Smart Contracts
For groups large or small, the right contract wording is essential to minimize problems down the road. Here’s some advice from John S. Foster, a leading industry attorney.
By Kate Burton
Contracts might well be one of the most complicated aspects of meeting planning. And thankless, too. Do them well and no one notices. But make a mistake, and the effects can last long after the actual meeting. A competent legal professional can go a long way toward identifying all issues and strategically preparing contracts to protect your organization.
To get the inside track on areas of special concern to faith-based groups, Rejuvenate spoke with John S. Foster, Esq., CHME, an attorney and counsel whose Atlanta-based firm, Foster, Jensen & Gulley, LLC, specializes in the legal aspects of meetings and conventions, trade shows and events, and association management.
Foster has been an associate or general counsel for more than 400 national and regional associations and companies since 1986. He is a frequent lecturer at association and convention industry events, as well as the author of three books on the legal aspects of meetings and conventions: Meeting & Facility Contracts, Meetings & Liability, and Independent Meeting Planners & the Law.
His peers have voted him a Special Recognition Award as “Corporate Member of the Year” through the Georgia Society of Association Executives; he is also an active member of PCMA, MPI, IAEE, and ASAE’s legal and meetings and expositions sections. He can be reached at John.Foster@FJGLaw.net.
In your experience, what are the most common mistakes that novice planners make when dealing with hotel and/or convention center contracts?
A frequent mistake is not using a request for proposal to get competitive bids and not starting as far in advance as possible on the negotiations. Planners should give themselves double the time they think is necessary to preserve the option of booking somewhere else.
Another common mistake: Not focusing on how performance damages should be calculated. Performance damages should always be based on the hotel or convention center’s “lost profit,” which is not the same as 100 percent “lost revenue.” Damages should not include lost revenue from “ancillary” activities not specified and agreed to in the contract. Planners often do not insist that credit be given for replacement business to reduce potential performance damages. “Replacement business” should be defined as any business that the hotel would not have been able to book if your event took place as scheduled. If the hotel can find another group or groups to fill your space, your group should not be liable for performance damages.
Contracts and licenses in the meetings industry have gotten complicated and there are serious pitfalls for the unwary. It’s easier to stay out of trouble than to get out of trouble. So I would add that not seeking professional legal assistance when finalizing the contract is another common mistake.
There has been a lot of focus on attrition in the past few years. How can groups make sure they get full credit from hotels for everyone in their group?
Attendees’ getting a lesser rate at the headquarters hotel does not have to be a problem if the proper wording is used in the contract. The biggest concern for planners is to make sure that all room nights booked outside the block are credited to the group for purposes of calculating pick-up to satisfy performance obligations for comp rooms and no meeting room rental. I recommend using wording that says:
“All guest rooms in Hotel that are occupied by Group’s attendees will be credited to Group’s room block for pick-up purposes regardless of rate paid or method of reservation.”
How should contracts handle the issues of cancellation on the part of a hotel or convention center? Are there other changes that a convention center or hotel might make that should also be addressed in a contract?
In the event of cancellation, a contract should either state a specific dollar amount or leave the dollar amount open, but state that the facility will compensate the meeting sponsor for its expenses to rebook another facility, any increased costs at the second facility, and lost registration fees and exhibitors, if applicable.
There are other clauses I have developed that deal with some of the most common issues that come up with convention centers and hotels.
Do you find in your experience that centers are becoming less flexible with concessions?
For the most part, convention centers have always been more challenging to negotiate with than hotels because municipalities own them. It’s true that convention centers are trying to maximize their revenues, but that doesn’t mean they won’t negotiate concessions and other terms in the fine print. The best strategy is to be persistent and not take “no” for an answer the first few times you hear it. Convention centers will always be more flexible if they know your group is considering other cities and alternatives. Convention center licenses always take longer to negotiate and finalize, so start at least two years in advance.
Is the meaning of “force majeure” typically spelled out in sufficient detail in contracts?
Based on the experiences from the terrorist attacks of 9/11, the SARS [Severe Acute Respiratory Syndrome] epidemic, and Hurricane Katrina, it is not unusual at this point for “Force Majeure” or “Excuse of Performance” clauses to be almost a page long in contracts. The clauses should specify the definition of force majeure, as well as whether a total inability to perform is the necessary standard or if a partial inability of a certain percent is allowed to excuse performance. The definition should include “impossibility,” “commercial impracticability,” and “frustration of purpose.” These are all terms that need to be clearly defined in the contract, but often aren’t.
What is indemnification, and do standard clauses typically need to be amended in some way to better protect meeting groups?
Indemnification clauses are tricky, because various types cover different levels of responsibility by one or both parties. The purpose of a basic indemnification clause is for Party A to be responsible for any losses or damages suffered by Party B if the losses were caused by Party A’s negligence or misconduct. Clauses used by facilities are usually one-sided-protecting the facility.
One-sided clauses should be revised to be mutual. And an indemnification clause should always be followed by a requirement for the parties to have insurance to pay for the indemnification if indemnification is required.
For faith-based groups, hidden costs of meetings are a huge concern, given the limited budgets of most groups. How can planners better protect their groups from these costs?
By definition, “hidden costs” are the additional mandatory charges that show up on the bill that weren’t pre-approved by the meeting planner. I use the following sentences in every contract:
“No additional charges not specified in this Agreement or any addendum will be incurred by Group for work performed or for services or items provided by Hotel unless Hotel will have first obtained prior written consent to incur the expense from an authorized representative of Group to have the work completed or the service or item provided.
Neither Group nor attendees will be responsible for additional surcharges, gratuities, or service fees not included in this Agreement without Group’s or attendee’s written consent, respectively.”
As 2007 draws to a close, what trends do you see on the horizon that will affect convention business, in particular, faith-based groups?
Contracts for meetings and conventions will continue to get longer as more issues arise in the industry. Faith-based groups should not be naive and think that facilities will give them good terms up-front just because of who they represent. One expert stated it correctly when he said, “In business, you don’t get what you deserve, you get what you negotiate.”
There are already many known issues in booking a meeting that should be covered in contracts. Use industry resources and a competent legal professional to assist you until you are comfortable in identifying all issues and strategically preparing the contract to protect your organization.
A short contract is not a better contract. If you are tempted to cut corners and rush through a negotiation, remember my golden rule of negotiating and contracting: If you ask for something from the other side before the contract is signed, it is called negotiating. If you ask for something from the other side after a contract is signed, it is called begging.
Take the time to negotiate effectively and strategically so that you accomplish all of your negotiating before the contract is signed, not after.
