While hot-button contract issues stay relatively the same over the years, economic conditions can vary wildly, with negotiating power shifting from buyer to seller and contract concerns such as attrition and cancellation carrying much more weight.
“Now that the pendulum is swinging back to where the hotels have the power, groups are very worried about paying damages,” says Lisa Sommer Devlin, owner of Devlin Law Firm PC. “They’ve got a bottom line to fulfill, mortgages to pay and owners goals to meet. At the depths of the recession when customers might not have had the money, they might walk away from it, but that’s certainly not a trend they want to keep in place.”
According to Sommer Devlin, it’s all about leverage. With new-hotel construction lagging, supply is outplacing demand, and hotel operators are being less conciliatory when it comes to contract terms.
“I think that planners need to understand that if the economy improves and demand increases, there’s not a lot of hotels being built, so the hotels will be in a good position,” she says.
For meeting planners that are acutely concerned with attrition or cancellation clauses, Sommer Devlin recommends trying to just rent meeting space, such as in a conference center that doesn’t rely heavily on selling room nights. Another piece of advice is to delay booking until the planner is more confident their group can fulfill the room block adequately.
The strategy of booking closer in to the meeting date, although risky because room availability may evaporate, can pay off.
“They may find themselves in a different negotiation position,” Sommer Devlin says. “If you go into a hotel closer in, they may have need dates.”
Areas where meeting planners may not find budget relief include audiovisual services—if AV is provided by a third party, than the hotel may not have much influence on reducing the cost—and food and beverage, which typically is a very low-margin area of hotel revenue.
When it comes to recent contract trends, Sommer Devlin says that
“An issue that seems to be coming up recently is confidentiality clauses—personal information relating to attendees and information being discussed in meetings,” she says. “[Groups are] asking hotels to sign pretty broad confidentiality clauses that frankly the hotels will never be able to adhere to. So, they need to work with the hotel to protect their information, rather than expect them to place all of the responsibility on hotels.
“If a meeting attendee is given the top-secret formula during a meeting, they walk out of the meeting to the bar and leave the top secret formula on the bar,” Sommer Devlin continues, “the hotel can’t be responsible for that.”
Sommer Devlin, who generally represents hotels in contract disputes, will co-present an “It’s Your Day in Court: Common Contract Disputes on Trial” mock courtroom with Barbara Dunn, an attorney with Howe & Hutton Ltd. who specializes in representing meeting planners, May 31 at HSMAI’s MEET West in Anaheim, Calif. Devlin will also present three other sessions involving contracts.
Dunn agrees with the prevailing wisdom that we are back in a seller’s market.
“In particular, the nonprofit groups are competing for space, but there are lots of places where it’s still very much a buyer’s market,” Dunn says. “Groups that can be flexible with dates get the best bang for their bucks. I always throw out the flexibility of timing, pattern, destination—even in a good seller’s market there’s opportunity.”
Dunn says that hotels, confident that the market has swung back in their favor, are demanding 85 percent or 90 percent pickup on room blocks, and are also trying to tie concessions such as comped suites and reduced-rate staff rooms to room block pick up.
And when groups fall short on room block pick up, hotels are being much more aggressive when it comes to meting out punishment.
“If you don’t hit that magic mark on pickup, the function spaces gets charged—a triple whammy,” she says. “In the last two years we saw the two sides of the whammy go away—with attrition down to 60 percent or 65 percent. Now I’m fighting hard to get 85 percent or 80 percent attrition through volume contracts. The attrition fee provision issues are back with a vengeance.”
Dunn says that she puts working in contracts stating that if the group hits their attrition mark—or pays a penalty for the rooms they don’t consume--they won’t have to pay for extras such as function space.
Dunn provides the following contract tips for meeting planners:
- F&B prices are rising and profits are lower, so be sure to read the contract to see if the price is inclusive of tax and service charges: “Many people look at the top of the bill, and not the bottom.”
- F&B costs tied to sponsorships can be necessary, but challenging if one drops out. If you don’t meet your minimum, some hotels will pull meeting space: “There’s some flexibility on the hotels to move that number, but not a lot.”
- Don’t assume that just because your organization has received credit on a master account before, they’re going to get it now: “The language in the contracts is not the same language as we saw pre-2008.”
- The credit-worthiness of groups is much more of an issue now. Ask whether the facility gauges credit on an objective basis (i.e., a Dun & Bradstreet Reports) or subjective standard of credit-worthiness: “This is big for groups getting a lot of money in the door (such as a trade show with exhibitors). If they were asked to pay 50 percent 90 days before the show, they may not have that. Previous to 2008 we’d only see deposits with resort properties, not with airport or city properties. Now we’re seeing more deposits, even with established groups.”
- Because of the proficiency of technology, Dunn is noticing many more mistakes in the master account billing and statements. If the contract simply states that a group needs to pay within 30 days of receiving the invoice, a meeting planner should reword that to state “…within 30 days of receiving invoice in addition to supporting information and documentation,” which allows the group to challenge any charges in dispute.”
- Regardless of whether there are charges in dispute, make sure to pay the facility in full for whatever charges that are not in dispute, rather than wait to pay until all of the charges in dispute are settled: “Pay them the undisputed charges and send them a letter saying ‘we paid x and then I’m disputing y and z for the following reasons.’ Don’t just not pay the whole amount—it ups the ante. I’ve seen some hotels contact a collection agency after 60 days, because hotels have been burned on this credit issue.”
