Everyone who's been to a meetings industry conference likely has heard John Foster, Esq., of Foster, Jensen, & Gulley, LLC, talk about contracts. I know I have, many times. And yet I always learn something new. That was the case yesterday when I heard Foster speak at the Passkey Housing Forum yesterday in Boston.
Some key points from his session:
• "Hotels today don't hesitate to sue their clients," he said. They're also trying to shift as much of the risk as they can to meeting planners which, he said, "I don't think is unreasonable as long as they do it the right way."
• John's Golden Rule:
If you ask for something before a contract exists, it's called negotiating. If you ask for something after a contract exists, it's called begging.
• Use a three-step process for your contract. The first time, look the contract over for clauses that are vague, one-sided, or overly burdensome. The second time, look for what's missing that needs to be added. Citing the case of the International Women's Bowling Congress v. Hyatt, where the lack of an attrition cause led to a lawsuit, he said, "If the bowling group had just one more sentence, they could have avoided two years of litigation."
The third step is to revise, provide addenda, or rewrite the contract to include all the new terms and conditions. "Give the other side what they're asking for, but change the terms—that's the secret of compromising," he said.
• "Penalties are meaningless in civil litigation, with "penalty" being defined as something that allows the injured party to benefit more than they would have if the contract were performed. Contracts should always talk about damages, not penalties.
• Damages equal lost profits, not total lost revenues. In hotels, the average is 75-85 percent profit margins on guest rooms; 25-35 percent on catered food; and 80-85 percent on alcohol beverage functions. I loved how Foster said to respond to a hotelier who insisted on getting 100 percent of revenue for guest rooms: "Are you crazy?" He added that they should ask why you should pay for expenses they don't incur.
Sales bonuses are based on total revenue, he said, not profit, which is why salespeople tend to think this way. "It's not your obligation to help them meet their revenue goals," he said. If they won't budge, ask to speak with someone who is authorized to make those changes, because this really isn't up for dispute.
• Hotels like to have groups guarantee they'll spend a minimum amount of revenue for guest rooms in their attrition clauses. Foster says, don't let them do this. This shifts all the risk to planners. For example, what if you booked the meeting in 1999 for a 2002 meeting? The economy completely changed, so your negotiated $200 group rate won't look so hot when the rack rate is now $150. If your contract was written to guarantee revenue, you're basically out of luck if you can't make the minimum. "It's not your responsibility to manage a hotel's room rates," he said. "Why should it be the hotel's responsibility to manage the planner's revenues?"
A better way is to base your formula on guaranteed room nights, he said. Also, include an audit provision so you can check for rooms that should be credited to you.
There was a whole lot more, but my fingers are getting tired. Go see him speak at the next conference you go to, if you haven't already.