Negotiating Contracts in an SMM Environment
By Debi Scholar, President, The Scholar Consulting Group
There are varying degrees of maturity in Strategic Meetings Management (SMM) hotel contracting and inevitably, most hoteliers want to learn how to avoid the onerous contract negotiations in these environments. Procurement may be involved and many organizations are moving to their own hotel contracts vs. using the hotel’s paper. Even in a seller’s market, organizations want to be in the driver’s seat of racing down the road of terms and conditions. And, who can blame them? Many organizations spend millions of dollars with hotel chains and procurement leaders expect to use master service agreements to reduce overall risk and cost, and improve consistency across the whole enterprise.
Whereas ad-hoc contracting for a meeting or event requires the meeting planner and property leaders to negotiate terms, strategic sourcing usually requires procurement, meeting leaders, general counsel and chain-wide leaders to negotiate terms for an entire organization’s meetings and events. Moreover, when meeting/event contracting is integrated with transient travel contracting, the process penitentiary causes confinement for months with legal beagles shredding their opponent’s side of the contract. When hoteliers understand the SMM Hotel Contracting Maturity Model© and how it affects their negotiation strategies, then the hotel can author terms that satisfy their clients and increase the chain’s revenue. Defined, Strategic Meetings Management provides direction for organizations to guide the strategy, operations, and tactical activities of meetings and events in order to improve business processes, quality, and return on investment, and reduce costs, risks, and inefficiencies.
Twenty Components Make Up the Meetings and Events Hotel Contracting Maturity Model:
- Identifying suppliers to bid on meetings
- Bidding, evaluation and selection process of suppliers
- Preferred suppliers
- Contract language
- Concessions and discounts
- Negotiation practices
- Automating sourcing process
- Contract signing delegation
- Hard and soft savings, cost avoidance and cost reduction; penalty identification
- Service level agreements and key performance indicators
- Contract retention practices
- Supplier relationship management
- Contract and compliance
- Standard operating procedures
- Change management
- Professional sourcing staff
- Strategy, policy and continuous improvement
Each of the Hotel Contracting Maturity Model components is described in each of the following levels. For example, an organization may be in the “Learning” stage for one of the components but in the “Evolving” stage for another component. The progressive maturity model levels also include the activities from the less-mature, previous levels. The maturity model levels are:
• Learning - Describes an organization that is aware of the SMM components and may take first steps in building a program
• Developing - Describes an organization that is building an SMM program and may launch some components
• Evolving - Describes an organization that has implemented one or a few of the SMM components; Program updates may be underway
• Transforming - Describes an organization with proper oversight, governance and change management
• Mature - Describes an organization with the highest level of maturity
Using the continuum of hotel contract maturity from the “learning” stage through “mature,” let’s explore a few of the twenty components above.
• When an organization is in the “learning” stage of SMM, it may source meetings and events on an ad-hoc basis, meeting by meeting. Yet, when an organization is in the “mature” stage of SMM, it regularly selects preferred properties that may be part of a chain-wide agreement.
• When an organization is in the “learning” stage, it may negotiate contracts and concessions on an ad-hoc basis meeting by meeting. Yet, when an organization is in the “mature” stage of SMM, it regularly negotiates concessions with chains based on total volume of transient and meeting business across all business units globally to leverage buying power.
• When an organization is in the “learning” stage, it may not use service level agreements. Yet, when an organization is in the “mature” stage, it regularly uses service level agreements with key performance indicators and consequences with its hotel chains and properties.
Using the maturity of contract language as an example, differences may result that significantly affect the outcome as shown below:
1. “Learning” Stage of SMM: The standard hotel contract language may not have any language about credits and read:
“If Group elects to cancel this Contract for any reason other than a termination for cause or pursuant to the Force Majeure clause of this contract, Group agrees to provide written notice to Hotel accompanied by payment indicated in the following scale.”
2. “Developing” Stage of SMM: The organization may add an addendum to the hotel’s contract that will protect the organization and allow for use of penalty credits.
“Should (the Buyer) cancel this contract, (the Buyer) shall have the option to rebook another meeting of same or greater size at Hotel within one (1) year from the cancelled meeting dates. Hotel shall credit XX% amount paid by (the Buyer) toward a future rebooked meeting.”
3. “Evolving” Stage of SMM: The organization may develop their own hotel contract to be used on a meeting-by-meeting basis which usually includes significant terms and conditions from the organization’s procurement or legal team. The primary difference is that the organization’s master agreement is now the foundational paper used and changes must be redlined by the Hotel vs. the Organization (the Buyer) of meeting space and/or room nights. It may include substantial business terms and conditions in addition to meeting requirements and expectations which are often Scope of Works or Exhibits at the end of the Master Agreement. Because this language may not be acceptable to the Hotel’s lawyers, negotiations are inevitable.
“In the event that (The Buyer) cancels the Meeting, (The Buyer) shall pay Hotel according to the fees defined and timeline in Exhibit A minus allowable attrition and any rooms resold. Any meeting space, sleeping rooms, food and beverage functions resold over the contracted meeting dates will be deducted from (The Buyer)'s potential liquidated damages. After the contracted meeting dates and full reconciliation of any liquidated damages, Hotel will submit a cancellation invoice, along with an actualized occupancy report and credit card authorization form. The cancellation invoice shall be presented to (The Buyer) within 14 days after cancelled meeting dates and will be paid in 45 days after the invoice was received. Invoice must include accounts payable contact name, telephone number, fax number and e-mail address and should be submitted electronically to the (The Buyer) contact as defined in Exhibit A. Payment of the cancellation invoice will be made within 45 business days of receipt of invoice. If (The Buyer) has paid Hotel any deposit prior to (The Buyer)’s cancellation and the deposit exceed the cancellation fees of this Agreement, Hotel shall refund the excess amounts to (The Buyer) within thirty (30) days of (The Buyer)’s cancellation. Should (The Buyer) cancel this Agreement and if (The Buyer) pays any cancellation fee, liquidated damages or penalty to Hotel, the amount paid will be credited 100% against any charges incurred by (The Buyer) and/or such party as designated by (The Buyer), and owed to Hotel for any meeting, event or banquet booked within twelve (12) months after the date of the originally scheduled meeting."
4. “Transforming” Stage of SMM: The organization may develop a master services agreement to be used across an entire chain with all properties or at least the most frequently used properties. In addition to language such as described in “Evolving” above, fundamental language defining expectations and discounts may be included.
“ABC Chain will allow for X number of credits to be used across X number of properties within the year.” Or, another example is “ABC Chain will provide a minimum of 10% discount on all food and beverage at the defined (X number of properties, e.g. fifty most frequently used) properties for all meetings and events. Additional negotiations may increase the amount of this discount at the time of sourcing. ABC Chain agrees to waive fees for small groups fewer than 20 attendees at these properties if the group under 20 requires breakfast and lunch in the same room and up to one breakout room, booked through the ABC Chain global sales organization team.”
5. “Mature” Stage of SMM: The organization may develop a master services agreement to be used that integrates both travel and meeting services. The organization’s leaders expect that the hotels will recognize the “total volume” of all spend, not just the transient, or only the group volume.
“The Hotel and (the Buyer) shall meet quarterly following the execution of this Agreement to review whether the relationship between the parties is proceeding as envisioned; whether (the Buyer’s) requirements are being fully met by the supplier for transient and group business; whether changes to the fees for Services are appropriate in light of then-current service alternatives and pricing available from Supplier and its principal competitors in the marketplace for similar services comparable to the Services being provided to (the Buyer) hereunder. To this end, the Supplier shall work on achieving cost savings on both materials and processes, for transient and group business, and as possible, such savings shall be reflected in a reduction in price of the Services. During the quarterly review, the Supplier’s global sales organization, (the Buyer’s) travel, meeting, and procurement leaders will review strategy, resources, processes, technologies and data intelligence prepared by the Supplier.”
Exceptions to the maturity model continuum may result when an organization decides to use out-of-program properties. For example, many organizations may not include a Las Vegas property in their group preferred program; yet, Las Vegas hotels are very viable to the success of many meetings. The successful outlier properties (e.g. conference centers) will weave their way into an SMM program and create master contracts with their clients even if the properties do not belong to a chain.
When a hotelier understands how business leaders buy meetings in an SMM environment, it can strategically sell its services within the program and prepare for future contracting expectations that the organization may have.
Appendix – SCG Meetings and Events Hotel Contracting Maturity Model©
The activities below may be accomplished through the use of internal resources and/or external suppliers such as a strategically sourced meeting management organization. Please click here to be taken to the full model.
Debi Scholar, author of SMM: The Strategy Quick Reference Guide, advises clients on supply chain and expense management categories, including airlines, hotels, meetings, ground transportation, corporate card programs, and travel management companies. Before founding her own consultancy in 2010, Ms. Scholar was with PricewaterhouseCoopers (PwC) for 13 years. In her last position there, she was Lead for consulting with clients on Travel and Entertainment Expenses. She also held positions as the Meetings and Group Travel Director, and eSupport and Training Director. Ms. Scholar can be contacted at 908-304-4954 or firstname.lastname@example.org Extended Bio...
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