1: Breach by hotel: Should a hotel reap the same financial damages as written for the group? Most hotels if they place this in the contract, report that they will assist in finding another property and will pay for any marketing expenses
Hotel contracts today must have mutual accountability in the event of non-performance by either party. For the hotel, this is defined by specific language for sleeping room attrition, meeting cancellation, F&B guarantees, etc. I suggest calculating damages for these performance clauses based on profit, not revenue, and do the math. Corporations and associations need their own components and metrics for damages in the event of hotel non-performance. Securing another hotel and covering marketing expenses is only part of the equation. As an example, selecting another of similar or better quality (based on availability) may cost more in terms of room rates, support services, etc. The hotel should be responsible for these increased expenses. Identify all fixed and variable costs associated with hotel non-performance and incorporate these components in your breach by hotel clause.
2: Do you have any points you would recommend negotiating when the turnaround time is very short-term (two weeks from start)? What really can you try to negotiate at that point?
The demand for short-term meetings (weeks or months) is on the rise and this can be good news or bad news for your ability to negotiate. Since we are in a seller’s market, hotels can be choosy, thus offering less flexibility on rates, space and concessions. That said, if a hotel does have rooms and space available, there will be a need to fill a hole allowing you to negotiate rates, space and services. It is still important to assess your leverage via your RFP and focus on things like your peak night arrival/departure pattern, F&B guarantee and rooms to space ratio. For meetings only weeks out, I often prepare a short Letter of Intent, which spells out mutual responsibilities with no attrition or cancellation.
3: How many hotels should you contact for hotel space in any given location? It seems that hotels talk to each other and it tends to look bad if you send out RFPs to too many hotels and then not contract with them.
While there is no hard minimal number of hotels to include in your RFP process, it is more important to target hotels that fit a specific profile versus making this a numbers game. As an example, if you are looking for a four-star/four-diamond, downtown hotel in multiple cities, hoteliers will have no problem when they see other hotels in their competitive set. Because meeting demand is so high and new sleeping room inventory is so low, planners must often expand their search to find the right fit.
4. Based on the season, RevPAR, pattern and F&B spend, what is the scale on how low a hotel can go on the room rate? Please provide an example.
As you point out, there are many variables included in a hotel revenue management RFP assessment, and the process of “valuing your meetings.” Sleeping rooms are the hotels’ No. 1 profit center (77 percent gross profit on average), so this is the hotel’s big focus. With the right peak night pattern, space package and group F&B contribution (at 38 percent gross profit, on average, hotels’ second-biggest profit center) there is flexibility to negotiate room rates. As an example, we had a situation where a hotel offered a $199 group rate and appeared to have little flexibility until we shifted our pattern by one night and guaranteed group F&B above the hotel’s expectations, and were able to achieve a $184 room rate, or $15 per night, savings. Negotiation success today requires assessing your leverage and revenue contributions by category.
5: After asking me to go out for RFPs, my boss is now asking me to ask the hotel to put the space on hold. Do you find that hotels are willing to do this? (I don't believe so.)
When meeting planners conduct a preliminary search and hoteliers present an official proposal, hoteliers understand that if every hotel that has availability gets placed on first option hold there is minimal opportunity to contract the meeting. That said, many planners want to hold space immediately because it won’t be available for long. (Often by the time a planner determines their short list, many hotels no longer have space.). There is nothing wrong with asking the hotel to place a preliminary hold (giving you first right of refusal) as long as this process is not drawn out. Hotels may give you a short option date to make a decision or release space.
6: How would one find out about the lowest room rate in the hotel at the time of the meeting if we had the clause in the contract that the hotel needed to give us the lowest rate in house?
In today’s complicated hotel-revenue-management-driven environment it is difficult to “guarantee” the lowest room rate in a hotel, since there generally are multiple groups in house with varying revenue contributions. The plain fact is that most planners negotiate to their budget, not necessarily the best rate, because it is hard to gather information that assures room rate integrity. We often have language in our contracts that states there will be no lower group rates offered after contract signing, and if individuals are making their own reservations, that no lower room rates will be offered via the hotel’s website. (We request these be blacked out over our dates.) We often find out from the sales manager or director of sales the room rates of other groups contracted in house over our dates (not company name), which allows us to establish a negotiations strategy.
7: We are a small group, usually averaging only around 90 rooms at peak night. Are there any tricks for a group our size to be more attractive to hotels?
The key to success here is targeting hotels of a size and profile that a 90-rooms peak night would be attractive to. A 500-room hotel, as an example, would need a couple of anchor groups and use your meeting to complement them, versus a 200-room hotel that would make your group the focal point.
8: Has the acceptable hotel attrition timeframe/deadlines changed given the improvement in the economy/seller's market?
During the recession, as buyers, we pretty much had our way in dictating contract terms and flexibility for key performance clauses like attrition, so now, in a seller’s market, it’s not surprising that hotel’s want more accountability in their ability to resell rooms as the meeting dates near. Today, more and more hotels are going with a sliding scale, “use or lose it” attrition formula based on, say, a 45- and 30-day timeline to release rooms. I suggest a contract clause that guarantees 80 percent of your room block and a three-week cut-off date to release rooms back to the hotel for resale. Using this example, based on 100 rooms contracted and guaranteeing 80 percent of the room block, if you actually pick up 75 rooms you would owe the hotel revenue on five rooms, preferably based on profit, not revenue. With a resell clause, the hotel is obligated to mitigate your damages and resell rooms regardless of room rate. Your audit process should include omitting any rooms out of service and under renovation and capturing any room nights booked around your block, including pre and post nights.
9: Are meeting space rental fees considered 100 percent profit for the hotel? From their standpoint, do they assess a fee to mitigate losses in other categories?
There are two things in play here, first the hotel utilizes its meetings and event space to sell its allocated group room inventory and maximize revenues. So, if your rooms to space ratio is out of proportion and your group F&B contribution is minimal, the hotel will seek room rental or set-up fees to off-set these factors. The other issue relates to not just the amount of space needed but set-up and tear-down time, where hotels lose potential revenues. Meeting room rental and set-up fees are all negotiable and can be reduced or eliminated by leveraging your meeting value and spend with the hotel.
10: How do you calculate the monetary value of negotiating the attrition percentage?
Since hotels calculate the value of your meeting in every RFP, it is important for meeting planners to be proactive in this process, too. I suggest presenting contract clause language with your specific proposed damages calculations for all performance clauses. As an example, if the room rate is $200, multiply by 75 percent profit and use this figure for both cancellation and attrition purposes. This assures that the hotel is protected in the event of non-performance and you are assured of cost containment measures.
11. Do you send the complete list of your language and specific clauses to the hotel rep once you're done with the rate and F&B is agreed upon? Or do you edit the hotel's standard clauses?
To maximize overall meeting value, cost savings and risk reduction, I suggest utilizing a custom hotel contract process versus an addendum. Your custom contract template will address all contract components, value-added concessions, hotel fees and surcharges (eliminate or reduce), performance clauses (based on profit, not revenue) and company legal liability language. All contract terms are presented to the hotel at once, which allows the hotel to evaluate terms and make appropriate counteroffers.
12. What about rebates? Is there a standard baseline to ask for as a credit to the master account (2 percent-3 percent?)?
12. Typically, rebates are specific dollar amounts added to the room rate to offset meeting costs, including marketing and transportation shuttles. For larger meetings with significant sleeping room revenue, group F&B and hotel support services, you can negotiate a specific percentage based on a guaranteed minimum master account volume. As an example, $500,000 - $750,000 = 2.5% rebate; $750,000 – 1.2 million = 5%, etc. There are no standard formulas, so negotiate based on your total revenues generated for each hotel.
13. I'm often assigned a meeting room closer to the meeting date. Do you typically outline your meeting room preference during the contract negotiation phase? (This question pertains to meetings of 100 people or less.)
Since your meeting room size, location and overall environment impact your attendee experience, specific meeting and event space room assignments are essential to include in the contract. This is really not group-size-specific but important to confirm in advance. Additional language includes no reassignment of meeting and event space after the contract is signed unless in writing by both parties.
14. How can we track ancillary spend? (Will the hotel provide if asked?)
In today’s Strategic Meetings Management (SMM) environment it is important to track all meeting activity and spend for each meeting. Post-meeting, ask the hotel to provide actual room pick-ups by night, including pre and post nights, your total group F&B spend and business center revenues. Additional spend components include golf, spa and any hotel services tied to your contract or master account. This data becomes valuable for planning future meetings and leveraging this spend for future negotiations with individual hotels or chains.
15. I have a situation right now in which the hotel took out my attrition clause with 80 percent slippage and put in a sliding scale clause instead. They also will not calculate attrition based on profit--they want 100 percent of the rate for any unused rooms. What do you do when they won't budge on these and just say it’s hotel policy?
In a seller’s market it is easy for a hotelier to take a hard line on allowable attrition and say, “It’s hotel policy.” While sliding scale attrition (use it or lose it) is preferred by many hotels, the reality is that guaranteeing a percentage of their room block is fair to both parties…we get this in just about every one of our contracts. Regarding the profit versus revenue issue, we use hotel profit margins on all performance clauses so the hotel is protected and earns the same profit if the group were to fulfill their obligation. Hotel general managers like damages on total revenue, because it makes up for some of the ancillary revenues lost if the group size is reduced or canceled, but my argument is that unless it is stated in the contract, I have no guaranteed ancillary revenues due to the hotel thus my point to use profit versus revenue.
16. How can you be sure that a hotel is using their best efforts to resell rooms?
It is important to have a resell or mitigated damages clause in every contract, in the event of attrition or cancellation. Part of the hotel audit process includes asking the hotel for a computer printout of occupancy by night over your meeting dates. Additionally, determine any rooms under renovations or out of service and remove them from the equation. If attendees made their own reservations, provide the hotel with a registered participants list and have them cross reference against all in-house guests over your dates to capture any rooms booked around your block, including pre and post nights. If you still have performance damages due, hopefully your clause states this is based on profit, not revenue, and you have the ability to apply a percentage of damages applied to a future meeting.
17. Will Published Rates ever be lower than the federal per diem rates?
In a seller’s market, typically a hotel’s published rates will be higher than the government per diem rates. Since these per diem rates are designated by city, supply and demand play into the equation. The best way to benchmark government per diem rates again hotel availability over specific dates would be to check availability both through the hotels website and then Internet discount sites like Hotwire, Kayak, Priceline, etc. Many hotels do allot a small percentage of sleeping rooms to accommodate government per diem rates, but that inventory goes fast and then rates spike up by 20 percent to 40 percent.
18. What rate are you using for the suites, since a group rate is not usually quoted for this category and rack rates are used instead?
When we are calculating meeting value and savings, transparent metrics are essential when communicating with your senior managers and stakeholders. To your point on suites, let’s say you have five one-bedroom suite upgrades at the group rate of $199 and your sales manager advises you that the rack rate is $950 and the group rate is $650. The transparent and accurate metric is the group rate of $650 less $199 = $461, times your total contracted suite room block, which gives you total suite savings.
19. Is there a benefit to using a site selection/contract negotiation company for the contract phase or are corporate planners just as successful with negotiating the terms of a hotel contract?
Outsourcing, evaluating and selecting preferred suppliers is an important part of the Strategic Meetings Management initiative. The key to success is collaborating with the right partner that has the experience, infrastructure, technology and buying volume to make an impact. Outsourcing because you are busy does not add value. The right preferred partner can use their skills and clout to drive added meeting value, cost savings, hotel contract risk reduction/cost containment and assist in the event of non-performance dispute resolution. Most third-party buyers receive a commission from the hotel, which can inflate room rates, however, experienced volume buyers can use their clout to secure favorable rates and still be compensated by the hotel. If corporate planning teams track their spend and leverage and use a custom hotel contract process, they of course can be highly successful, too. Determine your in-house capabilities and resources, and then determine a specialized areas of expertise with preferred outsourced partners.
20. How readily will a hotel share its profit range for us to use in our contracts?
Success requires communicating with hotel partners on a high level, and there is nothing wrong with asking them for specific profit center margins to utilize in your contract performance clauses. We calculate all hotel contract performance damages on profit and do the math to the penny. We use hotel chain and independent average gross profit margins, which are 77 percent on sleeping rooms (we round down to 75 percent) and 38 percent on group F&B (we round down to 35 percent). Periodically, we have hotels come back and say that their percentages are higher and we will use their specific profit margins versus total revenues, which many hotels request. As an example, one chain hotel stated their rooms profit was 83.7 percent and their group food and beverage was 44 percent...which we used for our performance clause calculations.
Our webinar presenter, Robyn Mietkiewicz, CMP, CMM, is director, accounts and global meeting management services at Meeting Sites Resource. MSR is a global strategic meeting management solutions organization with a 20-year track record of meeting excellence. This includes global hotel sourcing, custom contract negotiations, professional meeting support services, Strategic Meetings Management (SMM) consulting and advanced meeting technology.
Robyn contributes articles to industry trade publications and speaks at many industry events. Robyn has earned the prestigious CMP and CMM certifications and is a past president of the MPI Orange County Chapter. As president, she was responsible for overseeing a 19-member board and 400-member Chapter. MSR is a recognition recipient of MPI’s Golden Paragon Award, its highest recognition for meetings excellence.