“This Agreement is based on the Group's commitment to spend not less than $100,000 (excluding applicable taxes and gratuities) in catered Group food and beverage functions at the Hotel over Event dates. Should the Group spend less than $100,000, the Group shall pay to the Hotel the difference between the amount the Group spent on food and beverage functions at the Hotel and $100,000.”
Although a clause like this might be labeled “Food and Beverage Performance” or “Food and Beverage Minimum Guarantee,” it is simply an attrition clause. The Group should take note that the $100,000 figure does not include the amount spent on taxes and gratuities. Because taxes and gratuities often add up to 25 percent or more to the amount spent on food and beverage, the Group's “catered food and beverage” meeting budget line item must be $125,000 or more to meet this contract requirement.
A glaring problem with this clause is that it requires the Group to pay 100 percent of the difference between the amount spent on food and beverage and the $100,000 minimum guaranteed. As long as the Group informs the Hotel well ahead of time that it will not need the full amount of food and beverages (so that the Hotel does not have to incur the expenses to purchase the food, schedule the servers, etc.), the Group should be required to pay only the Hotel's lost profit on the difference and not the Hotel's full lost revenue.
The industry profit margin on catered food and beverage is 30 percent to 35 percent at most hotels, so the last line might be edited to read “Group shall pay to the Hotel 35 percent of the difference between the amount the Group spent on food and beverage functions at the Hotel and $100,000.” Before signing the contract, the Group may also negotiate an allowable amount of slippage. With 20 percent allowable slippage, for example, the Group effectively becomes responsible for only $80,000 of catered food and beverage (still exclusive of taxes and gratuities).
Tyra W. Hilliard, Esq., CMP (tyra@mindspring.com) is a meeting industry attorney and Assistant Professor of Event and Meeting Management at The George Washington University in Washington, D.C.