years. If there’s not much time left before the event, the planner ends up behind the eight ball because the center knows they have no other options.”
While Nancy Norman, president of the meeting planning firm The Norman Group and author of Contract Addendums with Negotiation Techniques that Work, acknowledges that convention centers are less flexible than hotels, she is not convinced that they are immune to economic cycles. With cities especially eager to win convention business this year, planners may find rental costs more negotiable than usual, she says.
“I think there is some wiggle room on the rental fee these days, particularly if you are going to use a lot of exhibit space,” she says. “In that case, the center may be willing to do away with meeting room rental.”
However, attorney James Goldberg, of Washington, D.C.-based Goldberg & Associates, who primarily represents associations, notes that a tough economic climate—if it causes reduced attendance—can actually result in higher costs.
“In many cases, there are rebates offered by hotels to help defray the cost of the convention center, say $10 a night per room that goes either directly to the center or to the organization holding the convention,” Goldberg says. “If your attendance doesn’t materialize, there are fewer rebates and so the cost to the organization goes up.”
If attendance falls short at a convention, Foster says it is important to negotiate with the center for some allowable attrition in food and beverage.
“Many convention centers want to say that if you fall short of a food and beverage minimum, that they will charge you the difference on meeting room rental,” he says. “But you should only be responsible for an estimated loss of profit on food that you don’t use. Meeting room rental is 100 percent profit for the center, while food and beverage is only 30 to 40 percent, so they are playing games when they do this.”
Work Rules
When negotiating with a convention center, planners need to pay close attention to any rules and regulations that may be peculiar to the facility and its location. According to Goldberg, these regulations can have a sizeable impact on the cost of the event.
“For instance, a city-owned center might have a provision that says that when you hire security, it has to be off-duty police officers from that city,” he says. “The cost could be higher than using a private security firm. Or the convention center might require an emergency med tech for x number of attendees. These are all things that impact the cost structure, and need to be understood before a city is selected.”
Tied in with this is whether or not a city requires union labor to be used at convention centers.
“Work rules in a city make a big difference in cost, particularly for exhibitors,” Goldberg says. “If not a lot of elaborate exhibits are involved, then it might not matter too much. However, if you’re doing a show that involves big electronic firms with huge exhibits used in multiple shows, they might not want to get involved.”
Another important point to consider are the exclusive agreements that many convention centers have with vendors in such areas as audiovisual and food service. Under such terms, convention centers often require that organizations use the vendors that they have exclusive agreements with.
Norman believes that, in most cases, planners are better off agreeing to use the center’s exclusive vendors because of the experience these vendors have in serving the facility.
“If you are using vendors who don’t know the facility, it won’t be as smooth as with people who work with the center every day,” she says.
However, Foster says that planners who do wish to use their own vendors can negotiate for the right.
“In some cases, you can get the center to agree that you can use your standard vendor if you have a long-term relationship with that vendor in place—and can show this,” he says. “You should try to negotiate that you only have the obligation to use a vendor if their price and reputation for service are as good as the other third party you’d like to use.”
When it comes to exclusive vendors, Goldberg advises planners to be aware of how these agreements might impact exhibitors.
“For example, exhibitors who like to give away candy at their booths may be required to buy that candy from the exclusive vendor,” he says. “Or if you’ve got a Coca-Cola exhibition at the show, and the center has an exclusive with Pepsi, it won’t work. These are things that you want to address during negotiations.”
The Fine Print
When it comes to convention center contracts, both Foster and Goldberg emphasize the importance of reading—and understanding—the fine print, which can be both lengthy and confusing.
“License agreements with convention centers are usually written by real estate lawyers and in very different language than hotel contracts,” Foster says. “They should be looked at by counsel that has expertise in convention center licensing—if not, you’re being penny wise and pound foolish.”
Likewise, Goldberg says that all too often planners will gloss over the fine print—and do so at their peril.
“If you don’t understand something in a contract, ask questions and don’t accept the comeback that ‘we have to put this in because our legal department says so,’” he says. “The contract is not just about space, dates and how much you’re going to pay. If nothing goes wrong, you can sign the worst contract in history and it won’t matter. But if something does go wrong, you’ve got a problem.”
Goldberg cautions that the biggest potential pitfalls often concern indemnification clauses in which an organization can be held liable for anything that goes wrong at the convention center, regardless of who’s at fault.
“The group should never be held responsible for something it doesn’t have control over,” he says. “For example, suppose the food service contractor starts a grease fire and it burns down the center. This clearly is not the group’s fault, but some contracts will say you are liable.”
When it comes to a promised convention center expansion, Goldberg advises planners to factor this variable into contracts with hotels as well as with the convention center.
“If the city has promised that the convention center will be expanded by a third by 2014, and you’re coming in 2015, you need to make sure that your hotel contracts stipulate that you’re not coming if the expansion isn’t ready,” he says. “In fact, I always suggest that hotel contracts say that if the center is not available for any reason, you can cancel the hotel contract.”
