The fine print for negotiating win-win agreements
Contracts are legally binding agreements between two parties that help ensure services are performed, eliminate miscommunication and spell out options in the event of a disagreement. But writing them can be a tricky business.
In a recent Smart Meetings webinar, “A Legal Guide to Partnering with Suppliers,” Lisa Sommer Devlin, a 25-year veteran hospitality contracts lawyer, shared key insights into negotiating win-win agreements with suppliers. Following are her tips for mastering contracts.
Use the Right Name
Seems obvious, but people often get this wrong. Devlin stressed the importance of using the correct name and title of the person who will have legal authority—the person who writes the check—should something go wrong. Otherwise there is no legally binding commitment and the contract may not be enforceable. And if the contract is not enforceable, then you will not get paid in the event damages are owed.
Critical Contract Clauses
A comprehensive hotel agreement will always cover critical clauses. Following are the clauses Devlin advises planners include in every contract.
Room Block and Rates
Common in any hotel contract is specific room block and rates. Devlin emphasized the importance of agreeing with the supplier on a dollar amount or a formula for what the rates will be from the start. “No attrition” and “best rate” are to be avoided, however. While they are common in the industry, Devlin warns they are fraught with peril for planners. “Best-rate clauses only make the enforceability of your contract questionable,” she says. The same is true for no attrition.
Every event planner knows typical hotel contracts have clauses for liquidated damages—usually cancellations, performance or attrition. This clause says, “You are agreeing in advance on an amount that you believe is fair and reasonable.
It’s better to negotiate a lower amount for damages at the beginning than to add extra resale terms later. Devlin advises planners to test their clauses before signing contracts.
“Say to yourself, ‘What happens if we cancel on this particular date? What will we owe?’ Then ask the hotel billing person, ‘What if we cancel? How will you calculate what we owe?’” she said.
According to Devlin, including a dispute resolution clause in your contract is very important, but it’s something that many people leave out. She strongly advised planners to not leave dispute resolution open to chance. “Typically, once people are angry, they will not agree, no matter what.”
Attorney Recovery Fee
Attorney fees come out of what you collect, should you have to go to court for damages. While some states automatically provide for attorney fee recovery, not all do, so Devlin emphasized that planners should include a clause for this. These clauses ensure you are made whole if you are ever owed damages. “It also encourages settlement,” Devlin added.
Devlin noted that there are different opinions among lawyers about arbitration, but she strongly advises it to her clients because it’s cheaper, faster and private compared to lengthy and expensive court proceedings. “Most arbitrators are retired judges,” she said. So, they know the law and are often able to come up with a fair resolution.
Contract Clauses to Avoid
Some clauses used in the hospitality industry are not only unnecessary: They can do more harm than good in the long run. In her webinar, Devlin outlined three specific clauses to avoid.
Thou Shalt Not Clauses
“These clauses only serve to give a false sense of security that you are protected,” Devlin emphasized. “In almost no circumstances will a court enforce that kind of clause.” They only lead to disputes down the line. Instead, create an “if you do” clause. For example, negotiate damages you will be paid if the hotel walks your guests, or include clauses that state specific guests—such as VIPs and speakers—don’t get walked.
Since there are so many confidentiality variables that could go wrong in each situation, it’s better for planners to think about their concerns and to include a clause that states how they expect the hotel to help keep that information confidential. “Figure out what your confidentiality issues are, then work with the hotel to come up with clauses that are workable. Be specific,” Devlin said.
Addendum and Amendment
Devlin noted that “addendum” is a term often used wrongly. An addendum clarifies terms in an already-signed contract when something has been left out, while an amendment changes a signed contract.
She emphasized that neither clause should be used at the time a contract is signed: “It leads to more confusion and more disputes than anything else in the industry.” Instead, “negotiate one complete contract” at the beginning; be clear which clauses are most important. Hotels are usually happy to work with you.