Are Your Suppliers Solvent?

Smart ways to protect a future meeting from unforeseen changes

Today's news is packed with stories of financial woe and business failures. While your customers and suppliers might be concerned with the health of your organization, you likewise should be questioning whether your suppliers and customers will be solvent when it comes time for them to deliver the goods and services they promised.

One thing that is important to include in all contracts is a clause requiring the supplier to meet certain minimums. In days gone by -- meaning about 10 months ago -- this might not have been an overriding concern. Today, though, even if an organization has a stellar reputation and its past performance has been excellent, there is no guarantee it will be in business tomorrow.

Ensuring the Basics
Spell out specific performance levels. For example, if at the time you signed the contract there were five restaurants in the hotel, with all guest room floors open and eight high-speed elevators in operation, those restaurants and floors might not be available at the time of your meeting, and a few elevators might not be in service. Should these details be the same when your meeting takes place as they were at the time you signed the agreement? You bet.

Staffing Needs
Now find out what else has changed. Have there been layoffs or a downgrading of products and services from subcontractors who supply the property's food?

You need to know about changes like this, since they could cheapen your program. Your contract should allow you to make modifications or to cancel your event if the property's circumstances have been altered. Concessions to you could include reduced pricing and upgraded sleeping rooms, not to mention reduced attrition fees and other charges.

By Law
You might need to become conversant in bankruptcy laws. There are two chapters that come into play. The first is Chapter 7, which basically is a "straight" or a "liquidation" bankruptcy, where the debtor entity no longer is in business and its assets must be sold. Do not expect anything in such an instance.

The second and more likely scenario is a Chapter 11 proceeding, which allows the debtor to reorganize. The business continues to operate while the bankruptcy court and a trustee try to satisfy creditors; they might take over the management and operations of the debtor. Generally, labor and supply contracts and loans are renegotiated. In most situations, creditors receive more than they would under a Chapter 7 proceeding, but less than what they otherwise would be entitled to get. For the most part, a company's contractual obligations to you are not excused by a Chapter 11 bankruptcy.

While the focus here is on the hotel side, your other suppliers might have similar problems.

What to do? First, require in all contracts that any changes in performance levels that will impact your program must be communicated to you immediately, and that no changes can be made to your agreement without your approval. Before approving said changes, don't forget the main negotiating axiom: Never give something without getting something in return. Your contract should state that you have the right to make changes under such circumstances, whether it be price, modification or even cancellation.

You are entitled to get what you bargained for, and the supplier has a duty to deliver it. The key is to make sure your needs are clearly defined and that the other side knows it.