A War of Words

David Scypinski, senior vice president
of industry relations at
Starwood Hotels & Resorts,
says negotiating a corporate
meetings contract can take up to a year.

Five months. That’s how long it took to negotiate a meetings contract template between Jack Eichhorn, the Rocklin, Calif.-based director of global meeting services at tech giant Oracle, and David Scypinski, the Washington, D.C.-based senior vice president of industry relations for Starwood Hotels & Resorts Worldwide.

And that’s just the most recent round of talks. When Eichhorn joined Oracle in 2005, the company already had attempted to negotiate such a deal, without success. Last September, as part of an effort to consolidate meetings spend, he resurrected the discussion. In their crammed schedules, he and Scypinski found time for half-day conference calls, during which they, and sometimes their bosses and procurement officers, hashed out agreeable terms, while lawyers on both sides scribbled the appropriate language and voiced objections.

Talks dragged on and on. Oracle wanted more safeguards over the privacy of company and attendee data; Starwood couldn’t make all those guarantees. Oracle wanted to limit its liability in the cancellation clause, as did Starwood. Draft by draft, clause by clause, the two companies hammered out an agreement.

At the end of February, they had produced the document, a few pages of legal gold. Scypinski, who has negotiated about 30 of these overarching contracts -- and who says Oracle’s went more quickly than many others -- can’t be sure that the contract was a success until he sees that Starwood hotels want to accept Oracle’s business under those terms. Eichhorn feels the agreement will be a great time-saver for future Oracle meetings.

“One of the reasons we are focused on these global agreements is because of the time commitment involved in contract negotiations,” says Eichhorn. “Our goal is to streamline and simplify it, so that we are not starting at ground zero whenever entering a group agreement with Starwood.”

STANDARDIZING CONTRACTS

Mary Power

The final segment of the Washington, D.C.-based Convention Industry Council’s Accepted Practices Exchange (APEX) initiative was an effort to standardize contract language across hotels and other meeting venues. It would become the greatest challenge the APEX Commission had yet faced.

After deliberating, the commission realized that even creating sample contract language would be impossible. Meetings have too much at stake for a one-size-fits-all approach. Contract wording differs depending on the size of the meeting, the requirements of the planner and the hotel company, local and state laws, and many other factors.

“The problem is, every contract is different,” says Mary Power, CAE, president and CEO of the CIC. “There’d be so many disclaimers that by the time you were done, it would be more confusing.”

The contracts document was delayed a year for further deliberations. “As we got into it, we realized people don’t know what the clauses were supposed to do,” says Power. “How can you negotiate a clause if you don’t know what it’s trying to accomplish?”

The 25-page document that the CIC released last December is a primer on hotel and convention center contracts. (Visit www.conventionindustry.org to download it for free.) It defines 52 legal terms common to the meeting industry and explains 24 contract clauses meeting planners might see. Then the document offers a suggested order of the clauses in the contract.

“We’re not saying you have to have all these clauses,” says Power. “We’re saying if you have them, they should be in this order, so it’s easier for a planner to compare contracts.” -- J.V.

A history of contracts

Five months to negotiate a contract, and that’s considered a time-saver? It’s an indicator of the execrable state of hotel contracts, if not the American legal system as a whole. Over the years, meeting contract negotiations, which once were laughably informal, have become a deepening black hole.

“If there was a museum of hotel contracting, you would find -- believe it or not, in files -- cocktail napkins,” says Scypinski. “That was the contract! Nobody sued anybody. We’ve gone from that kind of Cro-Magnon period to this overly litigious era, where everything has to be microscoped by legal.”

The Gulf War, he notes, was the turning point. When the United States entered the war, groups started canceling, and overnight, the industry lost billions of dollars. “All of a sudden, contracts got very complicated,” says Scypinski.

That year, he was given a new job at Hilton, where he was working at the time, to oversee contracts and protect the company from succumbing to another international crisis.

It’s not just hotel contracts that have gotten messier. Sometimes a nonhotel venue brings in an outrageous contract. Donna Valentine, CMP, president of Excel Meetings & Events, based in San Francisco, was working with an off-site venue for one dinner during an annual meeting she was planning. The venue sent her a contract with the usual clauses, plus seven that didn’t make any sense for a one-night event, including some that didn’t make sense to her, period. For the dinner, the contract included “representations/warranties,” “assignment,” “partial invalidity,” “no waiver” and “cumulative remedies.” Valentine had to hand it over to an attorney to dissect.

“I asked them, ‘Why on earth do you have all these terms?’ The event manager couldn’t answer.” She later learned that the parent company of the venue had been burned by a last-minute cancellation and overreacted by inflating the contract into an indecipherable mess.

“It’s really representative of what’s been going on in the industry,” Valentine says. “A situation comes up, and somebody overreacts and writes something into the contract so it’s never going to happen again.”

This is a disturbing trend in an industry that usually works toward streamlining processes. On the other hand, the major hotel companies are working to bring back a little simplicity. Marriott, Starwood and other hotel companies are trying to standardize the long stretches of legalese in contracts, so that negotiation can be more about room rates and upgrades, and less about wording that requires a law degree to understand.

“We’ve invested a lot of resources, both from an intelligence and from a financial standpoint, to get out in front of this thing,” says Michael Murphy, senior vice president of sales for Marriott International, based in Washington, D.C.

Success, however, is a long way off. (For more on the effort to simplify the negotiating process, see “Standardizing Contracts,” right.)

Exacerbating the problem is that decision power on contracts, in many cases, has left the realm of meeting planners and hotel salespeople and passed into any number of hands.

“The meeting planner goes out and does the basic legwork,” says Jonathan T. Howe, senior partner in the Chicago-based law firm Howe & Hutton Ltd., “but the final negotiation is being transferred down to procurement to squeeze the last nickel out of the seller. The seller does the same thing as the meeting planner but has to refer it to the revenue manager. Then you’ve got the owners, who are still looking for maximization of revenues. And a lot of contracts are being negotiated through e-mail, so the personal factor is not there.”

Anne Hamilton, vice president of resort sales and services for the Walt Disney World Resort in Lake Buena Vista, Fla., has seen a great deal of caution along these lines. “Where a contract previously might have been signed by the sales manager and the meeting planner,” she observes, “today, it’s not unusual for the client to secure approvals and signatures from his or her boss, from procurement, from legal and others.”

When those parties cannot agree on language, contracts are then fought over by legal teams, often leading to lengthy battles over wording. (Marriott has attempted to reverse this trend; see “Marriott’s Solution.”)

The dreaded addendum

As if the hotel industry’s actions weren’t enough, the situation has been complicated even further. In an effort to standardize how meetings are purchased, the procurement and legal departments at large corporations have come up with their own contracts to be used when booking meetings. Meeting planners, hotel salespeople and a bevy of attorneys are left to reconcile the two.

Anne Hamilton of Disney says a “significant majority” of corporate clients arrive with their own contract language. “The process of marrying all the legal language can sometimes take a while,” she says.

“If you go and rent an apartment, you don’t say, ‘I’ve got my own lease that I’d like you to sign,’?” gripes Marriott’s Murphy. “It’s kind of a unique expectation in our industry that our hotels should be accepting customers’ forms.”

But for meeting planners of large corporations, the addendum can be a fantastic solution to the negotiation mess. It lets hotels know up front exactly what the corporation needs and, for the most part, saves time on the planner’s end.

Teresa Hibbs, manager of meetings and events at Yum! Brands Inc., the Louisville, Ky.-based company behind KFC, Pizza Hut and other quick-service chains, created an addendum a few years back, with the help of her legal department. It ensures, among other things, that attendees will never be walked, that the meeting won’t be ruined by construction in the next room and that Yum! can cancel without dire consequences. When she receives the hotel contract, she crosses out anything that is covered in her addendum and submits both for signature. Hotels usually are willing to work with her because they know how much business Yum! brings in.

“Our addendum is very inclusive, but it’s very fair and reasonable,” says Hibbs. “We don’t get a lot of push-back on that.”

Hibbs notes that, in her experience, certain Las Vegas hotels and Disney properties, for example, are reluctant to sign addenda, but they will incorporate the terms into their contract. At the Rio All-Suite Hotel & Casino, she had to go back and forth between the hotel and Yum!’s lawyers before an agreement could be reached. After that first year, though, contracting subsequent meetings at that hotel was a breeze.

“We’ve got a great process here,” she says. “Our only problem is, we’ve got a lot of contracts!”

Contentious clauses

Even when using a standard contract, it’s important to examine every word every time, cautions Jonathan Howe. “It’s not your father’s contract,” he says. “We’re seeing some interesting clauses being inserted or, more importantly, some existing clauses that have been modified. What you may have had from Hotel X six months ago may not be the same contract you get from Hotel X today. Even boilerplate is changing.”

Following is a breakdown of what to look for in the most volatile clauses. Fight for those elements that are deal-breakers, Howe advises, and be prepared to accept the rest.

Attrition. In a seller’s market, this clause has become extremely difficult to fight. The key here is to have attrition calculated cumulatively over the entire meeting, rather than day by day. That way, a boost in attendance one night will make up for a drop another night, says Jerry Horan, the San Anselmo, Calif.-based senior vice president of third-party giant ConferenceDirect, and the person in charge of standardizing contracts at the major hotel chains. Horan also notes that some hotels calculate attrition 30 days out, but ConferenceDirect’s contracts require that it be calculated only at the conclusion of the meeting.

Horan explains that hotels have begun to include food and beverage, meeting room and ancillary revenues in attrition damages. It’s often unavoidable in this market; however, ensure that the contract enumerates an exact cost per room if the meeting falls short, to eliminate surprises.

Lastly, Howe suggests adding a stipulation that requires the hotel to share the master list with the meeting planner at the close of the meeting, for the purposes of performing an audit. The hotel might fight this on privacy grounds, but Howe claims the property would have to hand it over anyway if a court required it.

Cancellation. In times past, when a disaster occurred near the site of a meeting, a company often could move it to another property within the same chain. Or, the hotel chain could waive damages for a good customer. Unfortunately, now that the major hotel chains have largely gotten out of the hotel ownership business, they don’t have the power to help the attendee in those ways, says Scypinski.

“Whereas in the past we used to go, ‘Oh well, come back another time, we love you,’ now we have owners,” Scypinski notes. “God help you if you pull business out of one hotel and put it into another hotel.”

Hibbs has a very strong cancellation and attrition clause, which says that any fees resulting from cancellation or attrition will be applied to a future event, as long as it’s rebooked within a year and it takes place within two. “Most hotels agree to it,” she says. “They know we seldom cancel.”

Force majeure. Sept. 11, SARS and labor strikes all have engendered fights over what a “force majeure” really is. “To our way of thinking, it’s the most contentious clause in the contract,” says Scypinski. “The reason is because it’s misunderstood. It’s the assumption that by putting the risk into the force majeure clause, you will be allowed to get out of the contract.”

On the contrary, the planner can cancel with no penalty only if the hotel can’t perform its duties at all; e.g., if the hotel burns to the ground. In other words, SARS, terrorism and strikes do not fall under force majeure, unless the meeting planner puts it into the contract.

“I look at the client and say, ‘What would be a key element that would prevent you from coming?’ ” says Howe. “An economic downturn, consolidations, crossing picket lines, failure of a speaker to show up? If any of that is a key element to the success of the event, and the hotel is not willing to do it, are you going to be prepared to accept the risk of it happening?”

Arbitration/litigation. Some disagreements inevitably will go to court. It’s important that the contract states how disputes will be resolved -- and where. You don’t want court proceedings to take place 1,000 miles from where your company is based.

Cutoffs. As with just about everything else, hotels have been very strict recently on cutoff dates, because with enough time, they can resell unused rooms at a higher rate. Howe notes that the hotel might not guarantee the convention rate after the cutoff date.

Privacy. Attendee privacy is a hot-button issue right now, according to Scypinski. “When you come to the desk and throw down your credit card, we believe that’s our information, and customers believe it’s theirs,” he says. “These clauses have become their own living hell.”

Starwood has gone so far as to create a position of chief privacy officer, specifically to spearhead the protection of guest data.

Confidentiality. The requirement that the hotel protect the corporation’s secrets also has spun out of control, with the implementation of Sarbanes-Oxley creating overkill. “There’s a huge difference between giving us a top-secret formula for Coca-Cola and giving banquet setups,” says Scypinski. “Yet, corporations are still asking that every last piece of information be protected.”

This used to be a big issue only with pharmaceutical companies, fearing that the details of their drugs would leak out during the pre-launch meetings. Now other industries are requiring confidentiality clauses. One part of this clause blocks the hotel from accepting a competitor’s business over the same dates. But Scypinski has seen companies abuse this request. “We’ve had a nonspecific financially related company being in the same hotel as another financially related company. They say, ‘Hey, these are our competitors.’ You’re going to get to a point where you can’t have more than two customers in the hotel; one will have to be in garden implements and the other in rocket science.”

Scypinski asks that planners obtain an official list of their company’s true competitors and attach that list to the contract.

Liability. All the verbiage in the world won’t absolve a guilty party of liability, Scypinski says. Some corporations recently have tried to limit their liability to the cost of the meeting, a term that’s unacceptable to Starwood. Better for both sides to have adequate insurance.

Assignment of space. Valentine finds herself fighting over whether she gets to pick the meeting space for her group. Hotels will want to rearrange groups at the last minute, which could be disastrous for the meeting.

A seller’s market

“In 2001, we were the bug. In 2007, we’re the windshield,” says Starwood’s Scypinski, effectively summarizing the current market. In such a bullish situation, in which hotels in first-tier cities get more business than they can book, the meeting planner often loses the contract debate before it begins. If the hotel is unhappy with the planner’s terms, a meeting planner might find himself unable to extract even the slightest concession.

“In some markets,” says Conference-Direct’s Horan, “hotels have multiple leads for the same dates, and they can pick and choose which customers they want to take based on revenue and the terms of the contract.”

Therefore, while it’s generally true that the more you push, the more you get, the best advice to planners is to figure out what concessions are needed and mention those in the RFP Ñ then let the rest slide.

Lastly, working with hotels often takes reading between the lines. Very rarely will a hotel turn up its nose at a piece of business. Instead, the rejection will come in the form of unreasonable rates or unwillingness to budge on contractual issues. Valentine points out, “If a hotel wants or needs your business, they’re going to be more flexible than if they don’t.”