Let's Get Ready to Rumble

Hotel contracting is about as enjoyable as going to the dentist. Or doing your taxes. Or doing both at the same time. In other words, it's no fun at all. But planners simply must be good at it, because when they sign on that dotted line, they're putting their groups, organizations, and jobs on the line. This is where the rubber meets the road, and the margin for error is zero.

Just recently, hotels have regained the strong hand in many contract negotiations, thanks to increasing overall occupancies and slowed property development. And in many cases, they're using their new power to roll back contracting advances planners have made since 2001 to protect groups from attrition charges and other costly liabilities. So today, careful contracting is more important than ever.

New Standards
In 2005, the buyer's market is history, and hoteliers are setting the tone in many negotiations. They're pushing for contractual terms favorable to them and shorter, more uniform contracts. Planners are mixed on whether the boilerplate agreements are a good idea or not; while organizations that deal in large numbers of meetings find them useful, smaller shops are wary.

Each of the six big hotel companies interviewed for this article have some form of standard meeting contract, which they insist is for their clients' benefit. "Since 80 percent of contractual terms are not deal-specific, we try to come to agreement on those terms," explains Joel Pyser, vice president of field sales at Marriott International in Bethesda, MD. The standard terms expedite the booking process and lower sales expenses for the chains.

And the hotels have other reasons for standardizing agreements. "They'd rather have the head of corporate sales defining contractual terms, as opposed to junior salespeople," explains Phoenix-based attorney Lisa Sommer Devlin. "The idea is, if you have a senior exec making these decisions, the contracts will be legally sound." Chains also tweak contractual terms for competitive advantage. "Hilton does not want to use the same contract as Marriott or Starwood, because one of the ways that hotels compete is to offer contract specifics that are more attractive to planners."

But planners decry the uneven quality of the chain's compacts. "The hotels' standard contracts are really all over the place," says Tyra Hilliard, an assistant professor of tourism administration at George Washington University in Washington D.C. "Some are so bad that I'm shocked that hotels have the gall to send them to planners."

"The problem that I have with most standardized contracts is that they are one-sided," says Paul Aleskovsky, director of education and new media at the Sporting Goods Manufacturers Association in North Palm Beach, FL. "There's only half of a contract there." Bonnie Wallsh, CMP, an independent planner based in Charlotte, NC, puts it this way: "They're all to the hotels' advantage."

So, to shore up the shortcomings of the hotels' boilerplates, many planners insist on additions. "We'll walk away from properties if we can't negotiate contractual terms we're comfortable with," says Lynne Tiras, CMP, president of International Meeting Managers in Houston, TX. "If the contract's too short, that means you left out too many details." But in the seller's market, addendums are becoming a harder sell.

Good Deals for Big Fish
Meanwhile, large meeting buyers, or "members of the million-dollar-plus club," as one hotel exec put it, have found that standardized contracts can work well for them. They have the buying power that brings more favorable terms, and for these big players, standard agreements reduce errors and speed the booking and planning process. "We're living proof that there can be standardized contracting in our industry," says Dave Lutz, president of Conferon in Twinsburg, OH. His organization oversees some 3,000 hotel contracts per year. "They allow people to focus on business terms instead of language, so they expedite deals while maintaining a high level of quality."

And more big organizations are coming to hotels with contracts of their own. "Corporations and larger associations that do multiple meetings often have their own standard contracts, with parameters that have been blessed by their procurement departments," says Anne Hamilton-Chehab, vice president of resort sales and services at Disney Hotels and Resorts in Orlando, FL. Contracts from private companies tend to be shorter than those used by public companies, says Hamilton-Chehab, because public companies tend to have more aggressive legal departments and greater bureaucracy.

Indeed, corporate America is infatuated with standard contracts, say the hoteliers. "Demand for umbrella agreements has really bumped up," says Larry Luteran, vice president of industry relations for Hilton Hotels in Beverly Hills, CA. Hilton is working to accommodate the growing segment of clients that bring their own contracts to the table, he adds.

Charlotte St. Martin, executive vice president of marketing for Loews Hotels in New York City, says the contracts that planners write are of increasingly high quality. "It's clear that planners are going to industry educational events and learning what to include, because a lot of their contracts are beginning to look alike."

Killer Clauses
But while shorter standard agreements are favorites of hoteliers and big meetings buyers, all planners should examine contractual terms carefully. And in today's market, there are four key clauses to craft carefully: Cancellation, attrition, indemnification, and privacy.

Atlanta-based attorney John Foster has just finished settling what may be the biggest SARS-related cancellation conflict in the industry. Two days before the Philadelphia-based American Academy for Cancer Research was scheduled to begin its 2003 annual meeting in Toronto, Canada, the group cancelled its convention, deeming the SARS risk in the then-affected city too high for its physician membership. Nineteen hotels affected by the decision initially sought six million dollars (Canadian) in damages. Foster says the whole mess could've been avoided had the association included a comprehensive cancellation clause in its contract that protected it in case of an "act of God" like an epidemic.

The lesson for planners is to write inclusive cancellation clauses that cover acts of God, including attacks, natural disasters, and epidemics; as well as force majeure situations, like wars and terrorist acts. Otherwise, the group is left unprotected. Warns Foster: "The planner's relationship with the hotel salesperson only matters until there is a dispute. Then it becomes a matter of what's on the page and how much they can get you to pay."

Meanwhile, attrition remains a contractual hot spot, despite many planners' efforts to manage housing more effectively. Hoteliers have continually come up with different means to protect themselves in this old conflict, such as charging for attrition on food and beverage purchases and meeting space. Once again, Foster says the key to an effective clause here is inclusiveness. Attrition clauses should define which purchases will be liable for attrition, and they should contain formulas for determining what attrition charges will be. Make sure the hotel is eligible to recoup lost profit, not all lost revenue.

Indemnification is another contractual issue that could potentially cost planners a lot of money. The key here is to make sure the hotel is responsible for negligent acts that could disrupt the meeting or cause personal injury or property damage. And both planners and venues must have adequate insurance from rated insurers. For corporate groups, a rider can sometimes be added to the company's general insurance policy, so that additional cost is minimized. In any case, $5 million in coverage should be suitable for issues like general liability, liquor liability, auto liability, and workers' compensation.

And since contracts often reflect changes in the business environment, it shouldn't be a surprise that some of the latest developments in contracting revolve around data privacy and confidentiality. More groups are specifying that none of their competitors be present at the venue at the same time they are, sometimes listing the companies by name. The practice is most common in the pharmaceutical and financial fields, but it's spreading to other markets. Other privacy issues include whether or not planners will have the right to audit guest lists, whether hotels can use attendee information for marketing purposes, and whether the hotel is responsible for destroying confidential information after the meeting is over.


SIDEBAR

Tricks of the Treaty
Debate: Dave Scypinski vs. Bonnie Wallsh

To learn how the seller's market is most affecting hotel contracting, you've got to hear from both sides. Here, Dave Scypinski, senior vice president of industry relations at White Plains, NY-based Starwood Hotels & Resorts and veteran Charlotte, NC, independent planner Bonnie Wallsh, call it like they see it.

Successful Meetings: How does the seller's market in 2005 affect contracting between hotels and planners?

Scypinski: We have the latitude to be more selective. Some planners thought they had the upper hand when the market was soft. They played hotels against each other, and it worked for them. Now, with the seller's market, those planners face a decision. Do they back off or not?

Wallsh: In bad economic times, planners win more concessions in contracts. But when times get better, the hotels won't do business with those planners who were too aggressive. It goes both ways. Right now, it's good for suppliers. But the market is going to turn, and they'll need our business. The planners are going to remember who really took advantage of them.

SM: Does this mean that hotels currently have the upper hand in contracting?

Scypinski: We're trying to move back into the position we were in before 2000, when we were contracting in a way that we thought was fair. We want to change some of the language that's made it into our previous contracts. What we don't want to do, though, is alienate our clients.

Wallsh: The hotels are definitely doing well. In top markets and peak seasons, you have to sell your meeting to the hotel.

SM: How are hoteliers and planners working through these changes together?

Scypinski: You can't do business with everyone equally. I spend most of my time with the big users who are capable of moving market share. For these clients, contracting has become very strategic.

Wallsh: Integrity is very important. You have to be direct and honest. You can't play one property against another. If you're straight with suppliers, you'll develop relationships that are far more valuable than concessions in any one contract.