migurus

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.

John's Thoughts on Attrition and Cancellation

From John Foster, Esq., CHME

The wording of attrition and cancellation clauses continues to be a major sticking point in hotel contract negotiations. The purpose of these clauses is to establish the level of performance required from one or both parties and the compensation due the injured if the performance level isn’t met. These terms must be prepared strategically because they represent potentially large sums of money and must be acceptable to both sides. The must also be prepared correctly in order to be legally enforceable.

Contract law provides that if one side breaches a contract, or under-performs, the other side is entitled to damages, but not penalties.  The purpose of this rule is to put the injured party in approximately the same financial position as possible as if the contract had been performed. This is called giving the injured party the “benefit of the bargain”.

Lisa's Thoughts on Attrition and Cancellation

Where has this week gone? Here we are at Thursday already and John and I have barely begun to address all the topics we hoped to cover. In the interest of hitting as much as we can, I am going to address both attrition and cancellation together and give some quick responses to some of the  questions that I get asked most often by meeting planners.

Hotels don't want to include resale credit in their cancellation and attrition clauses, aren't they required to do that?

Hotel damage clauses are "liquidated damages," a legal term for an agreement by the parties in their contract as to the amount of damages that will be paid in a certain situation (remember again, the correct term is "damages" not "penalties").  By definition, liquidated damages are used when the parties agree that it would be difficult to determine the actual loss.  In other words, if it is easy to figure out the loss, a court could invalidate the liquidated damages.

I could write for hours on all the reasons why it is difficult to determine the hotel's actual loss in cancellation or attrition, but for our purposes, consider just one aspect: the hotel may sell two identical rooms at two different rates on the same night.  The hotel is clearly not making 70% profit on both the room sold for $100 and also on the room sold at $175.  But, you can't necessarily say that the hotel is making more on the $175 room, as you don't know if that guest used more power or water or if the guest damaged the furniture , etc.

So, the parties agree to use liquidated damages, in which they agree on an amount or a dollar figure in the contract rather than attempting to determine the actual loss.  In reaching that agreement, they are supposed to estimate the loss AND the ability of the injured party--the hotel--to reduce or "mitigate" that loss through resale.  In other words, if the parties agree that fair compensation for the hotel in a cancellation would be $100, and that there is a 50% chance that the hotel would be able to resell the room at the same rate, then they might agree on damages of $50.  Since the damages are already a compromise, it is not appropriate to reduce the damages even more by resale.

When a contract contains a liquidated damage clause, the injured party is not required to prove its actual loss or whether it reduced that loss by mitigation. The injured party simply is given the amount agreed upon in the contract--whether its actual loss turned out to be less or more than the agreed amount.

Even though the law does not require mitigation in a liquidated damage clause, many hotels do agree to give such credit, especially in attrition clasues.  Since hotels do not hold room blocks by room number, the parties must agree on a specific formula for how "resold" rooms will be counted and what credit will be given. Simply stating "less rooms resold" will only lead to disputes.

In a cancellation situation, hotels are very reluctant to include resale, and groups should be, as well.  If you cancel a 2007 meeting in 2006, under a regular liquidated damage clause you would pay the damages immediately, and the issue would be closed. If you add resale, you won't know what amount you will owe until after the meeting dates pass, which requires both sides to keep the matter on their books and to wait around to determine what is owed.  A group can't make a sound business decision as to whether or not it should cancel if it doesn't know how much it might owe.

Hotels are not out to "double dip" with their damage clauses, and in the majority of cases the hotel ends up not collecting even close to what it estimates.  If a group is concerned that the hotel will be able to resell all the cancelled rooms and thus the hotel will get an fair recovery, it is better to negotiate for a smaller liquidated damage payment rather than to include a resale credit.

Lisa's Response on Force Majeure

By Lisa Sommer Devlin

When I was a little girl, my parents encouraged my three sisters and me to create “Christmas Lists,” of what we wanted for Christmas. Mine was always a “Birthday and Christmas List” since my birthday is right before Christmas. Many families probably do the same thing.

When we were small, our lists were pictures cut from toy catalogs glued to a page. Not understanding who would be footing the bill for the gifts we might receive, we included out wildest desires.  I am not sure exactly when it started, but when I was still relatively small, I started adding “a diamond ring” to my annual list.  I soon understood that the chances of getting that ring were nil and none, but I included it on my list nonetheless.  It was a “wish” list after all, and I still wished for that diamond.

The tradition has continued and now not only do my sisters and I create lists, but my four children do, too.  And yes, Virginia, even though I am now forty seven years old, my list still includes that diamond ring every year.

What is the point of this story?  I wholeheartedly agree with "John's Golden Rule of Business Agreements": If you ask for something from the other side before the contract is signed it's called "Negotiating"; If you ask the other side for something after the contract is signed it's called "Begging," and when I quote his rule during presentations I always give him due credit.  The point is, while you have every right to ask for something, do not expect that just because you ask that you will or should receive it.

Force Majeure Clauses

By John S. Foster, Esq., CHME

Recent events and catastrophes around the world like terrorism attacks, hurricanes and earthquakes, a worldwide SARS epidemic, tsunamis, strikes and labor disputes by hotel workers, and power outages in major cities are a reality that planners and suppliers must consider when planning meetings.

The controversy surrounding force majeure clauses and their wording stems from the different viewpoints that planners and suppliers approach the entire concept of what has to happen before the meeting sponsor is allowed to terminate the contract  without liability.

From the suppliers perspective, the force majeure clause should only refer to acts or occurrences that totally prevent the meeting sponsor from holding the meeting.  From the meeting sponsors perspective, holding the meeting is the second concern, not the first.  The first concern for meeting sponsors is their ability to attract attendees to the meeting when certain acts or occurrences intervene after the contract is signed that materially affects its ability to do so.  With the exception of certain corporate events where employees are commanded to attend, many meetings are planned and specific groups of people are invited to attend with no guarantee that anyone will show up. Additionally, meeting sponsors are required by law not to subject their attendees to unreasonable risks of harm. Holding a meeting in a city that has recently been devastated by a hurricane, or is experiencing a disease epidemic, potentially violates the meeting sponsors legal duty to its potential attendees. Meeting professionals understand that first-rate meeting planning starts with the contract language in client-supplier agreements. Good contract language should address the consequences of a potential catastrophe and its negative influence on event attendance.

Contract law provides that, absent wording in the contract providing otherwise, one or both of the parties can terminate their performance of the contract if that party's performance is made impossible, impracticable, or is frustrated by supervening events making the value of performance worthless to that party. These legal principles apply by default when a supervening act or occurrence affects the meeting and the parties did not allocate the risk and consequences in the contract. If parties do not want the risk of unintended consequences from future acts or occurrences outside their control, the contract should comprehensively address what standards will apply and what the consequences will be.

Issues Facing the Meeting Industry

By John S. Foster, Esq., CHME

I'm pleased to be participating as a "Meeting Industry Guru" this week with my colleague, Lisa Sommer Devlin. As Lisa alluded to, she and I are frequently on opposite sides of the negotiation table between meeting sponsors and hotels and on opposite sides of the lawsuit or arbitration when contract disputes arise.

Lisa and I usually agree, with a few exceptions, on what the law is that controls legal issues in the meetings industry. Where we frequently disagree is how to apply the law to specific fact patterns,  both during negotiations and after the contract is signed, in order to avoid the potential pitfalls and risks affecting both planners and suppliers daily in the meeting industry. Just like the complex issues facing the USA and other countries worldwide, our industry has become more complex with increasing risks.  These complexities must be dealt with fairly and legally in meeting industry contracts by each side or else the parties are setting themselves up  for expensive disputes in the future. The effect is that industry contracts have become longer with new terms being created on a regular basis to deal with new issues.  Even if lengthy negotiations on multiple issues are not your preference, remember "John's Golden Rule of Business Agreements": If you ask for something from the other side before the contract is signed it's called " Negotiating "; If you ask the other side for something after the contract is signed it's called " Begging ". Hence, it's  much better to take the time to negotiate all relevant terms up front rather than begging for terms later that you forgot or were too lazy to negotiate before signing the contract. If contracts are not your strong point, by all means seek legal counsel from an attorney that is familiar with the meetings ndustry.

I may disagree with Lisa on how the law should be applied to certain facts and negotiation points,  but she and I agree on what the frequent issues are that take the most time to negotiate.  Lisa has adequately identified some of these key issues in her post. During the next few days we will be posting our "point/counterpoint" discussion of these issues and others as they arise. Feel free to join in the discussion and express your opinion if you have something to say.

Issues Facing the Meeting Industry

By Lisa Sommer Devlin

I was honored to be asked to serve as a “Meeting Industry Guru” this week to create a “point/counterpoint” blog with John Foster.  After several discussions with John on how we would approach this task, we decided to start with a summary of our opinions on the key issues facing the industry and then follow up with in depth discussions on the issues.  While John usually represents groups and associations and I represent hotels, I anticipate that we will not have serious disagreement on the major issues to address.

There are many topics we could discuss, but it seems that the same clauses and issues in meeting contracts continue to generate the most discussion, debate and often confusion.  Here is a list of the things that I think hoteliers and meeting planners should be most concerned about:

FORCE MAJEURE 

Under what circumstances does the law excuse a party from some or all of its obligations under a contract because of unforeseen or unexpected events?  How do clauses agreed upon by the parties change the legal standard?  Has the law kept pace with to our global economy, instant communication, and ability to travel almost anywhere in the world within a day?  How are hotels and meeting planners reacting to these issues? 

CANCELLATION CLAUSES

What are the losses suffered by a hotel when a group cancels?  What is the loss suffered by a group if a hotel cancels?  What should a cancellation clause include, and how can the parties determine if it is fair and legally enforceable?  What does the law require as opposed to what a party may be able to negotiate to include in a clause?

ATTRITION CLAUSES

How does an attrition situation differ from cancellation?  What can the hotel and groups do to reduce attrition?  What are the parties legally entitled or required to include in the clause, versus what can be negotiated?  Are there commonly requested attrition terms that present legal problems for the hotel or the group?

LABOR UNION ISSUES

The major hotel workers’ union is threatening a variety of actions that could impact the industry, from boycotts to strikes, to direct communication to attendees.  How will this impact meetings from the perspective of the hotels and the groups?  What are the legal issues, versus the business issues? 

“STANDARD” CONTRACTS

It seems that every hotel and every group has its own contract form and negotiations to get an agreement take forever. While it would seem that a standard form would make doing business easier, what are the dangers? Why are industry attorneys who represent both hotels and groups so strongly against any “standard” form? 

These are the topics that I intend to explore this week. As John and I go back and forth, I am sure that he will raise other issues and the comments from those who read the blog may lead us into other areas.  I am sure that the debate will be lively!