Many hotel contracts have a food-and-beverage
(F&B) clause that requires a group to purchase a certain
minimum dollar amount of meals during a meeting or conference.
Most groups simply look at how much they spent on F&B at
the past few similar meetings and propose the same dollar
amount for the next meeting. These F&B clauses often state
that if the group fails to purchase the minimum dollar amount
stated in the contract, the group will be responsible for
paying all of the shortfall. Sometimes, F&B clauses even
require the group to pay all of the shortfall, "plus tax."
Meeting planners who are asleep at the wheel often overlook the
wording of these F&B clauses, thereby causing their clients
to pay more in F&B attrition penalties than they should.
Here are some tips on how to deal with the F&B clause and
avoid that pitfall.
F&B Damages Should Be Based on Net Profit
Many times when there has been a breach of contract, courts
will attempt to put the parties in the position they would have
been if each had fully performed. If a group promises to buy
$100,000 in total F&B and only ends up buying $80,000, the
hotel has lost the benefit of the extra promised $20,000.
However, agreeing to pay the hotel the full $20,000 would be a
mistake because if the group had ordered all the F&B, the
hotel would have had to buy the food, pay someone to cook it,
and pay someone to serve it and clean the dishes. So a fair
measure of damages to put the hotel in the position it would
have been if there had been full performance is to subtract out
expenses the hotel would have incurred. Many hotels will agree
that 40 percent is the net profit margin on F&B.
Consequently, a group should only pay 40 percent of the
shortfall, rather than all of the shortfall.
F&B Damages Are Seldom Subject to Sales Tax
Similarly, groups should only agree to pay tax on F&B
damages if taxes are actually required by applicable law. If a
portion of the F&B minimum guarantee is never purchased,
then in most cases, no sales tax is owed because nothing was
ever sold in the first place. The F&B damage formula is
really nothing more than a form of liquidated damages that the
parties have agreed upon as a penalty, and sales taxes are
seldom owed on liquidated damages.
Consider Ordering More Food Rather Than Paying the Shortfall
Finally, if a group has a modest shortfall in its F&B
purchases that it can afford to cover, the group should
consider simply purchasing enough extra food to use up the
shortfall. This might consist of ordering an extra reception
with light snacks, ordering a fancier dessert for a planned
dinner, or ordering free alcohol for an attendee function that
would not normally have had free alcohol. The attendees will
get to eat like kings, which engenders goodwill and encourages
them to come to a future meeting. At the same time, the group
will avoid handing over F&B shortfall damages to the hotel
and getting nothing back in return.