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Contracts are a critical element of planning meetings. Not only do they directly impact budget and ROI, but they eliminate miscommunications. Yet, they’re not static. What hotels ask for and what planners need changes over time. Merely going with what ‘used to work’ can put organizations at a huge disadvantage. With that in mind, planners must be actively involved in staying ahead of the ever-changing process — shaping contracts and reading every clause, every line.

Force Majeure, Cancellation & Termination

Not surprising, force majeure and cancellation clauses are a primary concern — and they’re often confused.

“The rule of thumb I follow is, if you can’t perform, it’s a force majeure; if you don’t want to perform, it’s attrition or cancellation,” said Lisa Sommer Devlin, an Arizona-based attorney who often deals with hospitality issues. “Force majeure clauses should deal solely with situations in which performance is prevented, not situations in which performance becomes more difficult or expensive.”

If it were up to her, she said, there wouldn’t even be force majeure clauses. The law automatically excuses a party if unanticipated circumstances make performance impossible, so a clause is not needed. The long and complicated clauses that customers started demanding during the pandemic end up causing more disputes than they avoid. Nobody looked at force majeure clauses during 2020. “Hotels just let groups out of their contracts regardless of what the contract said because it was obvious events couldn’t happen. It didn’t become an issue until after things reopened and disputes started over whether groups could or could not go forward,” said Devlin.

Tyra Warner, Ph.D., JD, CMP, chair of department of hospitality, tourism and culinary arts, College of Coastal Georgia, noted that COVID has been a factor in force majeure clauses for the past several years, but things are now different.

“Planners need to be sure that any force majeure clause that mentions COVID-19 are looked over,” Warner said. “Now that COVID-19 is a known risk, the way that it might feature in a force majeure scenario is very different, and rarer, than when COVID-19 was first occurring. Additionally, force majeure clauses are changing not only to take COVID-19 out but in strange ways, I’ve seen many lately that are trying to turn force majeure clauses into something they aren’t.”

In that case, the group will have to rebook the meeting. “That flies in the face of what force majeure means, which is that the contract terminates and both parties go away acting as though the contract never existed.”

Godwin-Charles Ogbeide, Ph.D., MBA, professor and coordinator of the Gina & Frank Day Leadership Academy, School of Hospitality, Metropolitan State University of Denver, agrees that there’s often confusion over what the term means.

“Wanting or needing to cancel is more accurately a termination clause, not a force majeure clause,” Ogbeide said. “Maybe you’re planning on 1,000 guests, and two months out, you only have 300; you can cancel if the contract permits it. Maybe you’re meeting in Florida during hurricane season. You may be able to use that to terminate the contract if few people register; it depends on the agreements in your contract. Maybe a group doesn’t want to cancel if there’s an issue. One option might be to change the date of the event if that was agreed to in an applicable clause — but that wouldn’t be a force majeure clause.”

Joshua Grimes, a Pennsylvania-based attorney, who often runs sessions on contracts at industry meetings, said many hotels today have changed and added wording to force majeure clauses, which planners need to be aware of.

“Most hotels have significantly tightened their force majeure cancellation clauses, making it virtually impossible for a group to cancel a meeting without liability — even if a disease worse than COVID were to impact the country.”

According to Grimes, hotel-drafted force majeure clauses allow only for cancellation if it’s ‘illegal or impossible’ to perform — omitting the important ‘commercially impractical’ reason for cancellation. Also, a group should be allowed to cancel if/when it becomes apparent that the meeting can’t go forward due to a force majeure occurrence, which may be 90-120 days before the scheduled start of the meeting. This is because many groups need attendees to make travel arrangements at that time, so waiting until the meeting is closer just won’t work.

Even if hotels frequently remove reference to COVID or pandemics, Grimes said force majeure clauses should specifically cover “diseases, epidemics and pandemics, so that another disease such as COVID could qualify if it would put attendees’ health at significant risk. And some groups insist on the right to impose health protocols on anyone in their meeting space.”

Keeping Up with Contract Changes

Many groups sign contracts years in advance of an event, which means there are now contracts for current meetings that were signed in 2019 or before. The world is a different place today and there may be agreements in that contract that no longer work for one party or the other. Can elements of those contracts be changed? Maybe, if both sides agree to it.

“Neither side can force the other to change a signed contract,” Devlin said. “If you review an old contract and find an issue, go to your partner to discuss the issue and ask if there’s a way to reach mutual agreement to amend the contract. Asking and discussing is the critical point here, not demanding. If you can make your case to the other side as to why the provision no longer works, you’re more likely to get cooperation. Also remember that you’re more likely to get something if you’re willing to give something in return. Instead of saying, ‘We need to adjust our attrition,’ try, ‘Realistically, we don’t think we’re going to meet our minimums. Can we talk about reducing our block without payment if we give back some concessions?’”

Because changes to a signed contract are voluntary, strong relationships between planners and suppliers can make a difference. And even if no agreement is reached, at the least, planners can learn what to include in future contracts to prevent problems.

“Planners should build flexibility into a contract,” Ogbeide said. “They should anticipate potential challenges, then try to create concessions for those challenges. An obvious example of this is in attrition clauses. The planner may think there will be enough attendees to occupy 80% of the hotel, but they should consider that maybe there won’t. The solution is to talk to the supplier and include a date in the contract by which a room block can be canceled or changed without penalty.”

When a Hotel Changes Rates

On the other side, a hotel may charge a group one rate at contract time, but then sell rooms to the public at a lower rate later. “If attendees see this lower rate, they’re going to book that and not book within the higher-priced room block,” Ogbeide noted. “Planners need to be savvy enough to build into contracts that the hotel can’t sell to others at a lower rate, or if they do, they have to give that lower rate to those in the room block as well.”

This exact scenario happened at a conference Ogbeide attended in Washington DC. Somehow, it was discovered the hotel was offering a lower rate. His team let the hotel know they were aware of this, and as a goodwill gesture, the hotel honored the lower rate and refunded those in the room block the difference. However, they only found out because one person didn’t book the room block, saw the lower rate and reported it to conference organizers. Planners must be vigilant and check for things like this in addition to putting protections into a contract.

Another potential issue with older contracts is outdated deposit schedules, Warner said, “Planners should make sure that hotels are still willing to honor deposit schedules. Many hotels today are demanding larger deposits than before or a large cash deposit right before the meeting starts. No one wants to be surprised by that.”

When a Hotel Wants Larger Deposits, Offers Less Credit

In addition to asking for larger deposits, hotels are also extending less credit, which affects new contracts, too. That may be a result of hotels suffering during the pandemic.

“With COVID-19, many groups got caught up in disputes for long periods of time and cash flow stopped,” she said. “Hotels want to make sure they have as much of a group’s money as they can upfront. Unfortunately, planners lose their leverage to address service issues if they’ve prepaid. If a group has good credit they shouldn’t have to prepay, so including a good clause addressing credit and deposits is a must.”

When Hotel Understaffing Becomes a Contract Issue

The current issue of understaffing at hotels can, in fact, negatively impact service quality and expectations. “With the underemployment levels in hotels and staff turnover, planners should rightly be concerned about adequate staffing for check-in, catered meals and other labor-intensive aspects of their meetings,” Warner said. “Contracting for specific staffing levels, I like to use the ones from the Convention Industry Council Manual (9th ed.), which is prudent these days.”

Older contracts usually provide little recourse if a hotel or other venue cancels a group in order to accept more profitable business from another customer. “There’s no longer a ‘moral obligation’ to keep the group with which a hotel is under contract,” said Warner.

“To discourage this, groups should insist on a hotel cancellation clause that requires a canceling hotel to pay the group a sum-certain, liquidated-damages amount, just like the group would pay if it were to cancel. The standard clause allowing a group to recover just its increased costs to move to another hotel is insufficient.”

F&B Issues with Rising Costs

Amid rising food costs, F&B concerns are affecting the industry and can cause major disagreements between hotels and planners. Trying to work out differences is optimal.

“If a hotel committed to pricing several years ago and prices have risen, the hotel is stuck with that commitment,” Devlin said. “However, the hotel may change menu options to try to deal with cost increases. If there’s no set pricing, but there is a food and beverage minimum, groups may not be getting as much bang for their buck.”

Both parties should have a frank conversation. Devlin suggests planners meet with the food and beverage directors to discuss menu options and ways to work together to address their budgetary concerns.

“There may be ways to get cost savings for both parties,” Devlin said. “For example, if you order the same menu as another group in-house, the hotel may be able to get volume pricing on the food, or may save money on labor for preparation. Or you may need to explore other options, like buffets instead of plated meals.”

Contracts may include an agreed upon rate of inflation covering the time between when a contract is signed and when it takes place, allowing for the F&B prices to go up a specific amount. Planners should pay attention to clauses hotels put in stating: ‘We can increase the costs if inflation is higher than agreed.’ If there’s no clause allowing the hotel to increase pricing, the planner can sue if the hotel tries to do that, but the catch is that there might be a clause saying: ‘Planners can’t sue.’

Regardless of who has legal leverage, Ogbeide recommends trying to work things out. “Goodwill should prevail. This is more likely to happen if the planner and supplier have a relationship. But remember, it takes asking to get. If you don’t ask, you don’t get.”

It’s undeniable that food costs have gone up. The question becomes, are you going to be flexible on price or sacrifice quality?  Venues are trying to protect their reputation by serving the quality fare they are (or want to be) known for, while planners are trying to protect their budgets. This is an area where I really do feel compromise is warranted.

Sometimes, though, legal action may be required if a hotel won’t budge, Grimes said. A contract might state that the hotel agrees not to raise prices more than, say, 3% per year from the time the contract is executed until the time of the meeting.

“This offers a group some protection against unlimited increases. But if a hotel refuses to honor the contracted prices, which sometimes happens, the group must stand firm and insist on contract compliance. If the hotel absolutely refuses to comply, it will usually become an issue just before the meeting. In that event, the group should consider going forward with the meeting and resolving the issue afterward, including possibly legal action.”

Relationships & The Great Divide

There are mixed perspectives about the relationship between planners and hotels today, whether those relationships matter as much as they once did and whether the two groups are more divided than ever in today’s seller’s market.

While Grimes believes relationships matter less these days, Warner thinks planners with significant business have the most leverage today.  “Numbers are talking more than long-term relationships,” Warner said. “But it’s hard to paint the whole industry with a sweeping brush because certainly there are some in sales who do still value those long-term relationships. Planners need to be more savvy buyers, keep their options open and negotiate with multiple properties to create leverage. They also need to be willing to walk away from a sales partner who isn’t willing to deal.”

As to how to bring the two sides closer together, she said, “I don’t think anything short of a boom in the economy, full employment in hospitality and a balance between meeting supply and demand will bridge the divide.”

Staying Current

Times change. Markets change. Contracts change. So, how can planners stay current?

“There’s so much education out there on contracts — at conferences, from meetings-industry associations, in magazine articles,” Warner said. “There are a handful of industry lawyers whom planners should keep an eye on for professional development opportunities, including Barbara Dunn, Jon Howe, Josh Grimes and John Foster. I’d attend any sessions any of them offer.”

Working with experienced counsel can help, as well as attending contracts seminars by industry attorneys. But planners can do much on their own, too.

“New and experienced planners need to take a fresh look at contracts,” Grimes said. “They need to understand every clause and learn how to negotiate for revisions when necessary. Some changes that increase costs and risk are hard to spot; it’s important to read every clause carefully.”

Even experienced planners benefit from continuing education, such as what’s offered at the Day Leadership Academy at Metropolitan State University in Denver, which customizes for any organization with options for online, in-person and self-paced learning.

“Planners must upscale,” Ogbeide said. “They must increase their skills because hospitality is changing every day and the skills needed to excel are also changing. But it all starts with reading contracts carefully. We rush through everything today because of social media. We don’t read. But we must read. Ignorance is not an excuse.”   I&FMM