Alex Murphy (pictured) - Meeting Expectations
Last April, Alex Murphy got the bad news by phone: "We're sorry, but we have to relocate your meeting." The call came from the director of sales and marketing of an Orlando hotel Murphy had worked with a number of times over the years. Now Murphy and colleague Lauren Andrews, who together had led the site-selection process for the client, needed to move the meeting of more than 300 people, just six weeks out.
Murphy, senior director of site selection for Atlanta-based third-party planning firm Meeting Expectations and a 16-year industry veteran, was in shock. "It was very upsetting for us and our client," she says. After doing some digging, she and Andrews found out that the hotel had taken on a larger and more lucrative pharmaceutical event that overlapped with their client's dates.
"Just as groups can cancel on a hotel, a hotel can cancel on a group for whatever reason, even just weeks or days before the meeting, but it would be responsible for any damages related to the breach of contract," says Chicago-based Barbara Dunn, a partner and hospitality attorney at Barnes & Thornburg LLP. In other situations, such as if the contract had a cancellation-by-hotel clause, the property would be responsible for those terms as well, but not much can be done to actually prevent a hotel from canceling.
Meanwhile, Murphy and Andrews had very little time remaining to find a new venue for their meeting, the planning of which had been well under way, from the banquet orders to marketing efforts touting the now canceled hotel. To further complicate matters, a number of exhibitors had already made plans to ship materials to the original property, and many of the attendees had already booked their flights.
The hotel that canceled suggested a competing property with similar dates and space for the group, but Murphy and Andrews ultimately declined assistance. "We wanted to be the driving force when it came to finding a replacement, because we knew best what the group was looking for, and we had their best interests in mind," Murphy says.
Rather than alert their client right away, the planners decided to hold off and seek a solution. "We felt that if we could present a really solid plan to them, we could turn this negative situation into something more positive and keep everyone a little more calm," Andrews says.
Meeting Expectations mobilized its entire 26-person team, which quickly went to work speaking to most of the Orlando area hotels that would fit their group. "We spoke to about 16 to 20 convention properties in 36 hours," says Andrews. "Everybody was hitting the phones and calling in favors. All other projects were on hold."
Within a few days, the team had created a PowerPoint presentation highlighting the top three substitute options, which they then presented to the client.
Ultimately, the group relocated to another Orlando hotel and, with the help of a hospitality attorney, reached an agreement under which the original property would compensate them for any damages incurred for the breach of contract. The money from the settlement was used to bring down the guest-room costs for attendees from $179 to $99 per night, enhance the F&B offerings and purchase park passes to either Disney's Magic Kingdom, EPCOT, or Universal Studios for the attendees and their families.
"The client loved the new hotel and it was a happy ending, but we were very fortunate that there were three hotels with the exact same dates available for our group," says Murphy. "In a smaller city with less availability, it would have been an incredible challenge."
While Murphy's and Andrews' meeting ultimately took place to the client's satisfaction, other planners might not be so fortunate if a hotel suddenly cancels on them. What follows is a closer look at an issue that can cause even the most battle-hardened event professionals some sleepless nights.
How the hotel sees it
If a cancellation occurs, it's important not to vilify the hotel, sources agree. "It's not personal, it's business," says hospitality attorney Barbara Dunn. "We're fortunate to be in an industry that's very relationship-driven, so there's a natural inclination to be upset, but once the dust settles, the clients we've worked with understand the business component."
As a hotelier, maximizing revenue is a top priority, says Michael Kofsky, director of sales and marketing for the Manchester Grand Hyatt in San Diego. "But we try really hard to work proactively with our customers. If the original RFP had multiple dates, we might check to see if those other dates might still work. A lot of times groups first come to the table asking for reductions in F&B or A/V. We may not have given that to them then, but it's something we can offer them now in exchange for their flexibility. We want the group to be able to go back to their board and say, 'We are moving our dates, but this is how it's going to benefit the association.'"
It's all cyclical, Kofsky adds. "Hotels should understand that there's going to be a downturn at some time, and that's when they're going to call those customers and ask for their business. And if we didn't handle it well when times were great for us, it might not end up working out for us in this instance. It's important that we keep working together, no matter who the market favors. That's the spirit of partnership."
Seller's market redux
"In the past, we might have one hotel cancellation case a year, but in 2013 and 2014 we were seeing about one or two a month," says Barbara Dunn, who after 23 years in the business says she's never seen circumstances quite like these.
At the crux of things is an improving economy and rising demand, which have swung the pendulum back to the hospitality side of the planner-hotel equation. PKF Hospitality Research projects that U.S. hotels will achieve 65 percent occupancy in 2015, the highest such rate since hotel-research firm STR Inc. began reporting data in 1987. By year's end, demand will be expected to have increased by 25.8 percent since the recession in 2009, while the supply of hotels rooms will have grown by just 5.6 percent.
"An ever-improving economy and the favorable relationship between supply and demand have led to significant growth in both revenues and profits from 2009 to the current year," said R. Mark Woodworth, president of PKF-HR, in a statement. He added that he expects the trend to continue at least through 2017.
The result is the return of a seller's market. As such, it's more likely that hotels will try to capitalize on more lucrative business at the expense of previously contracted groups.
"Groups are finding themselves in a situation where, when their business was contracted, it was a good piece of business for the hotel, but now a better piece of business comes along, and the hotel has to cancel on the original group in order to maximize revenue for its owners," says Dunn.
Aaron Wolowiec, founder of Grand Rapids, Mich.-based Event Garde, has seen similar issues with a number of the meetings he has planned. "The bottom line is that hotels are no longer happy with having a group or two in-house," he says. "They're happiest when their rooms are close to sold out and their function space is maxed." Thus, there's a chance your contract could be canceled.
What can a planner do?
When it comes to preventing a cancellation from taking place, planners' options are severely limited, says Barbara Dunn. "The only thing that could stop it would be an injunction, which is a very complicated legal action issued by a court," she notes. "But while there's not much planners can do to stop a hotel from canceling, there are certain things we can do to help make sure the meeting is still a success for the group."
Steps to take include having the right wording within the contract that will protect a group. "For future clients, we have updated our contracts to include fairly strict clauses to mitigate damage," says Alex Murphy. "Not all hotels agree to it, but we have to look for ways to protect our clients." (For a sample cancellation clause, see box on the facing page.)
Planners who don't have a hotel-cancellation clause in their contract still have rights. "The law says when there's a breach of contract, the non-breaching party is entitled to direct damages provided in the contract, which include all the costs to move your meeting, including room rate and F&B differences," says Dunn. "The group must notify the hotel in writing of breach of contract and then keep a running tab of the expenses incurred." However, with customized clauses, groups can obtain additional recovery, such as attorney fees, that wouldn't be covered otherwise.
Another potential item to add to a contract would be coverage for indirect or consequential damages. An example of this would be if a sponsor pulls out of the meeting as a result of the location change.
Regardless of whether the contract includes a cancellation clause, the important thing is to move forward, advises Dunn. Planners should work to find a replacement hotel and make sure the meeting is a success. "We can always play 'clean-up' after the fact when it comes to recovering damages," she says.
Meeting Expectations' Lauren Andrews says her biggest tip for navigating a hotel cancellation is to have one main point person leading the process. "It's important to have just one project owner who's always in the loop and knows every detail about what's happening. I was on every call, whether it was with the client, the new hotel or the old hotel. It was important to know what was happening on both sides of the coin."
A Sample Cancellation Clause
The following sample clause was provided by Barbara Dunn, a partner and hospitality attorney at Barnes & Thornburg LLP, who emphasizes that "this should not be considered legal advice. In all cases, groups should consult their legal counsel."
Cancellation by Hotel: In the event of a cancellation of this Agreement by the Hotel not otherwise permitted under this Agreement, the Hotel shall pay Group for all direct, indirect and consequential damages, expenses, attorney's fees and costs incurred by Group on account of such cancellation including, but not limited to, staff time and travel expenses to secure an alternate location for the Event, incremental room rate and air fare differential, function space rental and air fare differences, and long distance telephone, postage and printing costs.
The 'Tetris effect'
At times, it might not be in the hotel's best interest to completely cancel a group, but the property might request a change of dates or try to get some function space or rooms back in order to add additional business. Event Garde's Aaron Wolowiec calls this the "Tetris effect": when a hotel tries to squeeze in as many groups onto the books and leave as few empty rooms as possible.
Even if a group has more space than they likely will need, Wolowiec says it's important for planners to think strategically. "The client's first reaction is to say, 'Sure, let's give the space back and be as amenable as possible,' and they don't stand up for themselves. But before we commit to anything, we need to be carefully review what we need and don't need. Once we have that, we can come up with a game plan."
Wolowiec should know. He currently has a large national conference for an outdoor recreational group on the books for this coming November. The contract had been signed last November, and in January the hotel suddenly asked to have some function space back in order to accommodate another group.
At press time, Wolowiec was working with the client to determine exactly what space the group will need for those dates, and he intends to give the hotel an answer this month. "We're allowing our process to run its course," says Wolowiec. "Our space is secured via a contract with a cancellation clause, so I'm in the driver's seat."
Once he knows how many square feet he can relinquish, Wolowiec will offer it in return for some kind of compensation from the hotel. "Maybe it's a discount on A/V or F&B or some other concession that feels equivalent to the space we're giving back," he says.
"It's important not to be adversarial," Wolowiec adds, "but I think planners need to stick up for themselves and know the value of that function space. In return, the hotel gets to book a larger contract that they might not have otherwise."