Meetings contract negotiation and Strategic Meetings Management (SMM) expert Robyn Mietkiewicz, director of global meeting management services at Meeting Sites Resource, answers additional questions from the Negotiations Part 1: The Art of the Deal - Strategic Hotel & Contract Negotiations and the Negotiations Part 2: Leveraging Meeting Spend/Custom Hotel Contracts webinars, which originally aired on March 11 and 25, 2015.
1. Please explain the difference between liquidated and mitigated damages?
These two terms are often included in a contract. However, they have quite different meanings. Liquidated damages calls for a dollar amount or formula to determine a dollar amount in the event of non-performance, and the hotel is not obligated to resell and credit the group.
We prefer to work with mitigated damages, meaning the hotel has a responsibility to work with us to resell any unused or canceled guest rooms and support services.
I include a “resell and rebook” clause to provide additional protection. Our rebook clause states that 75 percent of cancellation fees paid will be applied toward a future meeting.
2. How do you get the data/spend on the ancillary profit centers from the hotel? How does the hotel supply the data and how do they gather it?
Although ancillary meeting spend, like audiovisual, production, business center, etc., have a lower profit margin for the hotel, this is still important revenue information to track. If you have attendees bringing spouses/guests to an event and they will be using the spa, for example, one idea is to negotiate a discount such as 10 percent and provide attendees with a coupon they can use. This coupon allows the hotel to track which guests are with your group and thus track ancillary spend. The same idea can be applied for F&B outlets.
Another idea would be to ask the hotel to provide the data from individual guest folios as to their ancillary spend. Of course, the hotel cannot provide any confidential information such as guest name, but they can provide the lump sum.
3. How should a cancelation read if the HOTEL cancels the meeting? Can you provide an example for verbiage? I have seen hotels bump groups for better business.
Our cancellation clause is based on a sliding scale based on the date of cancellation. We make our cancellation clause mutual, stating that “the hotel will pay the same cancellation fees outlined in the cancelation clause based on the date of cancellation.” That way the cancellation amount is clear to both parties. You can also state that the hotel will provide remuneration to the group for additional expenses (i.e. marketing, or the difference between a higher room rate at your new hotel), which you would need to provide backup for to verify.
4. Are you always using 75 percent for the profit calculation for rooms for attrition or cancelation?
A hotel’s average gross profit margin on sleeping rooms is about 77 percent.
We use 75 percent as our starting point, but if a hotel tells me their profit margin on sleeping rooms is 80 percent I am comfortable using that for our calculation. For group F&B, the average gross profit is 38 percent and we utilize 35 percent for our calculation.
5. Who does the audit? Do you, the hotel, or do you hire a third-party auditor?
We conduct the audit with our hotel partner and provide them with our registered participants list in Excel to compare against their in-house list. This will allow us to capture any pre and post rooms booked around the block. I also verify if the hotel has any rooms out of inventory for renovation and ensure those rooms are also removed from the equation. Then I assess other groups in-house over the meeting dates and their room block obligation.
6. I’ve received pushback from hotels only adding F&B cancelation fees to the last 30 days. Any suggestion?
I do not like to pay damages on F&B more than 30 days out as the hotel has not even ordered the food yet. I am willing to pay damages on F&B less than 30 days out, which is fair, but damages are based on profit. The hotel’s average profit center on F&B is about 38 percent gross profit. We want the hotel to make the same amount of profit had the group fulfilled the meeting.
7. If you have to cancel a contract altogether do you pay the cancelation fee before or after the program date, due to the "resell" clause?
We include verbiage in our contract that states cancellation fees will be paid 30 days after the event actualizes. This allows us to work with the hotel to resell the canceled rooms, space and support services to reduce or eliminate any cancellation fees.
8. Can you talk about your process to lower your F&B minimum in the contract if your attendee count declines?
We always request some slippage for our F&B minimum, which really goes hand in hand with our sleeping room attrition. If our customer has a reduction in attendance, it will affect their room pickup and ability to meet their F&B minimum. I would suggest asking for 20 percent slippage on your F&B minimum.
9. Can you please elaborate a little on profit vs. revenue? Can you address the difference between the two?
The hotel’s average gross profit is about 77 percent on sleeping rooms. For example, if you had a $100 room rate, the hotel does not make 100 percent profit on that sleeping room (i.e. $100), but instead $77. We always calculate performance damages on profit and do the math. Again, we want to be good partners; however, the hotel should not make more money if the group were to cancel.
10. Can you go over the actual process you use to amend contracts? Strike through vs. rewrite, etc. What is the industry standard?
For all of our customers, we create a custom hotel contract, ready for a signature, and ask the hotel to provide counter offers if needed. I always track my changes using the track changes feature in MS Word. This makes it clear for both parties to see any clauses that have been struck and any verbiage that has been added. This is a give and take process and the key to success is staying focused on risk mitigation and cost containment measures. You want to be sure all changes are communicated and obligations are clearly understood.
For a complimentary copy of my “Hotel Contract Top 10 Tips,” please email me at email@example.com
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