A new kind of contract is shooting holes in the way business is being done between meeting planners and hotels. “Bulletproof contracts,” tightly written, highly definitive contracts, are heavily weighted toward hotels and are growing increasingly common. At least one lawyer is using them for his hotel company clients, including Adam's Mark and Destination Hotels & Resorts.
One of the most common elements of these new contracts is a highly restrictive, one-sided attrition/performance clause that demands the planner or group submit a final adjusted number of guaranteed room bookings 60 days before the event.
“Not 30 days like it used to be, and without crediting the group for rooms unfilled that the hotel may resell,” says John S. Foster, a lawyer with Foster, Jensen & Gulley, Atlanta. “The planner takes on all the risk instead of it being shared. This is an issue not just of words on a page, but of risk being shifted from the hotel to the planner and the group.”
Jed Mandel, a partner in the Chicago-based firm of Neal, Gerber & Eisenberg and RCM's legal columnist, has seen tougher demands regarding compensating hotels for lost revenue. “However, paying hotels for lost revenue may result in the hotel being overcompensated,” he warns. A better solution, he says, is to look at lost profits.
Here to Stay?
Although hotels have grown more lenient with customers since September 11 and the weakened economy has temporarily created a buyer's market, some insiders say that bulletproof contracts are here to stay — and that could mean a new way of doing business between hotels and meeting planners.
These contracts can wipe out good will between a planner and a hotel. Meeting planners want to be able to negotiate something at the end of an event if the service is bad, for instance.
Foster says, “I don't think these contracts do anybody any good. Planners don't want hotels telling them, ‘Here's the contract, take it or leave it,’ with no room for negotiating.” He has seen meeting planners who have received these contracts and, when the hotel wouldn't change the terms, have taken their business elsewhere.
Steve Rudner, a Dallas lawyer who represents thousands of hotels and several hotel companies, is known for bulletproof contracts. He says their specific language makes it easier to solve disagreements. “If you look at a contract from 15 years ago, you had attrition clauses you could drive a truck through.
“Vague language leads to bitter battles that can become costly because you have to bring in more attorneys, accountants, and consultants. My experience is that when you're working under a clear, concise, easy-to-understand contract and a dispute is involved, it's far more likely you'll come out of it with a more stable business relationship.”
Not according to David Brudney, a hotel consultant who heads David Brudney & Associates, Rancho Palos Verdes, Calif. “While the old contracts often were vague, hotels are now overcompensating. Lately, I think they've gone too far.”
