Airlines and corporate travel buyers don't always agree, but
they might be unified in viewing the contracting process as time-consuming,
costly and fraught with language only lawyers understand. Driven by a belief
that there must be a better way, some large carriers are introducing more
flexible corporate contracting options to ease requests-for-proposals tedium
and streamline the typically multi-annual rite of procurement passage.
The nomenclature varies, but "evergreen"
agreements, "RFP-light" or specific airline-branded endeavors are
cast from a similar mold, wherein the terms, conditions and boilerplate
legalese are retained from agreement to agreement. That allows buyers and
airline sales personnel to focus exclusively on the commercial terms at regular
intervals. While several buyers welcomed efforts to make dealmaking less
cumbersome, some procurement hardliners are skeptical.
"It's in its infancy stage," said Advito vice
president Bob Brindley, who advises corporate clients on airline contracting. "Some
carriers and clients have realized it's a real pain to have to negotiate and
renegotiate these programs, and if you really do have a good relationship with
a carrier and you know it's going to be one of your anchor carriers, then you
can basically have an evergreen contract—the boilerplate of it is evergreen,
but there's the ability to adjust pricing as necessary or to adjust what
markets it applies to."
So far, it does not appear airlines are deploying the
evergreen approach as an across-the-board standard, instead using the
contracting method on a limited basis.
Several buyers pointed to United Airlines as a pioneer. In
conjunction with its joint-venture partners, including Air Canada, Lufthansa
and All Nippon, United this year officially launched evergreen
contracting—called the Master Corporate Travel Agreement—and already has worked
through such deals with a "handful" of corporate clients, said
managing director of worldwide sales resources Chuck Crowder. The concept
emerged from exchanges with clients at the airline's advisory meetings, and "feedback
on ways to improve and streamline the business," said Crowder. "We
are trying to separate legal terms from the commercial terms because that tends
to take up a lot of time going back and forth in the negotiation process."
Considering this year represented the first cycle in which
United promoted the Master Corporate Travel Agreement, negotiations still
necessitated those lengthy legal reviews.
"When those commercial terms expire, we would just
renegotiate those with the global travel manager or the procurement team, but
the underlying legal framework would still be there and not have to be
negotiated," said Crowder, who expects a speedier contracting pace next
round.
He stressed that United is not imposing the structure on
clients, but providing an option. "This isn't going to be the right way to
go for every corporation," he said. "This isn't, 'You must take this
or you get nothing.' We're very flexible with that." Additionally, Crowder
said "evergreen" doesn't necessarily mean ad infinitum, as clients
can determine end dates for the legal framework, "depending on what 'evergreen'
means to the corporation—that could have no end date, or they may want to put
some end date on that in terms of years. We're willing to work with that as
well."
One corporate travel buyer working with United on one such
agreement supported the idea, expressing to Travel
Procurement a desire to get away from "these fairly comprehensive, 30-
to 40-page RFPs." The buyer requested anonymity.
Advito's Brindley said that's the appeal: "You get out
of the RFP cycle, you get out of this huge problem of having to get things
approved by legal," while preserving the ability to "adjust
commercial terms on a certain schedule—maybe an annual or a quarterly review.
It gets you out of the need to continually take the program out to RFP every
time."
Declining to affix the "evergreen" label to his
carrier's evolving contracting, Delta Air Lines vice president of global sales
Bob Somers said the "concept speaks to a bigger issue: the needs and
requests of all of our customers are different, and we have to respond to the
customer's unique needs." Without giving specifics, Somers said Delta
already has taken stabs at "simplifying the contracting process," and
continues to "make that easier by being more flexible."
Brindley noted that "in other industries, it's common
to have an evergreen-boilerplate contract" with the ability to revisit
commercial terms.
The concept is emerging in other travel procurement
categories, too. Advito ground transportation consultant Bill Knepper pointed
to some rental car firms testing the waters on evergreen agreements. Avis
Budget Group North America president Tom Gartland applauded the concept, though
added that his company isn't yet pushing the model on clients.
Lockheed Martin global travel and event services manager
Mark Stansbury said he heard the "evergreen" term used most when he
was working on corporate IT agreements. Though he hasn't heard it much in the
travel space, Stansbury said he has engaged with preferred airlines in a
broadly similar approach. "What we've done with the airlines is an
RFP-light," he explained. "We've instructed the airline to keep all
the terms the way they are, let's use the existing agreement as a baseline, but
then modify the commercial terms, so we don't have to do all the legalese
again. We've done that for a few years now."
Stansbury has warmed to the concept. "You don't want to
have to recreate the wheel every time," he said. "Even on the
commercial side, you might have terms in place that are doing very well, and
you're meeting your commitments, so you might not want to touch that. But maybe
over here you're having some issues or want a bigger discount in a certain
market or maybe you want to add city pairs. It eases with negotiation. When you
recreate the wheel, the airlines will change every term in the contract."
Still, the approach isn't ideal for every company, airline
or contract. "The concept obviously works best with airlines that are
fairly stable in a corporate program," according to TCG Consulting partner
and air practice director Barry Rogers. In such cases, he said the evergreen
practice "makes a lot of sense," since the legal review of agreements
not only takes extra time, but requires legal resources within an organization,
"which may not be easy," or necessitates outside help, "which
may be expensive."
"Some airlines, like Singapore, have been doing it for
some time," according to Rogers. "Others, like Delta, have been
moving in that direction. One of the challenges is that many of the joint
ventures have changed their standard contract language in the last year or so,
requiring it to be reviewed."
Welcoming contract simplification, Nestlé group procurement
manager Marc Zuber wrote on a Global Business Travel Association message board
that eliminating "the need to go through the entire RFP process"—especially
legal and contractual reviews—"would make our lives simpler."
Others aren't sold. Philips procurement commodity cluster
leader of travel and leased vehicles John Guarneri said he opposes evergreen
agreements, noting, "If we don't test or go to the market every three to
five years, we aren't doing our job." After all, "evergreen"
assumes commercial terms will be in place for the next contracting cycle.
"Regarding the notion of agreeing to T&Cs that
rarely change, I don't really buy that," Guarneri added, noting that a
constantly changing world requires the procurement department to be "always
updating our T&Cs."
Similarly, Ascend Performance Materials indirect procurement
leader Tom Barrett said, "As a general rule we won't sign evergreen
agreements." But he suggested that those who do should "confirm
termination rights," including, for example, a 90-day termination
provision without cause. When an evergreen agreement includes commercial terms,
Barrett said to be wary of any "escalator clauses generally not favorable
to a customer."
This report
originally appeared in the August 2013 edition of Travel Procurement.