May 2002 PLANNER'S PORTFOLIO:
The Law & the Planner
By Jonathan T. Howe, Esq.
SHOULD YOU CANCEL OR FALL SHORT?
If numbers are weak, carefully evaluate the cost of cancellation vs. attrition charges
When a planner has contracted for a block of 1,000 rooms and only 600 people are booked, there's a choice to be made: Hold the meeting and pay a stiff attrition fee, or cancel and pay a price.
Meeting contracts invariably include both attrition and cancellation clauses as security blankets. Attrition compensates the hotel should the meeting's room pickup fall short. Cancellation clauses pay either the hotel or the meeting host for lost business if one of the parties has to pull out of the deal entirely.
MAKING THE CHOICE
Many would think cancellation would result in a stiffer financial bite to the planner, but that is not always the case. In some situations, canceling the meeting is the more cost-effective way to go. This underlines the need for meetings professionals to review closely attrition and cancellation clauses before making such an important decision. The route you choose can mean a savings of thousands of dollars.
THE CLAUSES TALK
It is important for cancellation and attrition clauses to mesh, and they should not provide an unfair opportunity to either side. The contract should require the property to mitigate any losses it sustains, so your organization gets proper credit against any charges you are asked to pay.
For instance, both attrition and cancellation sections should have a resell clause, requiring that the hotel give your group credit for rooms it is able to fill with new business. If this isn't promised in writing, the hotel is under no obligation to do so.
In negotiating contracts, it is increasingly important to discuss adding provisions that will benefit both parties should a situation arise that reduces the number of attendees and the organization's ability to go forward.
In such a case, the planner and the hotel should discuss making adjustments to the room block, comp room opportunities and the like. Hoteliers don't want you to cancel, and they should be willing to help rearrange the terms. After all, they know it's better to have a head in the bed than an empty room.
My firm once represented a hotel concerning a contract that allowed the planner to cancel a year out without liability. One year and one day before the show, the planner canceled, leaving our client with a big booking hole.
Several days later, the planner called back and said, "If you drop your rates by X dollars and give me some personal perks, I'll rebook." I told the outraged director of sales: "Don't even consider it." Of course, some hoteliers have been known to play dirty, too. Just after Sept. 11, one organization decided to go forward with its meeting, and the hotel tried to take advantage. The meeting was to be held in a property whose parent company was allowing groups to cancel without liability through Oct. 31.
The program went on, but with a substantially reduced number of attendees. The property held the organization to the contract's attrition clause, asking for a six-figure amount. Had the event been canceled, there would have been no charge. Under some pressure, the hotel backed down to avoid a public relations disaster.
In cases like this, the parties should consider both the legal right and the right thing to do. Communication is key. Contracts need to provide several review opportunities for both parties to circumvent cancellation or attrition problems before they arise.
These situations also show that, while there is the need for comprehensive contract negotiation, the agreement covers only legal issues; relationship issues are up to the people involved.Jonathan T. Howe, Esq., is a senior partner in the Chicago and Washington, D.C., law firm of Howe & Hutton, Ltd., which specializes in meetings, travel and hospitality law. Legal questions can be e-mailed to him email@example.com.
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