Meetings Law: When Menus Lie

There was a time when you could look at a hotel's conference menu and be reasonably safe in setting your F&B budget accordingly. But these days, relying solely on the hotel's menu prices without reading the fine print in the hotel contract can be a costly mistake.

Service Charge Sham

In addition to the menu prices, hotels have always charged a gratuity for serving food. In some cases, these gratuities were called a "service charge," so when meeting planners saw a "gratuity" or a "service charge" in a hotel contract, they did not think much about it. After all, it is customary to tip food service personnel. But recently, a new and different type of "service charge" has begun to creep into some contracts, especially in cities. A typical clause might read: Service Charge: 22 percent of the food and beverage total, plus applicable state or local tax, will be added as a service charge. This service charge is not a gratuity and is the property of the hotel to cover discretionary costs of the event.

In many cases, there is also a 22 percent mandatory gratuity elsewhere in the contract, and that gratuity may also be subject to tax. Essentially, the menu prices are vastly understated.

The $160 Gallon of Tea

These new services charges can raise F&B costs dramatically. In major U.S. cities, it is not uncommon for the menu price of coffee and tea to be a whopping $100 per gallon. Because of the 22 percent gratuity, your group is also paying $22 every time a waiter carries out one pot of beverage, which, in a bad economy, makes the coffee-serving business look tempting. When you consider that there is often sales tax on both the coffee and the gratuity, the cost can climb to over $130 per gallon.

But apparently for some hotels, $130 per gallon is still not enough because they have decided to tack on another 22 percent as a discretionary "service charge," which is also subject to sales tax. Consequently, you can pay close to $160 per gallon for coffee and tea that was advertised at $100 per gallon.

Back when our economy was booming, hotels and other vendors could get away with tacking on fees. But the hospitality industry is hurting now, and many organizations that once had lavish meetings are watching their budgets closely. So it is the perfect time for groups to negotiate with hotels to waive extra services charges.

During your negotiations, keep two things in mind. First, make sure the hotel does not waive its extra service charge but then earn back an equivalent amount of extra profit by jacking up the price of rooms or other items. And second, if a hotel refuses to waive its additional service charge, you have to be willing to walk away from the deal, regardless of how badly you want your meeting in that facility. If enough organizations "walk away," major hotels will eventually have no choice but to eliminate extra service charges and other lavish fees.

Ben Tesdahl, Esq., is an attorney concentrating on nonprofit, corporate tax and contract law, including meeting and convention law. He is with the law firm of Powers, Pyles, Sutter & Verville, P.C., in Washington, D.C.

Originally published July 1, 2009

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