Avoid These Common Contract Pitfalls
01/18/2024
By Maura Keller
Navigating and negotiating contracts within the meetings and events sector is part art, part science. The complications that can arise with contracts — cancellations, delays and force majeure clauses — can leave meeting planners scratching their heads and wondering if they have covered all facets of a given contract.
Carmen Smalley, CMP, CHE, lead instructor of hospitality and event management at Milwaukee Area Technical College, says the key to any vendor contract is to make sure you’re mitigating risk. She believes it’s up to the planner to make sure that, if the group were to underperform or cancel, or something else happens out of the planner’s control, the contract clearly outlines each party’s responsibilities.
“Although it seems oversimplified, make sure your dates, times, rates and deadline dates discussed are correct on a contract,” Smalley advises. “Also make sure that any concessions that were negotiated are also included. Sometimes we get so caught up in reading the legal jargon, we forget to check these items to make sure they are correct.”
Depending on the group or company, other clauses or additions to consider may include the condition of the premises, a photography release, non-compete clauses or a proprietary clause.
Leigha Schatzman, executive director at the Association for High Technology Distribution (AHTD), recommends planners allow time for venues to ask questions about the request for proposal (RFP). “Take the time and slow down when it’s time to review and negotiate the contract,” she advises.
Schatzman also says she feels the best about contract negotiation not only when it is completed, but also if she’s been able to share her association’s pain points with her partners so that the contract can accommodate those issues when possible.
“While we are all so busy, it’s critically important to take the time to establish a good relationship through a site visit or Zoom call,” she says. “We are a people industry after all. It’s during this relationship-building time that I can learn where a hotel can flex to help my association. I want both sides to feel great about the contract. I want everyone to stay in business and thrive in our industry.”
SIX KEY PARTS TO CONTRACTS
- Payment information
- A cancellation or termination clause
- An indemnification or insurance clause
- A force majeure clause
- An attrition clause
- Dispute resolution
MAKING SENSE OF IT ALL
Often two of the most confusing items on a contact include the difference between liquidated damages and mitigated damages. As Smalley explains, liquidated is an amount agreed upon in advance of a breach of contract. Liquidated damage is an agreement between the hotel and planner for what the penalty will be for cancellation. Mitigated damages are actual damages that are proven after the breach. This penalty is not predetermined and the hotel assesses what damage it has suffered after the dates have passed.
According to Reggie Driscoll, CMP, senior meeting professional at the State Bar of Wisconsin, the key components to any contract are a documented offer, acceptance and agreement by both parties.
“This should be looked at very closely,” Driscoll says. “The cancellation terms are not always clear.”
For example, when a contract outlines cancellation between zero and 90 days prior, or 91 and 180 days prior, be sure to add the exact dates. Driscoll advises to make sure both parties are talking about actual calendar days and not business days. There is usually a dollar amount associated with this. If canceled between so many days, for example, you may forfeit 50% of the anticipated room night revenue and food and beverage revenue (or minimum).
“Once you add the dates, you want to add the dollar amounts also,” he says. “If there happens to be a cancellation, you don’t want any surprises. Sometimes for a corporation or an association, the cancellation fee figures into whether you want to move forward or cancel a program. Having the exact dollar amounts and the dates can help you make that decision.”
Meeting planners might ask these common questions: Who needs to review contracts and agreements during the event planning process? How far in advance should they be finalized?
“Ideally, the planner should have a legal team look at the contracts, and determine what risk there is to the company or organization,” Smalley says.
However, meetings are currently booking last minute, so there’s not always time for the legal department to review the contract. Or perhaps, there is no legal department on which to rely.
“As a planner, you should know the basics of each clause and what each means,”
Smalley says. “If you are unsure of a clause, ask the vendor’s rep what it means and, if they can’t explain what the clause means, have them take it out.”
Driscoll says one of the biggest mistakes planners make is blindly signing a contract and trusting the other party. “Any contract for anything — whether it is hosting an event, getting your car fixed, getting your home remodeled — is worthless if you have no idea what you are signing,” Driscoll says.
So much of our industry revolves around contract and agreement terms. Driscoll recommends planners keep a fluid document when starting out, so they can add what surprises arose between signing a contract and invoice payment after each event. This can become their own personal reference library.
“Having this to look back on can definitely help you from contract to contract,” Driscoll says. “Know that you can reach out to anyone else in the industry, whether you are a planner or a supplier. Every event has a contract. Everyone has had great wins and has also been burned by a contract. Ask around and you’ll have an opportunity to learn from their experiences.”
