Crisis Shakes Mtg. Contract Terms

Buyers may see conflicting attitudes from hotels regarding cancellation and attrition terms, with some properties more lenient to fill space but others anticipating a more volatile meetings market and trying to hold firm on their terms.

The current financial crisis not only heightens the risk of meeting cancellations or limited attendance but also has raised the importance of negotiating a contract that offers protection should such a situation occur. In such situations, "attrition becomes even more important. You don't know if your company will suddenly be downsized and your sales meeting is going to be 25 percent less than it was a year ago," said Darin Howard, senior buyer in the procurement department of Carlson Marketing.

With future meetings uncertain, buyers may find some hotels more amenable to negotiate attrition and cancellation. In certain situations, "we're seeing the same terms with a little bit of flexibility," said Bjorn Hanson, associate professor at New York University's Tisch Center. "This is the hotel industry saying, 'We understand you can't be as certain as you were. We have to have these provisions, but we'll try to understand your unique situation now.' "

However, other hoteliers, seeing the same uncertainty, could hold firm. "Hotels have become more difficult and are becoming more strict on conditions, specifically around attrition and cancellation," said Mary MacGregor, vice president of marketing and business development for BCD Meetings & Incentives. "It's primarily because they feel bookings are potentially volatile and they want to secure their condition and occupancies. They're really interested in ensuring that once a or a group is booked, they remain as committed as possible to holding that event."

Hotels anticipating a recovery in the future may be less flexible in negotiations for longer-term meetings, said Tony Wagner, vice president of meetings and events for Carlson Wagonlit Travel North America. "They're trying to hold back their willingness to negotiate those clauses or reduce rates for far advance bookings," he said. "If we're looking at 2010 or 2011, they may hold back because they don't want to have a self-fulfilling prophecy that the market will decline. Three- to six- to nine-month lead times—that's where you're getting a bit of flexibility on the property level."

While American Express hasn't seen more hotel attrition and cancellation leniency, opportunity exists in smaller markets. "In some markets that have weaker demand, you can get lower pricing and better terms and conditions," said Frank Schnur, vice president of advisory services for American Express Business Travel.

Should a cancellation be necessary, buyers should come prepared with future business to mitigate charges. "If you cancel, the seller is hurt, and if you have opportunities to mitigate those damages even further than what was negotiated in the original contract, you can easily go back and ask them, 'If I can give you X, Y and Z, would you waive the original conditions of the contract?" Howard said. "You have to know the value of the business that you have canceled, so that you know the damages that you've caused the hotel, but then you also have to know the value of future opportunities."