Tips for Meeting Planners: Hotel Contracts in a Sellers’ Market

This is the first of two parts.

What happens when a lawyer who represents meeting groups confronts a lawyer who represents hotels on the topic of contract negotiations? Surprisingly, a lot of agreement, but also some contention.

That was the dynamic when two top legal minds in the field of meeting contracts and negotiations met during a session called “The Lawyers Are In,”  hosted last week by the New Jersey chapter of Meeting Professionals International in Short Hills, N.J.

Lisa Sommer Devlin is an attorney with Devlin Law Firm P.C. in Phoenix, which represents hotel companies, and Barbara Dunn is a partner with Barnes & Thornburg LLP in Chicago, which represents meeting groups.

The two offered legal advice for meeting planners on issues ranging from attrition to cancellations to force majeure to rate protection. They also discussed the current business climate and its impact on hotel negotiations.

The big picture
The tide has turned in the hotel business in the last year or two, and it has become a sellers’ market, the attorneys agreed.

So while hotels were often willing to renegotiate contracts in the years following the economic collapse, that is now less often the case – except in certain areas like government meetings.

Generally, hotels today have less latitude in negotiating with meeting planners. And when it comes to new negotiations, everything is leaner, meaner and tighter, and hotels are looking for performance in terms of attracting attendees and in other areas.

Rate protection
Hotels are not obligated to lower rates just because a planner finds a lower rate elsewhere, Devlin told planners. After all, she asked, would a planner agree to a contract where higher rates kick in at meeting time?

But Dunn said that even though it will be tough, planners should at least try to get baseline language about rate protection included in the contract.

There are rare cases where rates might be flexible – though less so in today’s sellers’ market than in the past. Still, planners might gain leverage if their meeting has the majority of rooms in a hotel and another, smaller group, gets a better rate.

If a planner cancels a meeting but plans another one shortly afterwards, don’t expect the same deal on rate. If you can’t do your February 2014 meeting but promise one in June 2014 you will not get the same deal because the hotel has incurred damages.

Negotiating the attrition clause
Attrition – that is, not delivering the promised number of attendees or revenue to a venue – is a key component of any contract.

•    A “no attrition” clause is not a good idea. Graduated attrition fees are the way to go. Negotiate a fee that deals with the unlikely – giving yourself a nice cushion.

•    Pay only for hotel losses as defined in the contract. Sometimes “lost profit “is used, but that is hard to quantify.

•    A contract might stipulate that a group can reduce its room block by 10% three months in advance, but you need to invoke that clause at that time; if you wait until the meeting you can’t expect the hotel to abide by those terms.

Getting credit for rooms
•    Be clear about whether the group gets credit based on number of rooms booked or on revenue.

•    Groups should get credit for resold rooms. It’s best to create a formula that specifies a dollar amount so that a resold room results in a credit for that amount to the group.

•    Be careful of clauses that specify revenue per night rather than per meeting. For example, rather than counting the cumulative number of rooms used during a four-night meeting, a hotel might count each night separately and penalize groups when targets are not met.

•    Contracts should be specific about which attendees a group gets credit for. If an attendee
gets a room on Priceline the night before, the planner won’t get credit – unless that is stipulated in the contract.

•    Groups need to do a better job of capturing who actually stayed at the hotel. While technology is making this easier, some systems – even if informal – should be used so that a group gets credit for every room used.

F&B attrition
When it comes to spending on food and beverage, should a meeting group be required to pay the difference between the promised spend and the actual spend?

The issue of delivering promised food and beverage revenues is not as contentious as room attrition but it does come up.

Planners are advised to be conservative in their F&B estimates. Don’t come to the negotiating table flexing negotiating muscle unless you are sure you can back it up.

Here are some issues regarding F&B spending that should be considered in contract negotiations:

•    Are taxes and tips included in actual spend?

•    Does room service count toward total spend? (It rarely does.)

•    Contracts should specify what part of a spending gap the planner is responsible for covering.

•    Sponsor spending on F&B should be considered as well. If sponsors have a separate deal with the hotel’s catering department, the group will not get credit. If the sponsor is using official space and is on the master bill, then the group gets credit; this is the case less frequently than in the past.

Next time: Legal advice on cancellation policies, disputed charges, dealing with the unexpected, and more.