Attrition

Meetings & Conventions: Attrition - May 1998 Current Issue
May 1998
Attrition

As hotels pile on the penalties, planners fight back

BY DAVID GHITELMAN

Judy Bunasky has been a corporate meeting planner for more than 20 years. In that time, she never had to pay a single hotel attrition fee. But last year Quorum Health Group, the Brentwood, Tenn.-based health-care company where Bunasky is now meeting services manager, was slapped three times with charges for failing to pick up its room block.

Did Bunasky break a two-decade record of filling every room block she's ever booked? Hardly. But in the past, hotels would inform her well in advance if her group was failing to fill its block - and penalties were never enforced. Now, attrition charges are showing up on her master account with no warning.

"There used to be a discussion during the pre-con meeting," she says. "We might offer to book another meeting at the property. This isn't happening anymore."

Last year's attrition fees, all for meetings of 50 to 75 attendees, ranged from a $2,500 charge the company paid to an amount "close to $5,000" Bunasky was ultimately able to erase with a promise of future business.

The crackdown has made it increasingly difficult for many planners to book meetings with confidence. Bunasky's office, for instance, plans approximately 300 meetings a year for Quorum. Many are non-mandatory educational seminars, putting Bunasky in much the same predicament as association planners, who must make educated guesses about how many attendees an event will draw. In the ever-volatile corporate arena, the typical group may even have trouble accurately anticipating group size six months in advance.

Not Too Hospitable
Many planners complain attrition clauses are a sign the hospitality industry is losing sight of the need to be hospitable. "I sense tension where there wasn't tension before," says Karen Durkee, CMP, president of Durkee & Associates, an Atlanta-based independent meeting planning firm with a largely corporate clientele. "It's almost as if you're buying a used car."

Not long ago, the greatest problem a group faced when a gathering went under-attended was embarrassment. Now, embarrassment can be the least of its worries. Over the past decade, most hotels have begun to require that nearly all groups include in their contracts an attrition clause - essentially a promise to pay for unused rooms if the organization fails to fill an agreed-upon percentage of the rooms it has reserved.

When these clauses started to appear in contracts, they were little more than threats. Hotels didn't expect to collect the money, and planners never envisioned they would be required to pay it. Over the past five years, however, hotels have increasingly been enforcing attrition clauses. And during the past two years, they have been extending them to include not only sleeping-room charges but food-and-beverage expenses and meeting-space rentals as well.

Nobody likes them. For meeting planners, "they're kind of scary," says independent planner Durkee. "I understand them from the hotel's point of view, but they're hard to justify to our corporate clients."

And trade show organizers "feel that the hotels are trying to cover their losses at our expense," says Edward Conrad, president and CEO of Atlanta-based SEMCO Productions, which organizes Metrade, a 2,500-exhibitor medical device show.

They've meant headaches (and business) for lawyers. "I think attrition fee provisions are the worst-written part of most contracts," says Barbara Dunn, a Chicago-based associate attorney with the law firm of Howe & Hutton, Ltd.

Even some hoteliers are less than enamored of them. "I think attrition is such an ugly word," says Kristy Sartorius, director of hotel sales at the Wyndham Anatole Hotel in Dallas.

Do you have to take it? Not necessarily - or at least not without first trying to minimize your risk. Many experienced sources say planners need not meekly accept what the hotels offer. While attrition clauses may be inevitable, most hoteliers are more than willing to modify them - or at least talk about modifying them.

Rules That Bend
Although the presence of an attrition clause is "standard operating procedure," says Diana Voto, New York City-based national director of sales for Omni Hotels, the content of the clause "depends on the piece of business."

At Marriott hotels, it's "not mandatory that every single contract have an attrition clause in it," says Susan Hodapp, Washington, D.C.-based brand director for Marriott Hotels, Resorts & Suites. Whether an attrition clause finds its way into a contract, she says, "really depends on the nature of the business and the time of year."

At the heart of the attrition clause is the room block - the number of rooms a hotel agrees to set aside for a group. (And usually attrition clauses are not an issue for meetings with fewer than 50 attendees.) If the group fails to rent a specified amount of this block - generally 80 percent - the hotel will require the organization to pay for the unused rooms.

Sometimes, the percentage is highly negotiable. "I've seen everything from 80 percent to 95 percent," says attorney Dunn. "There is no hard-and-fast rule." Sometimes, it isn't negotiable. At the Wyndham chain, the attrition percentage is a set-in-stone 80 percent.

A CLAUSE IN YOUR FAVOR What does a good attrition clause look like? The Framingham, Mass.-based Society of Independent Show Organizers drafted a model clause (adapted below) for its members. But it might be a bit optimistic, particularly for smaller groups. Think of it as an initial bargaining position, suggests Henry Schaffer, a Chicago-based partner in the law firm of Howe & Hutton, Ltd. "It's essentially a first lob over the net," says Schaffer, who helped SISO write the clause. (And, of course, this sample should not substitute for competent professional advice.)

1. In the event that the Producer's room block pick-up falls short of expectations, the Producer agrees to pay a room rental fee based upon the following sliding scale:

Pick-up 75%-100%: No fee.

Pick-up 50%-74%: Fee is 50% of the guest room rate for each room not sold.

Pick-up less than 50%: Fee is 70% of the guest room rate of rooms not sold.

2. The Hotel has an obligation to mitigate the damages by making a concerted "best" effort to sell all rooms within the block prior to selling rooms outside the Producer's block.

3. All rooms used by persons attending or working at the Event will be counted in the room block. These include, but are not limited to: all cancellations billed ("no shows"); all persons who, for whatever reason, do not receive the Producer's rate (e.g., late reservations, corporate rates, etc.); all persons "walked."

4. There will be no attrition fee whatsoever if the Hotel is 95% sold out at anytime during the Meeting Dates.

5. If the Producer exceeds the Block, 50% of the revenue of those excessive block rooms will go to offset all charges to the Master Account and/or other fees and expenses.

D.G.

In contrast, at properties managed by Westin Hotels and Resorts, the percentage varies from city to city. San Francisco's Westin St. Francis works with a standard (but negotiable) 90 percent. At the Westin La Paloma in Tucson, it's 95 percent. The reason for the difference, explains Jill Wien, the St. Francis' national sales manager, is that San Francisco can more easily resell excess rooms to business travelers and tourists than the Tucson resort, which relies primarily on vacationers.

Often, particularly for associations that block rooms years in advance, attrition clauses allow for periodic (typically annual) adjustments to the size of the block, usually accepting reductions of 10 percent or less.

The number of rooms for which a planner must pay attrition also is negotiable. Suppose a group with a room block of 100 is obligated to fill 80 of those rooms, but only sells 75. The hotel will most likely say the group owes attrition on 25 rooms - the size of the room block minus the number of rooms actually used. The planner, however, should push for a contract that says the group is responsible for only five - the number it had to reach to avoid attrition charges, minus the number it actually filled.

Complicating the issue is the growing tendency of hotels to add other factors - such as food and beverage and meeting space - to the attrition clause. Food-and-beverage attrition can involve either (or both) of two scenarios. One holds a group to a number of agreed-upon food functions. For example, if the group schedules two dinners, three lunches and three breakfasts for a meeting and then decides to go off-site for one dinner and cancel a breakfast, it may still have to pay at least some of the cost of the functions not held.

In another form of food-and-beverage attrition, some properties are requiring groups that fail to meet the agreed-upon percentage of their room block to pay at least some of the cost of meals that weren't served to attendees who didn't attend.

And then there's meeting space attrition, often tied to room pick-up. A group that had its meeting rooms comp- ed may be required to pay for this space if it fails to make its room block. This particularly rankles planners. "Let's say you have a room block of 800 but only use 700 rooms," says Chicago-based attorney Jeb Mandel. "The hotel may want to charge you for meeting space, but if you had started off with 700 rooms, what deal would you have gotten? The meeting rooms and function space probably would have been comped.

"You have to be very careful not to be double- or triple-dipped. You don't want to end up paying multiple penalties on the rooms you didn't pick up."

Meeting in the Middle
On the plus side, attrition clauses function as a reality check. The threat of paying for something their organization may not use may help planners move their corporate bosses or association boards - as well as themselves - toward greater accuracy (and modesty) in projecting the size of a meeting.

"Attrition clauses have forced meeting planners to be more professional," says Jacy Hanson, director of meeting services for the Alexandria, Va.-based American Diabetes Association. "They have forced them to understand how important getting an accurate meeting history is."

"They've made our senior people more aware" of the need to view meeting needs realistically, adds Deborah Richardt, CMP, director of meeting services for the New York City-based American Lung Association.

On the negative side, many planners feel that, by adding food functions and meeting space to the attrition equation, hotels have gone beyond wanting to share risk fairly with meeting groups to forcing groups to shoulder all the risk themselves.

There are two reasons hotels have upped the attrition ante, according to Kim Zeitlin, a partner in the Washington, D.C., law firm of Zeitlin & Buonasera. One is the booming economy. "Hotels have been operating at unheard-of occupancy rates," he says, "and there's been practically no development in the full-scale hotel market."

Another factor: The 1986 tax reform, which forced hotel owners to use their properties to earn a profit instead of shelter income. "There's been a shift from an emphasis on hospitality to an emphasis on yield on investment," says Zeitlin. "The owners feel now that they're essentially in the real estate business, and the real estate happens to be a hotel. 'Location, location, location,' has become 'yield, yield, yield.'"

The result, some planners complain, is not just financial threats, but strained relationships. "Over the last year, what's going on between hoteliers and planners has become increasingly adversarial," says Mary Beth Kraus, director of convention programs for the New York City-based Modern Language Association. The money managers, she charges, "are clashing with the culture that had existed within the hospitality industry, with what the hospitality industry is supposed to be."

Others contend the current environment makes for better business. "Attrition clauses have moved people away from signing contracts based on friendship," says the diabetes association's Hanson. "And those of us who understand attrition have gained a new respect from hotel salespeople."

DAMAGE CONTROL: HOW TO LIMIT YOUR LOSSES You may not be able to avoid signing an attrition clause, but you can make the process less painful. Here are some tactics for taking the sting out of attrition.

Get good history. The most reliable predictor of what you will do in the future is how well you did in the past. (See "Post-Convention Reports," page 53.)

Use the national sales office. These salespeople are more likely to know you and the value of your business, and also to care about retaining your group as a long-term customer.

Go for the total. The clause should cover a percentage of total room nights, not the number of rooms you pick up each day. And be sure those who arrive before the meeting or stay on after are included.

Tally up the F&B. Have the hotel consider the total dollar value of your food-and-beverage spending, rather than simply the number of meals served or food functions held. If you do have a shortfall in attendance or have to cancel a function, upgrade the menu and serve filet mignon instead of chicken.

Consider hotel catering. If you cancel an on-site function and take it off site, let the hotel catering department bid for the meal; you probably won't pay attrition if they have a chance at it.

Buy time. Arrange to make the final room block adjustment as close to the meeting as possible, and no more than 11 months out. This way you can look at the numbers from your last annual meeting before you make a final obligation on your next.

Budget for attrition. One day, no matter how cautious you've been, you will be slapped with an attrition charge. Plan on it.

D.G.

Attrition

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