Contracting for Trouble: What We Can Learn From Muffingate

Last September was a bad PR month for the meetings and events industry. 

That’s when the U.S. Department of Justice’s (DOJ) Office of the Inspector General Audit Division released a harshly critical report on the agency’s spending on conference planning—particularly on the amount it paid for food and beverage at events. The conferences and meetings audited had been hosted by organizations including the FBI, DEA, Office of Violence Against Women, and especially the Executive Office for Immigration Review, which the report said spent $4,200 on 250 muffins—more than $16 per muffin—at the Leaders and Interpreters Training Conference at the Washington, DC, Capital Hilton in August 2009. 

A media firestorm broke, with outlets ranging from the New York Times, Washington Post, and USA Today to CNN, MSNBC, and Fox News repeating the $16 muffin story and quoting plenty of politicians lambasting the government for extravagant and wasteful spending.

Of course, it wasn’t true. 

Larry Luteran, senior vice president of group sales and industry relations for Hilton Worldwide, explained, a few weeks later during a panel put together by the U.S. Travel Association at IMEX America, that the problem was that the banquet check just read “muffins” as shorthand for a full continental breakfast that included muffins, fruit, juice, tea, and coffee, plus set-up, service, and tax. But the DOJ’s auditors, the reporters who broke the story, and the politicians and talk show hosts who repeated it didn’t bother to ask the agency’s meeting planners or Hilton to explain that cost. 

And that’s a lesson that every executive who signs off on the budget for a meeting or conference had better remember. 

Meetings contracts are typically vague documents that make it difficult to determine actual costs, creating a risk not just from unwarranted media scrutiny, but also for internal misinterpretation between an organization’s procurement and financial departments.

Successful Meetings took a look at several contracts from actual meetings to identify a few of the more risky areas and asked some experts for ideas on how to mitigate them. 

The area with the biggest potential for confusion is that in many contracts with hotels and other venues, it is never clearly spelled out that food and beverage costs, the room rate, and the cost (or free use) of meeting and function space are directly connected. After all, they are separate clauses in the contract and separate items on the bill. 

“You’d have to read the whole agreement carefully, and you have to understand a little bit about the industry and how it works,” says D. Benson Tesdahl, an attorney with the Washington, DC-based firm Powers, Pyles, Sutter & Verville, P.C. “Contracts could be improved to be clearer as to exactly what saved money and exactly what the group paid for.”

In one contract reviewed by Successful Meetings for this story, a group contracted with a hotel in a popular meeting destination to fill roughly 130 rooms for a four-day event. The room rate was about $100, and the food and beverage minimum was about $85,000 before taxes and gratuities. Aside from the rooms and meals, the group received free use of a ballroom, four breakout rooms, one function space for breakfast and lunch and another for dinner, and an office. All that was contained in clauses running across five of the contract’s seven pages.

The closest the contract got to spelling out the connection was a clause titled Function Requirements that stated: “Hotel will provide group with function space in accordance with the following schedule of events [which was the next clause]. Meeting and function assignments are based on the contracted number of people attending the meetings and banquet functions.”

It’s not just industry outsiders who can be confused by this. After meeting with her own company’s operations people, Eve Sotnak, manager of client procurement for Minneapolis, MN-based Aimia (formerly Carlson Marketing), started trying to organize contract clauses into a more logical order—even if they were working with a hotel’s standard contract rather than Aimia’s own. 

“We have the legal terms in one part of the contract and then the business terms—the room block, the minimum pick-up, the cancellation of room nights, the food and beverage minimum, and the function space it is tied to—in another part of the document,” Sotnak says. “We try to put them close together in some kind of order, so it’s not buried somewhere on page seven. [If it is], you’re not going to see how it’s tied. That is common and it does cause confusion.”

Another possible solution is a simple summary clause that spells out these connections without interfering with the contract’s legal terms, Tesdahl suggests. 

“You could have a clause that says, ‘In conclusion, here is a summary of all the savings that you have obtained by agreeing to the rooms and the food and everything in this contract,’ ” he says. “And that would lay out A, B, C, D—just in case somebody couldn’t piece all the different clauses together. From a legal point of view, it would just be repetition but it wouldn’t harm anything. If it was properly drafted, it would simply summarize in one spot all of the things that the other clauses already said.”

Or, he notes, the hotel could just say, “I don’t care if the government thinks $13 is [the most an event breakfast should cost]. It costs us more than that to get a decent breakfast. And if we’re going to agree to that then room rates are going to be maybe $10 or $20 per person per night higher.”

The first step to making sure your contracts and invoices are clear is to focus on that when they are being written.

“Everything starts, before we even contract, with making sure that both sides are clear on the terms,” says Sotnak. “It’s important to spell out what is included for free and what is being paid for. You need to be as specific as possible.”

That’s a big part of the lesson Joan Eisenstodt, founder of Washington, DC-based Eisenstodt Associates, teaches in her meetings contracting class. “There is not a lot of detail in most contracts sent by hotels,” Eisenstodt says. “Planners are not asking the right questions, and hotels are not disclosing enough information, in my opinion. They think they are, but they aren’t. My contracts go into a lot of details, down to even staffing of the front desk and the bell stand—whatever it is that you need for your meeting.”

The main reason for this, Eisenstodt says, is to prevent misunderstandings with the hotel and charges showing up on the bill that the planner didn’t anticipate. 

“I can’t begin to tell you how many hotel invoices I’ve had to scrutinize carefully and get further clarification on,” says Loretta Lowe, of San Francisco-based Loretta Lowe Meeting Planning and Special Events. “Hotels use codes and shorthand that need explanation even to those of us who planned the meeting. I review every invoice with a fine-tooth comb and include footnotes and explanations whenever it is unclear. For example, it might read ‘gift shop purchase’ for some aspirin that I purchased at the store. It might read ‘bar charges’ for some sodas ordered for a meeting room break. I’ve seen things like ‘ZY45672’ on a hotel bill that I found out was a staffing charge for a carver at a buffet dinner.” 

Vague terms like “miscellaneous” or “incidentals” can be legitimate charges, like the fee for hanging a group’s banners, she continues, “but these are the kinds of things that are going to raise a red flag to an auditor.”

Fear of bad press is far from the only reason to clarify these charges, Lowe adds. “One event management colleague of mine was called in by the CFO of her company and chastised for making personal expenses,” she says. “After exploring the charges, it was discovered the purchase was for 30 ski hats. It was something the CEO of the company had asked her to handle while at a board retreat. Months had gone by since the event, and to make it worse, the vendor had a parent company that showed on the credit card bill, so it was difficult to identify the purchase. As planners, we should always keep the potential audit in mind.”

Eisenstodt’s solution is to insert a clause into the contract that says the group will designate someone to review all items posted to the master bill with a hotel revenue manager, salesperson, or convention services manager. “If there’s anything that’s unusual in it, you ask them to change the language for the final posting,” she says. “At the end of the meeting, you will review it one more time so that when the final bill comes, you know that it’s going to be in order and that it makes sense for what you have to justify.”

Even if you make clear that the price of food and beverage is affected by meeting space rental and room rates, it remains a potential cause of trouble for planners and executives who want to stay under the radar.

For one thing, “at major hotels, you’re going to pay more than at the local Denny’s restaurant for food,” Tesdahl says. “There’s just no way around it, and the average person just doesn’t understand that.”

Leaving aside the cost of the food, there’s setting up a room from scratch—organizing tables, bringing in chairs, putting on chair covers, having enough staff on hand to serve several hundred people each course simultaneously, and the fact that the banquet room is out of commission while it is being set up and decorated, and again after the meal when it is cleared away. The overhead is higher, and the only way to make this clear is have it all spelled out, as Eisenstodt suggests. 

At the same time, Sotnak says that if the contract is too detailed, Aimia found that people tend not to read it. One solution, she says, is to create a statement of service standards in the contract that gives an outline of what is expected at meals (and other program aspects) and then refer to specific documents that have more detail. 

A second potential problem is that the details of the menu cannot be specified in the initial contract, in most cases, because the event itself is a year or more away. And it is rarely spelled out in great detail in the final bill unless the planners demand that in the contract. Most of the detail comes in the banquet event order (BEO), which is created a lot closer to the event than the contract, Sotnak says. 

“That’s where you have the specifics—the price, the description of what you’re buying, the quantity of what you’re buying,” Sotnak says. “That is your working document for the picky details, and the wording of the contract ties that document [the BEO] to your contract.”

So in that contract for a 130-room, four-day event with a food and beverage minimum of about $85,000, the final bill notes that the hotel provided a “Healthy Choice” continental breakfast menu for 240 people one day of the event at $41 per person, or $9,840. 

But two days later, the same Healthy Choice menu in the same room for the same number of people was listed at $35 per person, or $8,400. 

In both cases, the bill had a separate line item charge for the room the event was held in, but the amount charged was “$0.00,” and it did not specify a connection between the free room and the size of the F&B order and room nights.

It is the BEO that details each breakfast and explains the price difference. While many details are the same—such as the vanilla bean and fruit-flavored yogurts with natural granola and raisin topping, the sliced fruit display, and the cold cereals—the more expensive breakfast specifies freshly squeezed orange and grapefruit juices as opposed to just “chilled fruit juices.” 

And the $41 breakfast offers three types of croissants (chocolate, raisin, and butter), assorted muffins, and date-nut and banana breads, as well as fresh-brewed Parisian coffee. The $35 version has just bran muffins, and the coffee is not specified as gourmet. But it adds mixed-berry smoothies. 

If an auditor had no idea what a BEO was—or that it even existed—the question of why the same menu cost $6 more two days earlier might well arise. And if the contract and bill don’t make very clear that details are on the BEO, no one outside this industry would think to ask for one.