Lisa_Sommer_Devlin_web_July_2017_cover_story

Contracts 101: Ignorance Is No Excuse

The problem with a standard addendum and other meeting contract advice from lawyer Lisa Sommer Devlin.

I have a whole file folder of bad contracts that people didn’t properly negotiate, but a couple of things stand out.  One time, a hotel sent a negotiated contract out for signature and the customer called and asked to add more rooms on one night of the room block. The hotel agreed. The customer wrote in the additional rooms and initialed it, and when the hotel sales person got it back, she only looked at the change and the signature and signed off on it.  

What the sales person did not know was that the customer had actually used a rubber stamp on a different page that said if the event was cancelled, the hotel had to apply 100 percent of any cancellation damages paid to the master account of a future event. The customer had never mentioned this change, and the sales person didn’t look at the whole contract. If you sign a contract without reading it or understanding it, you are not excused from it. A judge isn’t going to protect you from being stupid, so in this case the hotel was bound by the change even though it would never have knowingly agreed to it.

Another hotel in a large city signed a contract for a piece of business about five years out. Then, about three years out, the association cancelled. The hotel called and asked me to collect cancellation damages on this multimillion dollar piece of business. The hotel didn’t realize that it had accepted a cancellation clause that said the group would not owe anything if it cancelled before one year in advance. They got nothing after holding that inventory for two years. It wasn’t that they knew there was a risk and were willing to take it; they just didn’t pay attention to the clause the customer submitted. Again, if you sign a contract without reading it or understanding it, you are not excused from it.

The biggest problem in negotiating that I see regularly is customers who try to attach a “standard addendum” to the hotel contract. It’s lazy contracting, and it creates more issues than it solves because the parties haven’t really negotiated the deal. They’ve just stuck two documents together. Typically, the customer sends a request for proposal, negotiates the terms, and then, after the hotel sends out its contract, the customer returns it with their own “mandatory” addendum attached. First, it is never a good idea to insist on a “one size fits all” standard document, as it may not be appropriate for a particular event. Second, it is a misunderstanding of the purpose of an addendum. An addendum clarifies terms that have already been agreed upon. It doesn’t change them. For example, in a contract to buy 100 bicycles, an addendum would be used to clarify that 20 will be red, 50 blue, and 30 green. The addenda I see in the meetings industry are complete contracts all by themselves. If the customer is going to insist on particular contract terms that change the financial risks for each party, that is something that should be part of the negotiation process from the beginning. A hotel might not be willing to offer the same rates or concessions if it has to accept the customer’s attrition clause if it provides little or no guarantee of performance. When you try to marry two opposite contracts, it can lead to confusion between the two documents and you end up with a legal dispute that costs both parties money.

LESSONS LEARNED

• Read every page of the contract before you sign it.

• Negotiate one complete document. Don’t try to marry two
divergent ones.

More cautionary tales to keep you out of the Negotiation Hall of Shame.

 

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