Cos. Shift Hotel RFP Season

By Bruce Serlen

Many travel buyers plan to kick off their 2005 hotel negotiation process two to three months earlier than usual this year in order to lock in more favorable terms or prevent last-minute rate loading problems.

In recognition of this trend, the hotel committee of the National Business Travel Association released the latest version of its electronic request for proposal format in February, rather than waiting until its annual meeting in August as originally planned.

Several buyers, consultants and hotel industry sources who spoke about the move to start the hotel RFP season earlier this year, noted the new approach comes as demand for hotel rooms is rising significantly for the first time in three years. However, by beginning room rate negotiations as early as August or September, buyers hope to obtain still-attractive rates before their hotel partners' potentially raise the stakes by November and December, when these negotiations traditionally occur. Additionally, for buyers who continue to be frustrated by inaccurate and untimely rate loading, starting the request for proposals process early and finalizing rates by mid-November offers their hotel suppliers six weeks to load the rates correctly before they take effect Jan. 1.

Teresa Powell, senior manager of corporate travel services, at Health Care Service Corp. in Chicago, expects to start the process by late-June. "To save time this year with the bid list, we're going to be sure we pre-select properties that fall within a fixed distance of our offices, so we're not including hotels 10 or 15 miles away," she said. "Rates clearly are going up. By starting early, we may be in a better position to negotiate. We did a number of two-year contracts for 2003-2004 and locked in rates, but those agreements now are coming up for renewal. Should the rates we're able to get be appropriate, we may be interested in doing that again for 2005-2006."

Similar to Powell's company, Macromedia's hotel program is midsize, which means travel manager Yasuo Sonoda will have limited negotiating leverage from the start, given the number of room nights and cities being negotiated.

"We're going to send out invitations to bid this year in August, but understand that for us any negotiating leverage from starting early is market based," said Sonoda, who is based in San Francisco. "In such markets as San Diego and San Francisco, we may be able to lock in rates earlier because occupancies are still soft and they're adding supply, but in a market like New York, for example, there'd be less opportunity for us."

For Brian Nichols, hotel and ground transportation manager in the strategic procurement services group at Deloitte in Wilton, Conn., an early start date ensures timely rate loading. "We'll back into a start date by asking our major hotel suppliers what date they need acceptances in order to have rates loaded by Jan. 1," he said. "In order to make the Jan. 1 date, they likely will need the acceptances in November. We then set our RFP process start date and timeline accordingly."

Rick Wakida, global travel manager for Openwave in Redwood City, Calif., will distribute bid packages in August, but expects to pick up additional time by accelerating the process along the way. "Our goal will be to finish earlier in November than usual," he said.

A wild card for Wakida this year will be consortia rates, which always had been fixed, but now are moving toward a dynamic, floating model. "How will companies benchmark, if hotels can't provide a consortia rate—unless you're strictly basing negotiations on your current rates," he said.

Erin Barth, vice president of global procurement services at JPMorgan Chase in New York, was planning to send out the RFP in July this year, but will wait until after the August NBTA meeting because of internal issues at her firm. "Buyers for years sent RFPs in September or October and asked for a quick turnaround. Given that our program is global, we prefer to send them out earlier and like to give the hotels at least 40 days to respond because of all the international properties," she said.

There can be communications issues to clarify, plus August is a popular vacation month in many destinations. "Then as soon as hotels set their pricing, negotiations can begin because they'll already have received the RFP," she said. "Hotels in the domestic program aren't as affected by this."

Like Deloitte's Nichols, Barth prefers the negotiations to be completed by November. "After that, it gets too tight, considering the time it takes to load the rates."

Historically, people thought of rate negotiations as a 90-day process, but no longer.

"Buyers and hotels today realize that it's just too complicated for that," said Alison Guilbeaux, director of business development in the hotel consulting division of WorldTravel BTI in Atlanta. "Four or five months is more realistic, so it's not surprising that buyers want to start earlier."

In an environment where rates are going up, it makes sense that buyers will try to get better pricing by negotiating earlier, said Joe Carino, president of hotel representation firm The Carino Collection in New York. "Hotels often want a base of corporate business locked in early, so they can take greater risks with the remainder later on," he said. "Rate loading goes hand in hand with getting rates finalized earlier. It's a value-add over and above getting better rates."

Depending on the situation, buyers are not assured of ending up with better rates because they completed negotiations early, according to Mario Sagastume, senior vice president for business development at Lanyon, which provides third-party support on RFPs. Yet, buyers can benefit from having the time to track down RFP omissions. "Hotels often provide incomplete answers, and the system may not accept the submission," Western Springs, Ill.-based Sagastume said. "Consequently, if it's a property buyers want to do business with, they have to pursue the property to get the full answer."

In many cases, it frequently is the larger account that gets special pricing consideration. "If hotels have a big client that's a consistent client, hotels tend to be more likely to give them the breaks, regardless of timing," said Jo Ann Baynes, president of Uversa International, a third-party vendor in Fairfax, Va.

In already posting its latest RFP version on the NBTA Web site, the hotel committee sought to benefit hotels and third-party providers in addition to buyers. "Considering that the changes for 2005 are significant, hotels and suppliers needed time to realign and reload their databases," said Beth Caligiuri, chair of the NBTA hotel committee and procurement manager for travel at Coca-Cola in Atlanta. "There's now no reason why they won't be prepared when the buyers are ready."