A discussion on contract negotiation best practices.
The average private law degree costs close to US$100,000 these days, and yet the delicate art of negotiation seems to be something kids bring with them from the womb. Whether it’s another cookie, one more story or permission to go to the party because oh-em-gee mom and dad, everybody else is going and it’ll be, like, social death if I don’t, kids can be ruthless in their pursuit of extras.
But somewhere between seventh grade and a company’s seventh annual conference, the stakes got significantly higher. If the catering doesn’t come through for the school dance, pizza’s there in a jiffy. If a meeting planner can’t feed several hundred hungry delegates, they’re booking it to the closest casual dining establishment. And while a 13-year-old back may not mind a cot and a sleeping bag—hey, it’s an adventure—grown-up backs prefer a nice pillow top most nights.
The best way to guarantee all goes well at any event is to negotiate a fair, reasonable contract wherein terms are not only clear, but closely adhered to—just like the best way to get a ride from dad to the dance is to promise to take the trash out for a month…and then actually do it. To gain some insight into the most common contract negotiation issues, we talked with some of the industry’s top legal minds.
“Meeting professionals tend to treat contracts like a tuxedo,” said Reto Keller, director of global operations for meetings and events at MCI, a global event management organization.
“It is not important until you need it and only then you find out if it fits you, the other parties involved and the occasion,” the Geneva-based Keller explained.
With that in mind, we wondered, how can meeting professionals avoid problems on paper before they arise in practice? The answer starts with keeping an eye on what University of Alabama law professor Tyra Hilliard, Esq., CMP, calls the “big three” issues: attrition, cancellation and force majeure.
When it comes to organizing events at hotels, Hilliard says, “People always want to talk about attrition, whether we’re in an economic boom or an economic downturn.”
Because everyone wants to get the most out of their financial investment, it’s important to discuss what happens when a block of hotel rooms doesn’t fill for an event and who’s responsible for making up the difference.
“Hoteliers feel like meeting planners are always trying to get out of attrition clauses,” she said, “which is probably not far from the truth.”
The key is to make sure, as a planner, you’re not paying a penalty—that is, that a hotel can’t make more money by enforcing an attrition clause than if the original contract had been fulfilled.
Atlanta-based attorney John Foster, Esq., CHME, who serves as outside counsel to MPI on industry contracts and other legal issues, specializes in just this kind of thing. He encourages planners to base damages—not penalties—on room nights, not revenue performance. That way, planners are responsible for the rooms themselves, not fulfilling a certain revenue amount, which can come back to haunt the group if delegates book rooms outside the block at a lower rate.
Planners should also make sure they get credit if a hotel is able to book rooms unoccupied by meeting attendees.
“That should be subtracted from the planner’s damages,” Foster said.
However, if planners aren’t smart enough to ask for it, he points out that “hotels don’t want to give credit for resold rooms,” which is where controversies often arise.
Because hotels do have the right to sell other un-blocked rooms before they begin selling empty blocked rooms, Foster also advises planners to make sure hotels are honest about other events booked at the same time that may also not have filled up. Hotels should count those rooms as filled, even if they’re technically empty, and not calculate damages at a cost to an unrelated planning organization by filling those rooms first.
“Those need to count as sold rooms vis-à-vis the other planners,” he said. Yet another thing that “doesn’t always happen if you don’t ask for it.”
There are ways to approach attrition without minute negotiations about rooms, rates and percentages. Hilliard recommends that, instead of arguing about attrition clauses, organizers should let the hotel participate in marketing.
“Let’s get your attendance up,” she said. “That’s how everybody wins.”
Foster also recommends that planners stipulate they’re not responsible for generating ancillary expenses—things like room service, drinks in the bar or spending at the gift shop.
“It’s all discretionary,” Foster said, and planners should make sure hotels agree to that.
Hilliard is seeing hotels cancel events they may have scheduled in a down economy that they’re less invested in now that things are on the upswing.
“Hotels took business that wasn’t the greatest business when the economy wasn’t great,” she said—and some properties look for what they believe to be better clients.
Or, new managers take over hotels and don’t want to fulfill contracts they inherited.
“It’s important for planners to make sure they’ve got a cancellation-by-hotel clause that says exactly what damages they’re entitled to,” Hilliard said.
Another upshot of the economic downturn is that hotels are now able to conduct remodels and renovations that they’d put off in tough times. Planners should make sure that those things either won’t be happening when their events take place or that they “won’t disrupt the quiet enjoyment of the hotel by the meeting attendees.”
In an era of high-profile terrorist attacks, disease scares and severe weather events, force majeure clauses that deal with the fallout from unforeseeable events are more important than ever. Foster cites the 2003 SARS outbreak in Toronto as an example.
If something happens once, he says, “You’ve got to assume that it’s going to happen again, and you need to provide for it.”
That means, in part, making sure a contract deals with events that become “impracticable,” even if they’re not “impossible.” He represented a group that booked a meeting in Toronto during the SARS epidemic—a meeting they’d booked five years in advance. At that point, he says, “it’s not impossible,” but the execution is “substantially and materially negatively affected.”
There are, of course, issues aside from attrition, cancellation and force majeure that lawyers recommend keeping tabs on. In the digital age, Foster says hotels often want to be able to share meeting attendee information with their subsidiaries, and they’ll ask planners’ permission to do so. But he says that’s not a planner’s responsibility.
“You don’t want to agree to be responsible for privacy,” he said. “Don’t put that burden back on the meeting planner.”
If hotels want to share delegate information, planners should be removed: Hotels should ask attendees directly for such permission.
Tyra Hilliard says hotels are “doing what a lot of businesses are doing,” which is “unbundling” charges that used to be included in basic costs. Surcharges and fees increase as hotels try to recover from the economic downturn, “but it really adds up and can hurt a meeting planner’s budget.”
Make sure additional fees can’t be added after a contract is signed.
“You get very angry attendees,” when they end up with surprise costs at check out, she said.
Issues of difference in culture and tradition also arise when planners book across oceans and borders, according to MCI’s Keller. And handling that requires some homework.
“When approaching negotiations in an international environment without your homework being done beforehand, you are setting yourself up for failure or at least for painful situations,” Keller said. For example, “the value of a written contract [in China] is by no means comparable to its value in Europe or the U.S.”
He also says the issue of currency exchange in international contracts should be discussed from the very beginning, especially with increasingly fluctuations in exchange rates. Planners can set exchange rates in an initial budget, he says, but a good option is to “adapt the exchange rate” on a final invoice based on a rate from a neutral entity that both parties agree upon.
And, of course, agreement is the entire point of negotiation. Internationally or domestically, good relationships should take priority. Hilliard says that’s often lost in all the red tape.
“If you kick the other side when they’re down, they’re going to remember that,” she said. “That’s just not good business.” One+
To learn more about meeting and event legal issues, be sure to check out the following sessions from MPI’s Professional Development OnDemand at www.mpiweb.org/OnDemand. Remember, all PD OnDemand content is available to MPI members 24/7 at no cost.
Back to the Basics of Hotel Contracts
Legal tips every meeting professional must understand in today’s business climate.
The Meetings Industry Legal Year in Review
This session offers a discussion of some of the most important and strangest recent meeting industry legal developments.
Meetings and Events Can Be a Risky Business
This interactive quiz presents common, yet advanced-level contract questions and liability scenarios. Topics to be addressed include force majeure, rate protection, liquor liability, negligence, indemnification and insurance.
Legal Issues: Taking Your Event Abroad
A look at the most talked-about contract provisions and ways to limit costs and liability exposure while navigating the maze of laws affecting events abroad.
One+ February 2012,