Contracts should be viewed as a way to firm up your relationship with a supplier.
The hotel business is completely cyclical. It's a big roller-coaster. During the down economy, it's a buyers' market. During a strong economy, hotels are in a stronger position.
There was a time when there were great tax advantages to owning hotels, but those tax laws changed in the late 1980s, and now hotels have to perform just like any other business. Ownership demands performance from hotel management. Most hotels have a “yield manager,” a staff person who works to determine whether the hotel is taking the proper business, at the proper time, at the proper price. That's new.
With so much at stake, and with so much expertise on the hotel side, you need to keep the following principles in mind:
Enter negotiations the way you would approach buying a car: Don't let the other side know that you absolutely have to have a certain car.
When you go to a hotel to begin negotiations, make sure that you know everything there is to know about your own business. Many planners know the surface information (attendance, how many hotels used, pickup history), but hotels want to know deeper information. Hotels have multiple revenue streams, such as food and beverage, in-room movies, and retail outlets. As a result, they want to know information such as the average amount spent per attendee on food and beverage. Hotels will turn business away if your event doesn't have the food and beverage “spend” that they need.
Don't concentrate on details that aren't important.
You need to share information about your people and your meetings and about what happens during your meetings. Giving the hotel a copy of the agenda might not be enough. But giving precise food-and-beverage info is critical information.
It makes sense to have clauses in your contract that have sliding penalties, based on how much time you give the hotel to sell the space that you've abandoned. Canceling five years out is much different from canceling four months out, and the contract language should reflect that reality.
Never sign a contract that includes the phrase: “The hotel can cancel this contract without cause.” This gives the hotel the power to cancel your meeting. This, obviously, is not a good thing, and this type of language isn't common anymore, but there are instances when hotels try to cancel a contract. It is difficult to write contract language that covers the hotel canceling, because the expenses for changing a meeting location are not easy to define.
Attrition clauses came about in the late 1980s and early 1990s when people were holding room blocks that they could not possibly fill. Hotels were losing money. What they had to do was put in a check against that.
Hotels hate to collect attrition. It is much better for them to have the people inside the building, staying at the hotel.
Here are tips to avoid attrition:
There should be a block review annually with the hotel. It is your duty as a planner to do the review with a hotel. Accurate depictions of business change over time. For example, if you have a meeting in 2005 that shows attendance slippage, then you need to communicate that fact to your future locations.
It's reasonable to have attrition clauses tied to sleeping rooms or meeting rooms, but don't sign a contract that forces you to pay for both sleeping rooms and meeting rooms that were not used. Choose one or the other.
Many planners claim that they know how to block their rooms correctly. But you definitely should use the bell-curve system. The bell-curve system is a method for blocking sleeping rooms that takes the peak attendance at your meeting, and then calculates downward from that peak. For example, say you have a five-day meeting that peaks at 1,000 attendees on the third day. The bell-curve system means that you do not have peak attendance on the other four days. Your history will determine how to calculate what percentage of the peak to expect on the other days.
You have to earn your room block. Hotels won't give you a room block based simply on what you hope will happen.
Mitigation. Include language in cancellation and attrition that requires the hotel to mitigate damages (a duty to sell unused rooms).
This article was adapted from a tutorial given at a past RCMA by Jeff Sacks, vice president, Midwest Region, Conferon Inc.
Here are three important definitions:
European Plan. Contract language that typically means room only.
Full American Plan. Contract language that typically means room plus two meals.
Modified American Plan. Contract language that typically means room plus one meal.
Less Rooms Not Available for Sale. Hotels typically will have a number of rooms every night that are not available, due to mechanical or other problems. It's very rare for 100 percent of rooms to be occupied. Your contracts should have language that takes this into account. Hotels will run “night audit reports” that give that number.