Signature Deals

Meetings & Conventions - Signature Deals - March 2001

March 2001

Tony Pastor

Signature Deals

Well beyond scrutinizing hotel contracts, these planners are designing templates and addenda that put agreements in their own words

By Cheryl-Anne Sturken

When Tony Pastor, CMP, left law for meeting planning, he had no idea how little his job would change. Pastor, who worked as a public defender in Boston’s court system and in private practice, joined New York City-based McKinsey & Co. in 1991. Now, as site and contract specialist for the consulting powerhouse, he is responsible for reviewing and negotiating more than 200 meeting contracts annually, representing hundreds of thousands of dollars in meetings business.

For every hotel contract that crosses his desk, Pastor attaches a standard seven-page addendum he compiled that outlines McKinsey’s meeting needs. The document begins with strict must-haves, such as a promise that the hotel will not book a McKinsey competitor during the firm’s in-house dates and a 24-hour hold on all meeting space. It goes on to present an all-out wish list of minor requests.

“It is not a slam-dunk approach for me,” says Pastor. “But I won’t talk business without the addendum.” While there’s bound to be some give and take, he adds, “No one has ever said to me, ‘We won’t sign your addendum.’”

While a law degree is hardly a prerequisite for meeting planning, it certainly helps. In fact, a number of firms designate contract gurus like Pastor, who have a knack for translating legalese and finessing a deal, to analyze every meeting contract that comes through their offices.

These specialists are not just poring over the language; they’re writing their own contract templates and addenda that spell out, in their own words, exactly what the agreement entails.

And, they’re asking for a lot more than just a commitment to deliver space, dates and rates. Heading up the list of concerns are attrition, walked attendees, renovations, indemnification, competitors and a host of other issues ranging from billing deadlines to phone charges.

First steps
The trick to laying out a contract template or addendum, says Pastor, is understanding one’s meeting needs so thoroughly that the group’s priorities are part of the planner’s demands. All other points become negotiable “wish list” items.

Of course, what works for one group will not necessarily work for another. For example, while room pickup and concessions might be critically important to an association, particularly a nonprofit, a corporate group might be hung up on meeting room security and room amenities. Still, says Pastor, “Think as broadly as possible, because you don’t want to have to go back to the hotel and ask to add a clause after you’ve submitted your contract.”

Don’t even think of compiling demands unless you know your group’s history, stresses Lisa Despres, a purchasing manager for Atlanta-based WorldTravel Meetings & Incentives, who handles contract review for pharmaceutical giant Schering-Plough, based in Kennilworth, N.J. Despres, who pores over more than 200 contracts a year for her client, uses a two-page addendum developed with Schering-Plough’s internal legal counsel.

“It is really important to know your group’s history, or you won’t be able to really protect them,” says Despres. “I use the addendum every time we review a hotel contract. And we will not sign any contract on Schering-Plough’s behalf unless the addendum is attached.”

Attrition action
A top concern of both planners and hoteliers and therefore a key component to any contract template or addendum is attrition. A good attrition clause should have all of the following ingredients.

" Precise wording. Much can hinge on a word, warns meetings lawyer James Goldberg of Washington, D.C.-based Goldberg & Associates, who says the number of planners seeking advice on drafting contract templates and addenda has increased as hotels’ demands have skyrocketed. “Hotels are starting to use words like ‘commitment’ and ‘guarantee’ in their attrition clauses,” says Goldberg. “Planners need to be careful. Ask yourself, ‘Am I really guaranteeing these rooms, or am I just promising my best effort to fill them?’”

" Review dates. Remember, room block is directly tied to attrition. The tighter the room block pickup, the less exposure to attrition. Include specific dates that allow for review and adjustment of the room block, along with a final review date. But be sure the dates are practical.

“Do not ask for the ability to reduce the room block by 50 percent six months out, when you won’t know how many people are coming until three months out, because your brochure or marketing for your meeting only goes out three months before the meeting,” says Pastor. He suggests tying room block review dates to marketing dates, when brochures, e-mails and faxes announcing the event go out. These dates typically draw registrant responses. Says Pastor, “Only after reviewing these dates can you put together an attrition clause that makes sense for both parties.”

Peggy Pryor, CMP, director of meetings and conventions for the Tulsa, Okla.-based Sweet Adelines International, a choral singing group, insists on three review dates three years, 18 months and nine months out for her citywide annuals that are booked five years in advance.

“The review dates allow me to respond to changing attendance patterns based on the last three post-convention reports,” says Pryor. “If attendance is waning, I can adjust the block with zero penalty.” SAI’s contract template, which was created in 1998, is 20 pages long.

" Margin of error. Deciding what percentage of room block attrition to settle on means first determining what you can live with and then being prepared to negotiate. “If you can’t live with the 10 percent the hotel asks for, you must negotiate for something better,” says John Foster, a meetings industry lawyer with Atlanta-based Foster, Jensen & Gulley LLC.

Keep in mind, though, that what a hotel asks for is usually reflective of its local market. The margin of error hotels will allow in cities like San Francisco, New York and Las Vegas will be relatively small during peak times.

After studying 10 years of Pi Sigma Epsilon’s meeting history, Angelle Bujol, director of meetings for the Milwaukee-based fraternity of sales and marketing professionals, determined the group consistently met 85 percent of its room block. She decided to play it smart and build in a buffer of protection. “My clause says we will meet 80 percent,” she says. In other words, the contact allows a 20 percent margin of error. “Hotels have been agreeable to it,” adds Bujol.

" The formula. Spell out how attrition should be calculated, advises Sherry DeLaGarza, meetings and conventions manager for the Dallas-based International Nortel Networks Meridian Users Group. DeLaGarza helped develop INNMUG’s two contract templates (one for headquarters hotels and one for secondary hotels), which the group rolled out in 1999. She goes for 20 percent attrition.

“We say the 80 percent room pickup we agree to is to be calculated on total meeting performance, not a per-night performance,” adds DeLaGarza. “It seems to be working.”

DeLaGarza recently devised specific wording to protect INNMUG after a vaguely worded clause left the association holding the bag on attrition liability. “There was a lot of room for interpretation,” she says. “Not in this one. Now everything is spelled out.”

Foster recommends planners include an in-depth formula asking the hotel to separate total room inventory into sold rooms (including rooms under repair, those being billed to other in-house groups for no-shows, complimentary rooms and rooms held for preferred customers) and unsold rooms. The group should be responsible for either the number of unsold rooms in the hotel, at a specified rate, or the number of unsold rooms in their block, whichever is less.

" Tax trap. Many hotels ask planners to pay taxes on attrition or cancellation fees. “Call the state’s comptroller or your own chief financial officer to figure out whether attrition is legally taxable in the hotel’s locale,” says Pastor. “Don’t pay such taxes unless they are required by local law.”

Damage done
With cancellation clauses, the planner has to make a choice between “actual damages” and “liquidated damages.” The decision depends on the level of risk the group is willing to take, says Pastor.

“Don’t offer up any clause until you know where the hotel is coming from,” he suggests. “Ask for a copy of the hotel’s standard contract before you assess your cancellation strategy. They might have a clause more lenient than you expected. Not likely these days, but possible.”

" Actual damages. This includes unsold meals, unsold rooms less resold rooms, food and beverage, as well as projected lost revenue for the hotel on every ancillary outlet from the gift shop to the golf shop. The main difficulty with actual damages is, while the group’s liability is reduced if rooms are resold, actual damages are hard to ascertain.

“If you want to take the risk, go for actual damages and hope they resell,” says Pastor. “Just remember, if they don’t, you’re on the hook for everything.” Pastor says he prefers liquidated damages.

" Liquidated damages. The planner and supplier mutually agree to a reasonable sliding scale of set dates and dollar damages. For example, for a meeting scheduled for Dec. 1, if the planner cancels by Jan. 1 of the same year, he pays $10,000; by May 1, he pays $20,000; by Aug. 1, it’s $40,000, and so on. “Liquidated damages gives planners a ceiling of what they can be held liable for at certain points in time,” explains Pastor. “Most planners tend to go for liquidated damages, because it takes the guesswork out of liability.”

" Sensitive issues. Hoteliers generally are not sympathetic to groups that cancel meetings citing moral or political objections. Groups that feel strongly about particular issues need to state so in the contract.

Last year, the Bloomington, Ind.-based Organization of American Historians was slapped with a lawsuit by Adam’s Mark Hotels, which claimed the group did not fulfill its meeting requirements. OAH countersued, claiming a racial discrimination suit filed by the Department of Justice against the chain (later dropped) made it impossible for the group to meet at the chain’s St. Louis property. That case is set to be tried this month.

The Adam’s Mark lawsuit, says OAH’s executive director Lee Formwalt, was a wake-up call. “For the first time, we are making certain there is a provision in our contract that allows us to cancel, without penalty, for certain things such as discrimination by a property,” he says. So far, according to Formwalt, supplier response has been encouraging. Both the Memphis Marriott in Tennessee and the Boston Marriott Copley Place have accepted the group’s new clause for future meetings.

More hot buttons
Other concerns planners are addressing in contracts include walking clauses, construction and indemnification.

" You walk, you pay. In 1998, Peggy Pryor of Sweet Adelines got a hysterical call at 11:00 p.m. on the first night of her group’s annual convention. The headquarters hotel had taken 85 rooms out of her block, walking more than 100 attendees.

While the hotel “did the right thing,” says Pryor, by compensating the association and the walked attendees, there was nothing in the contract binding it to do so. Pryor learned a valuable lesson. “I want something that says what the hotel will have to do for us if they cannot honor the room block they committed to,” she says. “My contract now spells out exactly what I get.”

For SAI, that includes a free first night, a room at the original hotel on the second night, transportation between properties, breakfast and even a phone call home for each person walked. Bujol’s walk clause also specifies that only the meeting planner can decide who in the group gets walked, if it comes to that. “We have corporate sponsors we have to protect,” says Bujol.

" Hold the construction. Sherry DeLaGarza has a clause specifying zero construction while her group is in house. And it has come in handy. In 1999, DeLaGarza arrived at her headquarters hotel to find the lobby in the midst of a massive renovation.

“The entire place was torn up. It was horrible,” recounts DeLaGarza, who immediately whipped out her contract. The result? The entire stay for the group’s 16 board members had to be free.

“Visible construction has always been a big deal for us, because we don’t want it to detract from our delegates’ experience,” says DeLaGarza. “If we did not have that clause in our contract, they probably would have said, ‘Have a coffee break on us.’ But we immediately brought it to their attention, and they couldn’t back down.”

Anne Carey, meetings manager for the Chicago-based Illinois Podiatric Medical Association, wasn’t so lucky. A recent brush with heavy construction at her meeting hotel has forced her to rework her addendum. “I did not get any restitution, because we did not have a construction clause in our contract,” says Carey. “I am putting it in now.”

" Harmless for whom? For Eric McNulty, managing director of conferences for Watertown, Mass.-based Harvard Business School Publishing, a fair indemnification (a.k.a. “hold harmless”) clause is a top concern. Too many hotels, he says, want him to agree to a clause that protects only the property.

“They cannot ask me to indemnify them if they won’t do the same for me,” says McNulty, who, with the help of Harvard’s legal counsel, has begun to assemble an addendum. “If you want equal protection, you have to demand it,” he says.

Lisa Despres plays hardball. “Our indemnification clause always supercedes the one in the hotel contract,” she says. “Schering-Plough requires it.”

" Check, please. Hotels are holding planners to tighter deadlines in paying their bills. “We used to ask for 60 days to pay our bill,” says Despres. “Now they want it all in 30 days. I adjusted the addendum to say we must receive the final bill in 5 to 10 business days, which gives me time to review it.”

GOTTA HAVE IT
John Foster

Planners who proudly insist they would never sign an attrition clause, consider this: The only thing worse than a badly worded attrition clause is a contract without one, say industry lawyers.

Don’t be misled by the outcome of the 1997 lawsuit filed by Hyatt Hotels Corp. against the Women’s International Bowling Congress of Milwaukee. The group failed to pick up 100 percent of its 4,735-room block for a two-month-long bowling tournament the previous year. The contract did not have an attrition clause, and Hyatt sued.

“A simple clause stating the group was not responsible for room pickup, and therefore could not guarantee pickup, could have avoided that lawsuit,” says John Foster, a meetings industry lawyer with Atlanta-based Foster, Jensen & Gulley LLC, who successfully represented the WIBC. The association’s win in no way suggests that the absence of an attrition clause means planners are free and clear, Foster insists. Other factors came into play in the WIBC case, he says.

When Angelle Bujol, director of meetings for Pi Sigma Epsilon, a nonprofit fraternity for sales and marketing professionals in Milwaukee, inherited a contract template from a previous planner, it had no attrition clause. “I was getting contracts from hotels asking me to agree to their attrition clause.” Bujol immediately set to work writing one the group could live with.

C.A.S.

BEFORE YOU SIGN&
Remember, a contract template or addendum should not be considered a rigid document. It is something to work from during the negotiation process.

One size does not fit all. What might be an absolute necessity for an annual meeting might not be an issue for the board meeting. Be prepared to modify your list of “must haves” where appropriate.

Cross check. If using an addendum, be sure the hotel’s contract does not contain any conflicting clauses. Cross out those clauses the addendum supercedes, and write “see addendum.” To avoid possible misunderstanding as to which clause rules, both parties should initial anything that has been crossed out in the contract.

Try again. If a hotel balks at a clause, produce a fallback clause you can live with. But don’t offer up the Plan B position until the hotel formally nixes your preferred wording.

Say everything. Shorter does not mean better. What you leave out can become a future lawsuit. Some issues that tend to fall through the cracks include insurance, alcohol liability, arbitration and changes in meeting space.

Hire a lawyer. It doesn’t pay to skimp on legal fees. Have an attorney review the addendum or contract for correct language, conflicting wording and liability loopholes.

C.A.S.