10 Strategies For Renegotiating A Hotel Contract In A Down Economy

In April, Experient hosted three Meetings and Events industry forums in Chicago, St. Louis and Washington DC.  Experient team members, as well as prominent association and corporate executives met to discuss and brainstorm hot industry topics.  This is the first in a three part series of articles recapping the highlights of those events.

Many organizations hosting conventions and meetings today negotiated their hotel contracts several years ago, in a strong economy.  Ultimately, perceived compression in the marketplace led to negotiated contracts with high prices and inflexible terms.

The events of the past year changed all that.  The current economic recession has been devastating to the Meetings and Events business.  Recent record occupancy levels have now transitioned to a soft marketplace with a glut in hotel room inventory available due to cancellations and event rightsizing.  Conventioneers have more competitive choices in their hotel selection process than ever before.

What does this all mean?  Essentially, it means you, as a meetings & events professional must review your organization’s hotel contract commitments and renegotiate terms no longer competitive, or relevant to the current marketplace.  At the forums mentioned above, participants exchanged ideas on how to address this issue.  Here are the ideas presented:

Strategy #1:

Prioritize issues – Meet with key stakeholders (Direct Manager, Decision Maker, etc.).  Create a list of event challenges and reach consensus regarding what is greatest priority to your organization.  Make sure your core team, including executive leaders are all on the same page as to what is most important!

Strategy #2:

Understand the complete value of your event – What revenue opportunities does your event generate to the hotel?  What is the economic impact on the city?  Recognizing the overall financial profile of your event enhances your credibility and positions you for successful negotiations.

Strategy #3:

Seek a “Win-Win” Solution — when developing your solution set consider the hotel’s challenges/opportunities as well as your own.  Brainstorm solutions that make business sense for all parties.  If you ask for a concession from the hotel, be prepared to offer something in return.  For example, if reducing your room block, offer to release proportionate function space back to the hotel.  This enables them to resell the (released) rooms to another organization.

Strategy #4:

Commence Negotiations ASAP — the further out from your contracted dates you initiate discussions with the hotel the more likely you will be successful in your negotiations.  Your due diligence will demonstrate good faith to them.  Greater lead time provides more of a cushion for hotels to respond and adjust.

Strategy #5:

Mitigate Revenue Loss! — a reduction to the scope of your event more than likely means a loss in forecasted revenue for the hotel (depends on timing of discussion).  Brainstorm ideas on how to mitigate that loss!  Remember if your room block is reduced that will have an incremental impact on your food and beverage spend as well.

• Are there other meetings or events that could be placed in the hotel for current or future year?
• Can your organization consider repeat booking of same event in future year at this hotel?
• Leverage Third Party firm — if you utilize a firm of this type for sourcing, they may be able to place a “new” event from another customer in the affected hotel making up the revenue shortfall.

Strategy #6:

Ensure Critical contract clauses are in place — verify the following are in your contract:

• Room Block review dates – at strategic intervals  (ie 11 months, 6 months and 3 months out) conduct review of room block with hotel and as appropriate make mutually agreeable adjustments to the room block.  The final attrition obligation measurement should be based upon the final room block agreed to at the final review date.
• Room Rates and Rate Protection Clause — If the rates currently confirmed in your contract are not competitive with the marketplace then a rate reduction must be made.  A “rate protection clause” ensures the room rates being provided to your attendees are the lowest available rates at your contracted hotel over your event dates, regardless of distribution channels.    The one exception to this would be a special program already in place such as an airline rate agreement. If a lower rate program is offered to someone else, it must be made available to your attendees as well.  A terrific resource for checking the integrity of room rates is a Hotel search engine site located at:  http://www.hotelscombined.com.
• Room Block Audit clause — Your organization has the right to compare its registration list against an in-house hotel reservation listing, to determine if any attendees have booked their reservations outside the contracted block (called “ROB”).  For any ROB rooms found, your organization should receive full credit for them with regard to attrition obligation, or for complimentary credits (usually figured by a formula based on room nights picked up).
• Attrition clause – performance obligation should be measured on cumulative pickup (total room nights), not on a per night basis.  Attrition fee should be based upon lost profit, not gross revenue  (room profit is typically 75-80% of gross revenue).  The rationale behind this is it is not costing the hotel any of its labor expense to service a room not occupied.
• Cancellation Clause – Add contract provision stating if your organization cancels, the cancellation fee may be mitigated by contracting replacement business with comparable or greater value, occurring within 12 – 18 months of the originally contracted dates.

Strategy #7:

Negotiate a “Tiered Rate” Structure — As a promoted incentive for attendees to make their hotel room reservations earlier, provide them with an “early bird” lower rate.  Once the early bird deadline has passed the hotel room rates are increased.  Note:  Several participants at this forum event  utilized this strategy and it has worked very well for them.

Strategy #8:

Negotiate “soft money” incentives — from hotel to assist in driving utilization of room block. (Free Internet, Dine around coupons, spa pass, dinner certificate in restaurant, etc.)  These items could be positioned as a “drawing” held at a certain date, and all attendees booking at the sponsoring hotel would qualify.

Strategy #9:

Inform Hotels Regarding Your Event’s Business Rules – explain action steps to drive attendee usage of the hotels room block.

• Housing and registration driven  by one another — attendees can not register without utilizing the official hotel for housing.  Alternative is reduced registration fee for using official housing.
• Email Blasts — share your schedule of scheduled marketing pieces being distributed to potential attendees promoting the event and the hotel.
• Exhibitors — business rules regarding sub blocks and deposit/cancellation requirements ensuring integrity of room block usage.

Strategy #10:

Utilize the support of Hotel NSO’s (National Sales Offices) and CVB’s (Convention & Visitor’s Bureau) — These folks have a “big picture” focus of their brand’s relationship with your organization and may be a valuable ally to assist you with a difficult negotiation.

Do any of the ideas/best practices presented in this article have application to your organization’s situation?  Do you have alternative thoughts/perspectives to share based upon your own experience.  Please share them with us!