John's Thoughts on Privacy and the Audit Provision

From John Foster, Esq., CHME

Since attrition and cancellation damages can potentially add up to a large sum of money, meeting sponsors should include an audit provision in the contract to protect the integrity of the process. The reason for including an audit provision is that the hotel has an affirmative duty to prove that the attrition or cancellation damages billed to the meeting sponsor are actually owed and are accurate. The process of coding reservations to a specific group is neither scientific nor error free. The human element on the part of the hotel and the attendees virtually guarantees that mistakes in group coding will occur. Meeting sponsors should insist on the contractual right to audit the hotel’s in-house guest list with the supervision of a hotel representative.

Hotels frequently object to an audit provision on the grounds that the information is proprietary and, in some states, protected by privacy laws. These concerns are valid but can be overcome. These concerns can be addressed by the realization that if the parties end up in court litigating the attrition or cancellation issue, all of the hotel’s records relevant to the attrition issue will have to ultimately be turned over to the meeting sponsor under state and federal rules of discovery. Failure of the hotel to turn over the material could bring a contempt citation from the court. In litigation, the privacy issue is dealt with by having the parties sign a nondisclosure agreement. In legal terms this is called a protective order. The nondisclosure agreement would state that the parties will not use private information gathered from the hotel for any other purpose except to ascertain the accuracy of the hotel’s occupancy, the number of resold rooms (including rooms billed to other individuals or groups for attrition or cancellation, and the group pick-up. A well-written audit provision will include a provision for the parties to sign a nondisclosure agreement. This will settle the issue and avoid a potential dispute in the future.

Occasionally a specific hotel might book a group that negotiates a term in their contract that prohibits the hotel from divulging that the group is meeting there or the specific names of attendees. This is not unusual with pharmaceutical and biotech companies that want extreme secrecy. The hotel can still protect the groups requiring privacy and accomodate the other groups in the hotel that have the right to independently ascertain the accuracy of the hotel's records for occupancy, resold rooms and group pick-up. This can be accomplished by the hotel screening out the guest names or the company name requesting privacy and signing a sworn statement that those individuals do not belong to the group of likely attendees to the specific groups seeking to verify attrition or cancellation damages.