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Contracts
The Contract
What is a contract? A contract is an offer outlining specific terms that are accepted and agreed to by two or more rational parties, usually within a specified time. After the meeting specifications (dates, rates, space) have been reviewed and verbally agreed to (and when possible, a site visit accomplished), then a contract outlining each detail of the meeting will be forwarded. This contract will be reviewed; if all terms set forth are in accord with the buyer’s needs and wants, it will be signed, dated, and returned to the facility.
Contracts may be simple two-page (short-form) documents or, for more complex and large meetings, lengthy (no-page-limit) documents with extremely comprehensive terms and conditions outlined. Contracts have become more complex, more rigid, and more legal than in the past. I can remember when letters of agreement, as well as verbal agreements, were a solid commitment. Of course, this is no longer the case. The norm today is lengthy, formal contracts, which outline every issue imaginable and protect the facility against any possibility of loss of revenue.
While you are not expected to be a lawyer, you will have to review contracts, make recommendations, and, in many instances, sign the formal document (as a representative of the company). Today, especially for the beginning or intermediate planner (and even the seasoned planner), it is advisable to seek the assistance of the corporation attorney, the association attorney, or independent counsel. In most instances, an officer would sign the contract with input from the planner and counsel.
Win/win negotiations are better accomplished when both parties understand the other’s requirements, budget restrictions (of the buyer), and profit structure (of the supplier).
Over the past two decades, the pendulum has swung from somewhat balanced contracts to those favorable for the buyer to those favorable for the supplier. Whatever the current picture, parties negotiating contracts are locked into the present economic picture and must adjust to the buyer/supplier demand situation.
Today the lodging industry is high-occupancy/high-demand; that creates high room rates and puts the suppliers in the driver’s seat. Will it change? It probably will. But much depends on whether there will be significant new construction of hotels, continuing buyouts and mergers of large hotel chains (which lessen competition), and availability of alternate facilities. Of course, the economic climate will vary from destination to destination.
There are five trends that have an impact on negotiations:
1.There is a lack of new full-service hotels.
2.Conference centers are more in demand than previously.
3.Hotels are after the leisure business, which is growing significantly due to the senior market.
4.Time-share business and vacation clubs are good business.
5.The meeting and conference business is not the number one market being sought by suppliers.
As meetings and conferences are not the prime market that hotel salespeople are targeting, they may hold off making a commitment regarding space in the hope that they can make more money selling their rooms to one of the more lucrative markets. This diminishes our ability to negotiate as we are not dealing from a position of strength.
Contracting With Hotels
Hotels have a scorecard and use it to evaluate your business. When you call and/or send your meeting specifications in search of a facility, they assess your need for space in conjunction with the number of sleeping rooms required and whether you can pay the rate they want for that room block. If your group is rate-sensitive, it might only fit into the picture during a low-season or low-demand period. If you have a low score, they may not want to consider your group. They would prefer to wait for a piece of business from another group.
This is a seller’s market, and hotels want the right guest, at the right time, for the right price. What does that mean? It means hotels want to maximize revenue. Hotels are in business to generate revenue. The sale of rooms is their prime product, and it is a perishable and inelastic product. An unsold room on any given night is lost revenue that is not recoverable. Hotels want meeting-room space booked and every sleeping room sold at the maximum rate.
Food and beverage, as the second-largest revenue stream in a hotel, ranks high on the scoreboard. The more high-end meal functions you need, the better your score.
If a group or meeting has a history (has been conducted before)—and past results can be documented as to number of attendees, number of rooms used, amount of money spent, and timely or untimely payment—the facility will use that history to assist in making a decision for the forthcoming event.
A group’s history scores in three areas:
1.Previous commitments and resultant room pickup.
2.Payment history. (Be certain to pay within thirty days if the contract required it. In the event of a dispute, pay the major portion of the bill and only retain the disputed amount until the situation is resolved.)
3.Potential for return business.
What kind of business do you represent? Are you an association, a corporation, a travel agent, or a seminar company? Do you want space during a peak period (high season)? Are the arrival and departure compatible with the hotel’s need? These issues are all carefully assessed; the best piece of business will get the space. Once there is a match, the hotel will forward a contract for your review and acceptance.
Contracting With Convention Centers
For those who have not dealt with a convention center previously, it is wise to obtain some industry consultation concerning current practices. As with hotels, it is important to inquire about ownership. Is the convention center owned by the city, by the state, or privately? Are they partnering with hotels? Is their objective to break even or earn a substantial return on investment?
Ask if there is an exclusive agreement with vendors. If so, the agreement should be fully disclosed. Find out who has authority to make concessions for your piece of business. Only a year ago, I needed an alternate facility in a major convention city. The convention center was an option. I was surprised to learn of the exceptionally low rental fees, which were due to the financial structure of that facility. The ownership and financial obligations play a considerable part in the inconsistencies.
Purpose and Content of a Contract
In general, good contracts protect both parties. Preparation begins when the buyer first considers and approaches a property with needs and group requirements. Providing a hotel or facility with a list of required specifications for the meeting moves the process rapidly, with less chance for miscommunication.
What should be in a contract? Everything! Don’t be misled into believing it is better not to address a sticky issue. In the event of a dispute, the courts do not look favorably on the omission of a clause that would have stated terms, conditions, and agreement to those terms. It is only when terms are stated that the interests of both parties are served.
Usually the party who writes the contract has the upper hand. Difficult issues or contracts written in legalese may require review by an industry lawyer.
Forty-One Clauses You Should Be Aware Of
Clauses that should be in a contract include but are not limited to the following forty-one items:
1.Room block/room rates. These are specific numbers indicating how many rooms are needed each night and the rate for the stated rooms.
2.Complimentary rooms. A specific policy states the number of complimentary rooms allocated to the group each night (room nights). Hotels have traditionally provided one complimentary room for every fifty booked (per night).
3.Staff rooms/rates. These are the discounted rates and allocation of rooms for the staff; they vary based on the number required and the total group business.
4.Suites and/or VIP upgrades. Specific requirements should be listed.
5.Room locations. The specific sleeping room locations and quality of rooms rented should be noted.
6.Run of the house. One specific room rate is available for a variety of rooms, usually with an equal percentage of rooms in each category for the one adjusted, average rate.
7.No-walk clause. This is sometimes called an overflow clause. While this is no real guarantee that group members (even those with a credit card guarantee) will not be walked to another hotel in the event of overbooking, it is a good safety net.
8.Short-stay penalties. If a group has been blocked for 100 people from Wednesday through Saturday and some leave prior to the last night blocked, penalties may be imposed because those rooms are unfilled and revenue loss occurs.
9.Check-in/checkout. The specific times for check-in/checkout are based on hotel policy.
10.Early check-in/late checkout. If a deviation from the hotel policy is needed, be certain it is noted in the contract.
11.Reservations. Either registrants will deal directly with the hotel, or you will provide the hotel with a rooming list.
12.Reservations cutoff date. The date when the facility returns the room block to the inventory for sale to customers at the over-the-counter rate, usually thirty days prior to the event. This is sometimes negotiable.
13.Function space requirements. In addition to outlining how much space will be required, it is a good idea to note the specific meeting rooms on hold. If the size of the meeting may be adjusted, set specific dates for review.
14.Meeting room rentals. This may be a flat fee or a sliding scale, based on sleeping room pickup.
15.Sliding scale rental charges. Meeting room rental charges are based on the room pickup. If the commitment is met, there may be no charge for room rental. (If you contract for 100 rooms and only pick up 75 rooms, your meeting room rental charge may reflect the reduced number with a higher rental charge.)
16.Twenty-four-hour hold. When the meeting rooms are reserved on a full 24-hour basis, they may not be used by the facility, even during downtime.
17.Setup charges. Occasionally, a contract appears with room setup charges. Look for this clause to avoid charges for which you are unprepared. Many facilities do not charge for setup; this is a negotiable item.
18.Reassignment of space. Specify which meeting rooms are booked. Then room changes may not occur without prior notification from the hotel and written approval from the organizer.
19.Room deposits. The specific dates when deposits are due must be noted. Also, be certain you can’t lose the reservation because of a missed deposit. Require that the facility notify you of a due date for a deposit.
20.Billing and handling of the master account. Who will be assigned to your group account? Who will be permitted to sign on the account? What are the specifics? What charges will be on the account? What charges are individuals responsible for? These must be addressed. In many instances, the meeting will add the room and tax to a master account, but the individual is responsible for all other charges.
21.Cancellation policy. In the event of cancellation, the facility will expect compensation for lost anticipated revenue in the areas of sleeping rooms, meeting room rental, and food and beverage functions. There are numerous formulas for cancellation charges; they must be outlined in detail. If the meeting cannot occur as contracted, consider postponement rather than cancellation because it is less expensive. (The facility should also be held liable in the event it cancels the booking. The facility would be responsible for costs incurred from the cancelled booking. These items should be listed and may include airline tickets, marketing costs, rebooking efforts, etc.)
22.Attrition for food and beverage events. There will be a penalty if you reduce the stated number of food and beverage events. The attrition clause may require substantial payment for events that are cancelled, taken off-premises, or drastically reduced due to low attendance.
23.Rate caps. When the contract is written for a meeting that is two or more years away, it is reasonable to assume that rates may rise by the meeting date. However, there should be a cap on the percentage of the rate increase. This applies to rooms as well as food and beverage. (Note: It is also possible that rates may decrease, and this should be addressed in this clause.) (During and for many months after the Gulf War, room rates dropped sharply.)
24.Renovation and construction. Require prior notice if renovation and/or construction should be planned during your meeting that will provide you with an option to cancel. Should you opt to run your meeting during renovation, there should be a guarantee that you will not be disturbed.
25.Quiet enjoyment clause. This states that the buyers (the group) have the right to rental of the space without disturbance during the time it is being used. This clause is meant to protect the group from undue noise, which may adversely impact the meeting.
26.Insurance coverage. Both parties should outline the insurance coverage, and special insurance needs should be noted. Be certain you and the hotel have adequate insurance. Check with the company attorney regarding company policy and off-premises insurance riders.
27.Union contract renewal. It should be stated when a union contract is up for renewal. It is risky to run a meeting during the contract renewal period, in case of a strike.
28.Arbitration clause. Determine if your company is in favor of arbitration or against it prior to signing a contract that agrees to it. Arbitration is faster and less expensive than litigation; however, binding arbitration eliminates the right to an appeal if the judgment is unfavorable.
29.AV (audiovisual) company (in-house equipment rental). It is not unusual for a hotel to provide in-house AV service. For those who prefer to use an outside company, the release from charges for this privilege should be noted in the contract.
30.Arrival of materials for the package room. The hotel package room will receive shipments of group meeting materials prior to the program. Package room hours should be noted and hotel policy clearly stated.
31.Telephone surcharges. Negotiate away from surcharges. Documentation of the negotiation should be in the contract.
32.Gratuities. The policy for gratuities should be clearly stated, and the group should identify plans for tipping. The safest tipping is through the master account on payout slips. You may give your convention services manager the names of those to receive gratuities, along with the amounts on forms (called payout slips) provided by the hotel. The hotel will distribute the gratuities, and the amounts will be charged to your master account.
33.Governing law. In the event of a dispute, this clause states where the litigation will take place and which state’s laws will apply.
34.Signage. Some hotels have rigid regulations regarding signs. If signage is an important part of a large meeting, terms should be negotiated and agreed to.
35.Exhibit handling. The loading dock time in and time out of the facility can impact heavily on cost. All requirements and possible limitations should be negotiated and discussed.
36.Minimum prices for food and beverage functions. Some hotel contracts will produce a clause stating that there is a minimum amount that must be spent for breakfast, luncheon, or dinner. Negotiate this clause out of the contract. It is unreasonable to be locked into minimums if the meeting does not warrant it.
37.Safety and fire codes. The contract should document that the facility meets all required safety and fire codes.
38.Americans With Disabilities Act (ADA). The contract must specifically outline compliance with the ADA regulations.
39.Termination. Acts of God or acts by third parties, such as an airline strike or a hotel union strike, permit a party to terminate the contract without penalty. The party terminating the contract has no control over the situation (the act of God), which will interfere with the event.
40.Hold harmless. Both parties should agree to hold the other not responsible for negligent occurrences, such as an elevator failure or some other incident that interferes with the meeting.
41.Occupancy reports. If not in the contract, periodic occupancy reports are difficult to obtain. Occupancy reports are generated by the reservations department and list all those in your group who have confirmed reservations. This report includes arrival date, departure date, number in party, room type, and special requests.
The items listed are just some of those that may be negotiated and included in a contract. Should there be a dispute, a clearly stated contract, with all parameters defined, is the best form of protection for both parties. Remember to keep a paper trail; document all verbal commitments with a response fax or letter. All print materials and correspondence should be dated and as formal as possible.
Amending a Contract
When contracts need to be amended (whether with minor or significant changes), the following procedures should be followed. If the changes are minor, note them in the margin of the contract, initial and date the changes, and return them for inclusion in and revision of the contract. Be certain to forward the amended document with a cover letter, which outlines the changes and requests that either the changes be countersigned and dated with a return for contract approval or the contract be revised per the notations submitted for inclusion.
If the changes are significant, write the amendment as you wish it and send the contract back, with a cover letter requesting changes/addendum be incorporated into the contract and resubmitted for your approval.
Signing a Contract
While you may not sign the contract, you can assist those in your company who must come to terms with a contractual offer by knowing the current hotel/buyer climate and advising them as to current issues and realistic expectations. A careful review and notation of contractual problem areas will be greatly appreciated and will make for a smoother negotiation process. When in doubt as to procedure, contact your corporate attorney or retain counsel on a consultation basis.
Note that a contract is a binding, legal document. Be cautious about signing a contract. If you are not a corporate officer or an employee with the authority to sign a contract, you will want to consult with an attorney to be certain that, in this instance, you may do so. Independent meeting planners only sign contracts as an agent for the client so as to keep responsibility with the client. You may wish to do the same if required to sign a contract; you may wish to note that you are acting on behalf of your company.
Checklist—Contracts
Review contract with legal counsel.
Ask counsel about signing as an agent (if required to sign the contract).
General Information
Proper identification of your meeting
Specific dates listed in contract
Exact rates to be paid
Number of rooms to be occupied each night
Allowance for early arrivals
Allowance for early departures (short stays)
Cutoff dates (specific dates and times)
Deposits
Check-in and checkout
Special rates, such as for staff
Number of suites
Complimentary room agreement
Kind of meeting and meeting room requirements
Names of meeting rooms to be used
Rental, if any, for meeting room
All additional charges in connection with meeting rooms
Shipping instructions
Package room and storage requirements
Billing Information
Setup of master account
Person(s) signing
Payment arrangements
Signature authorizations in your group
Food and Beverage
Number of functions
Number of attendees at each function (estimate)
Prices
Guarantees
Gratuities, services, and taxes
Services
Parking
Transportation
Activity fees