Buyers Push Standard Addenda

A growing number of corporate meeting buyers are attempting to use standard addenda in their contracts with meeting vendors to protect their companies from risk and mitigate fees and surcharges, according to an exclusive survey of 220 corporate meeting buyers. However, since acceptance of these addenda is negotiated on the property level and are dependent on local market conditions, consultants said their effectiveness is limited and even could be risky for companies that rely too heavily on them.

Buyers, however, said these addenda are part of overall corporate mandates, driven by procurement or legal departments, and that many hotel contracts are out of date, useless or insufficient.

Nearly one-third of respondents said their companies use a standard addendum in meetings contracts, and another 9 percent said their companies planned to begin doing so in 2006. Cancellation and food & beverage clauses were the most common elements of these addenda, but the majority of standard addendum users include clauses on fees and surcharges, attrition, audiovisual services and payment.

Most respondents, 77 percent, said their vendors had not changed their flexibility on the use of a standard addendum during the past year—but 17 percent of buyers said their vendors had become less willing to accept riders. Buyers said local market conditions and relationships with suppliers drive vendor flexibility.

"The big thing with any kind of addenda or rider is that you have to get the other side to agree to it," said hospitality industry attorney Jonathan Howe, who is president and senior founding partner of Chicago-based Howe & Hutton Ltd.

In general, standard addenda eventually are accepted after some negotiation between both parties, he said.

"It can be a seller's market at certain times of the year and a buyer's market at certain times of the year and it depends on what kind of program you're bringing or event you are sponsoring," according to Howe. "Corporate meetings are being made at the last minute, as always, and in that respect you don't have a lot of negotiating room unless and until you're aware the hotel doesn't have as many people in the house as they'd like."

Nancy Garner, global travel procurement manager for Santa Clara, Calif.-based Extreme Networks Inc., said her company includes a standard contract in requests for proposals sent to hotels. By including the standard contract up front, hotels know that if they want business from the high-tech switch manufacturer, they must agree to the contract terms, she said.

"It works wonderfully for us, because then we don't have to waste time going back to the attorneys. The only time we have to go back is if they want to put something else in there," Garner said.

If changes need to be made, the preferred method is to use Extreme Networks' contract as a base, she said, because many hotel contracts are out of date. The travel and legal departments collaborate on a yearly review of the company contract, she added.

"A lot of times, hotels don't like it. They want to use their own," Garner said, "but their own is so confusing, so old and so outdated as it is. So we say: 'If you want to spend eight to 10 weeks having our attorneys look at yours, fine—but we can't commit to anything until our lawyers review the contract.' "

Garner said negotiations over the use of standard addenda and contracts are frustrating. Acceptance of the company's contract depends on market conditions.

"If they want to get that meeting in, they'll do it. When times are harder, they'll do anything to get that group. When it's easier for them, it's another story," she said. "Really, 99 percent of the time when their contract comes through, our lawyers are tearing it up. They have old contracts that they haven't updated and the terminology is so outdated it just doesn't apply."

Hospitality industry attorney Steven Rudner of Rudner Law Offices holds educational sessions at industry events on the risks associated with standard contract addenda. Rudner said he has seen numerous flaws in such typical meetings contract addenda as noncompete clauses, confidentiality provisions, indemnification and limitation of liability. The problems center on the legal wording of these clauses, he said, which leave too much room for interpretation or are worded in a way that actually puts both parties at greater risk for litigation. Rudner said 10 percent of master meetings contracts on the market have fatal flaws and the majority are in need of repair.

Industry attorney Howe said corporations most often put themselves at risk when they do not eliminate conflicting clauses. If two cancellation clauses are agreed to—one in the regular hotel contract, and another in the corporate addendum—which clause is used?

"The big issue is if you're doing a rider, you make it very clear at the get-go that the rider takes precedence over anything in the contract," Howe said, adding that lawsuits over these types of contractual conflicts are usually settled out of court.

Tony Pastor, site and contract specialist for New York-based consulting firm McKinsey & Co., said the firm has used a standard addendum in meetings contracts for 15 years.

"I've always felt that hotels are pretty flexible in adapting to it. What's important is that it's read and understood and that hotels just don't blindly sign things," Pastor said. "It's important for both parties to truly understand what the expectations are and then follow through."

Pastor said he works both with national sales offices and property-level sales staff in negotiating a standard addendum. Smaller chains are preferred and generally more accepting of a standard addendum, he said. Conference center chain Dolce International agreed to use McKinsey's addendum at all of its properties.

"There's fewer owners involved, and fewer people, so smaller chains can be a little more forceful in dealing with their 'family,' so to speak," Pastor said. "In huge chains, there's no way they can guarantee that for you."

Several departments at the company source meetings, Pastor said, and so each department uses a different version of the McKinsey addendum. The addendum in his department is reviewed annually.

"Most of my programs are 30 to 40 people, so I don't need a special agreement that, for example, sets special rates for storing boxes. I don't need to negotiate free parking. I don't negotiate for upgrades—I wouldn't use them. It's a matter of negotiating for what you want," he said. "I absolutely want a clause that says, 'Here's the meeting rooms we've agreed on and you aren't going to change these.' That's a bitter pill for some hotels to swallow."

Pastor said he chooses from a long menu of company-approved clauses when drafting an addendum. Hotels use a similar system in contracts, he said, and also use different versions of the same clauses depending on demand or whether the client is a preferred partner.

The real danger is when buyers and hoteliers overlook duplicated and competing clauses with addenda, Pastor said.

"Which do you follow? Of course, the parties will want to follow whichever is most favorable to them, since there may not be a rule of law that decides. If it were a big enough issue, say a cancellation clause with big money, then at the end of the day you might be having a judge decide for you and that's not something you want," he said.

Many addenda include a provision that when a conflict over duplication arises, the corporate addendum takes precedence, but Pastor said that doesn't let buyers off the hook.

"If the hotel hasn't noticed it, that's not good, because a contract is really something you never want to have to use after the meeting," he said. "You don't want to have a situation of a win in court—that means you failed."

Some hoteliers, weary of the expense in time and cost of negotiating standard addenda, have invested in creating their own standard meeting contracts and in training sales staff on the acceptance of company-specific clauses.

Chicago-based Hyatt Hotels Corp. also has seen about one- third of corporate meeting clients negotiate with standard contract addenda, said Fred Shea, vice president of sales operations.

"It requires us to have significantly more training to deal with these addenda. Some of these are specific clauses that they're looking to add in. They are business clauses specific to their company or their needs. Where it gets to be a problem is that a lot of these addenda are the corporation's clauses that are in conflict or are redundant to clauses already in our contract," he said.

During the past few years, the occurrence of conflicting clauses has declined because Hyatt has worked to incorporate trends it sees in addenda language or clauses into its standard meetings contract, Shea said.

"Our contracts got bigger a couple years ago and we added more legal concepts," he said. "It helped us to reduce some of the addenda."

The most troublesome addenda are drafted by corporate legal departments as a general rider onto all contracts, he said. These addenda are often a legal laundry list, with clauses that have nothing to do with hotels. "We've had medical companies with an addendum covering how you handle needles on the floor," Hyatt's Shea said. "They cover everything."

The meetings industry doesn't necessarily need one standard contract, but it certainly needs more education on contractual language, and definition of clauses, he said. Suppliers need that training as well, so that property sales staff can handle basic addendum negotiations quickly. "If it's something that a customer is going to come to us with every time," Shea said, "we would just as soon negotiate it and build it right into an agreed contract between us and that company."