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Preventative Planning: Avoiding Pitfalls in Meeting Contracts

Kristalyn Loson

At the 2011 Small Market Meetings Conference, attorney Kristalyn Loson gave meeting planners several tips on how to prevent contract blunders. The following is the first half of her presentation, which focuses on writing new contracts with hotels.

STEP 1: Maximize your negotiation position
•    Consider your markets
•    Aggregate smaller meetings
•    Seek multi-year contracts
•    Consider request for proposals

STEP 2: Reaffirm the basics
•    Everything negotiated should be clearly written in a signed contract. “If you ask for something after a contract is signed, it’s called begging.” Come to negotiations with your own core contract provisions.

STEP 3: Pay attention to specific terms of the contract
•    Room rates
•    Commissions
•    Attrition/cancellation
•    Mitigation and right to audit
•    Liability
•    Force majeure (freeing both parities from contract obligations in case of event beyond both parties’ control, such as a fire)
•    Indemnification or compensations
•    Insurance

-To find the lowest room rate available
•    Look for the guaranteed lowest published rate
•    Include Internet sales and monitor the changes
•    If there is a lower rate:
(a) Match for entire group
(b) Remove advertisement

-Setting future rates
•    Provide a formula in the contract for setting future rates
– Choose the lesser of the following:
1. Rack rates quoted one-year prior to meeting
2. The quoted rate plus x% per year (2-3% cap)
3. X% off the lowest published rack rate for the dates of the meeting

-Room block reservation
What are the organization’s obligations for room nights?
•    Clearly state that rooms are “made available for reservation and payment by group meeting attendees”
•    Clearly list room block size and room rate
•    Include dates/deadlines for room block adjustments and have the reduced room block flow down to attrition/cancellation penalties

-Avoiding cost creep

•    Specify in contract that, “No additional charges will be incurred for work performed and/or services provided without written consent from an authorized representative of group.”
•    Agree on any sub-charges/service fees/gratuities/damages/penalties
•    Consider negotiating for a “no attrition/penalties” provision

If not possible, follow steps to manage penalties

Step 4: Damages
•    Starting point for negotiations should be that if one side breaches a contract, then the other side is entitled to damages but not penalties.

-Types of Damages
1.) Actual: Amount of loss caused as a direct result of breach
2.) Liquidated: Amount agreed to by parties at the time of contract, before any breach, to approximate damages

-What this means for hotel agreements for attrition and cancellation

•    Hotel has an obligation, as a matter of law, to resell unused rooms
•    Hotel may not, as a matter of law, end up in a better financial position because you cancelled/under performed than it would have if the contract was fully performed.

-Five steps to prevent the “double dip”
Double dipping occurs when the hotel gets the liquidated damages, yet retains the ability to resell the cancelled rooms.

1. Mitigation clause:
Hotel shall undertake all reasonable efforts to resell canceled rooms, and will credit those revenues against the liquidated damages in an amount not to exceed the full amount of such damages.

2. Timing of payment:
Damages, if any, shall be due and payable X days after [original meeting date] provided the hotel provides proof of its efforts to mitigate damages and proof that rooms being held for the group’s attendees were unsold.

3. Exclude fees/commissions/taxes:
Fees, penalties, or liquidated damages, if any, shall exclude service charges, surcharges, and commissions, as well as state and local sales taxes, unless required by law.

4. Deduct costs saved:
If the group is required to pay an attrition fee, the fee shall be calculated by multiplying X% of the Single Room Rate by the difference between the number of actually used rooms and the Room Block Target with credits from guaranteed no-shows, cancellations, and early departure charges, if applicable.

5. Average occupancy rate:
Group shall not owe any fees, penalties, or liquidated damages if Hotel meets or exceeds its average occupancy level for that particular period of the year.

Kristalyn Loson is an associate with the Washington-based law firm Venable LLP. She is an attorney in the firm’s Regulatory Practice group, and works mainly with nonprofit organizations and associations. For the complete Power Point from Loson’s presentation, click here.