With the U.S. lodging industry in the midst of one of the deepest recessions in its history, and the number of meetings declining dramatically, it's not surprising that many meeting managers are taking a sharp look at their existingto see if there is any room for flexibility.
To get the hotel sales department to renegotiate, a planner must generally be willing to offer something in return. Because a business deal did not work out the way one of the parties had expected is not sufficient reason for a hotel to want to rework the.
After all, as one veteran hotel executive said back when times were good, “It's not about partnership; it's about who has more leverage.”
It's a Two-Way Street
What can a planner do in return for renegotiating an existing contract? Offering up an additional meeting at the hotel is often an attractive offer to a hotel, but planners need to be aware that some industry insiders are hopeful that the financial tide will start to turn in late 2009. If the planner is looking for an attractive deal (rate-wise) far into the future, the low prices may not be there.
The lodging industry is trying hard to keep any rate-cutting to the short term (i.e., through the end of the year). By trying to maintain rate integrity for longer-term meetings, hotels are putting to use some of the lessons learned after the 9/11 disaster, when rates were cut for future business and the hotel industry needed about five years to climb out of its economic pit.
Planners should keep in mind that asking for 100 percent of anor cancellation fee applied to a meeting to be held three years in the future may be a good starting point, but is not a realistic outcome. A more likely result would be to negotiate a percentage of attrition/cancellation fees (the amount is negotiable) applied to a future meeting to be held in a period of time to be mutually agreed upon.
When looking at a contract to determine the cost of attrition or cancellation, it's important that the contract state the fees in dollars and cents. Stating that cancellation, for example, is set at 60 percent of “anticipated gross revenue” is not only imprecise, but such wording sets up more confrontation over how much may be actually owed. On the planner side, it's a good idea to include a provision allowing for the rebooking of future business as an alternative to paying attrition or cancellation fees.
More hotels are starting to use anticipated minimum revenue as a target, but again, that target should be specified in dollar terms. Saying that “minimum revenue is computed by multiplying the number of sleeping rooms by the group's average rate” is, again, a staging ground for more battles.
And while attrition for sleeping-room shortfalls and food-and-beverage shortfalls might be appropriate, most planners question why they should pay meeting room rental on top of sleeping-room attrition if they would have gotten the meeting space on a complimentary basis if the required number of rooms had been filled.
Some hotels also try to add conditions for concessions (e.g., a one-per-50 comp room allowance) on achieving a specified room pickup. As with meeting room rental charges, many hotel salespeople are at a loss to explain why concessions should be withdrawn when the hotel is getting its requested sleeping room minimum, either through “heads in beds” or an attrition fee.
Since renegotiation of existing contracts is not a foregone conclusion, here's the best advice: Discuss alternative exit strategies while you're negotiating your contract rather than waiting until you're faced with potential financial losses.
James M. Goldberg is a principal in the Washington, D.C., law firm of Goldberg & Associates PLLC. His practice focuses on representing associations, corporations, and independent meeting planners. He is the author of The Meeting Planner's Legal Handbook.